Williams-Sonoma Falls Despite Upbeat Q3 Results

Shares of home products retailer Williams-Sonoma (WSM) dropped 7.7% in Thursday’s extended trading session and further 8.5% at the time of writing, even though the company reported stronger-than-expected Q3 results.

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Quarterly revenues stood at $2.05 billion, up 16% year-over-year. Also, the figure surpassed the consensus estimate of $1.97 billion. While Pottery Barn revenue rose 15.4%, West Elm sales went up 22.1%.

The company reported adjusted earnings of $3.32 per share, which compares favorably with $2.56 per share reported in the same quarter last year. Meanwhile, the earnings surpassed the Street’s estimate of $3.08 per share. (See Williams-Sonoma stock chart on TipRanks)

Q3 gross margin expanded 370bps to 43.7% on the back of higher year-over-year merchandise margins and occupancy leverage.

The President and CEO of Williams-Sonoma, Laura Alber, said, “As we enter the fourth quarter, we are seeing strong sales and margins continuing. We are thrilled with our customers’ response to our holiday and gifting assortments, and we are ready to drive an outstanding finish to the year. With our strong results to date, our winning positioning in the industry, and our outperforming growth strategies, we are more confident than ever in the long-term strength of our business.”

Guidance

The company has raised its revenue guidance for 2021. It expects net revenue growth of 22% to 23% against the previous guidance of high-teens to low-twenties. Williams-Sonoma continues to expect its adjusted operating income margin to be between 16.9% to 17.1%.

In the long-term, Williams-Sonoma expects net revenue growth of mid-to-high single digits with adjusted operating margin at fiscal year-end 2021 levels.

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Stock Rating

Following the release, Wells Fargo analyst Zachary Fadem maintained a Hold rating on Williams-Sonoma with a price target of $205 (6.4% downside potential).

Fadem note, “While WSM’s initiatives are clearly firing on all cylinders and management talks a great game on LT opportunity, we can’t help but feel cautious up here. EBIT margins are +800bps vs. 2019, demand levels are unprecedented and with margins showing some signs of vulnerability into tougher compares, we see increasingly higher FY22 risk.”

Based on 4 Buys, 7 Holds and 4 Sells, the stock has a Hold consensus rating. The average Williams-Sonoma price target of $195.33 implies 10.8% downside potential from current levels.

Bloggers Weigh In

TipRanks data shows that financial blogger opinions are 100% Bullish on WSM, compared to the sector average of 69%.