Why Williams-Sonoma stock was slipping today

Why Williams-Sonoma stock was slipping today
Why Williams-Sonoma stock was slipping today

What happened

Shares of Williams Sonoma (WSM -6.45%) plummeted on Friday after a warning about its long-term growth outlook marred an otherwise strong quarterly report.

As of 12:48 p.m. ET, the stock was down 7.2%.

So what

At a time when nearly all homeware retailers are struggling, Wiliams-Sonoma reported strong fiscal third-quarter results after Thursday’s close, bucking the industry trend.

For the period ending Oct. 30, its comparable sales increased 8.1%, giving the company two-year comps growth of 25% and three-year comps growth of nearly by 50%, which shows that she has continued to build on the surge she experienced during the pandemic.

Overall revenue rose 7% to $2.19 billion, beating analyst consensus estimates of $2.15 billion. The retailer, which also owns the Pottery Barn and West Elm chains, has closed 30 stores over the past year as part of its store rationalization program, which explains why revenue growth has lagged growth of its comparable sales.

Gross margin fell 220 basis points to 41.5% due to higher freight, shipping and occupancy costs, but the company gained 150 basis points on its selling, general and administrative, as it benefited from the increase in sales.

Operating profit rose 2% on an adjusted basis to $340 million, giving it an operating margin of 15.5%. However, adjusted earnings jumped 12% to $3.72 per share thanks to its aggressive share buyback program. This essentially matched the consensus estimate of $3.71 per share.

Now what

Management maintained its guidance for the current fiscal year, calling for revenue growth in the mid- to high-single digits and operating margins relatively similar to last year’s 17, 6%.

However, the company appeared to withdraw its guidance for fiscal 2024. After previously saying it intended to hit $10 billion in revenue and maintain operating margins around 17.6% this that year, management said Thursday it would not reiterate or update the 2024 guidance due to macroeconomic uncertainty.

Although short-term headwinds don’t appear to be showing in its numbers, the company appears concerned that a recession in 2023 could impact the business. Management plans to provide guidance for 2023 in its next earnings report.

The stock now trades at a price-to-earnings ratio of less than 8. Even if earnings temporarily dip next year, it is a well-established high-margin brand in the furniture industry. At the current share price, it looks like a smart bet to beat the market.

. WilliamsSonoma stock slipping today

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