Williams-Sonoma Overcomes Q3 Challenges

Comparable sales gains, led by West Elm, drove results at Williams-Sonoma, even if comps slipped at the company’s namesake banner and despite tariff challenges.

In the third quarter, Williams-Sonoma recorded net earnings of $74.7 million, or 94 cents per diluted share, as compared to $81.5 million, or $1 per diluted share, in the year-previous period. Adjusted diluted earnings per share came in at $1.02 versus 95 cents in the quarter a year before.

Williams-Sonoma beat a Zacks Investment Research analyst consensus estimate for adjusted diluted earnings per share by two cents.

Comparable sales gained 5.5% in the quarter year over year, with Pottery Barn up 3.4%; West Elm up 14.1%; Pottery Barn Kids and Teen up 4%; and Williams Sonoma down 2.1%.

Net revenues in the quarter were $1.44 billion versus $1.36 billion in the year-earlier period. Operating income was $101.9 million up from $94.4 million in the quarter a year prior.

In a conference call, Laura Alber, Williams-Sonoma president and CEO, said revenue growth was led by e-commerce sales, which advanced 9% and reached almost 57% of revenues. Beyond the main banners, she pointed out, emerging operations Rejuvenation and Mark and Graham enjoyed double-digit comp gains.

Alber also indicated that the company increased its focus on leveraging the strength of the retail banner portfolio through cross brand initiatives, such as the Williams-Sonoma business-to-business division, the corporate loyalty program and in-home design services, which helped drive results.

As for tariff impact, Alber said Williams-Sonoma has been working to cope with trade complications despite that impact nearly doubling quarter-to-quarter. She pointed out that Williams-Sonoma managed sequential improvement in gross margin deleverage from the second quarter. The company has been moving production out of China, renegotiating product costs with vendors in that country, and successfully taken selective price increases. At the same time, Williams-Sonoma has reduced its promotional efforts. All things considered, she said, the company is confident that the strategies implemented will offset cost pressures and deliver profitable growth.

Alber said, “The third quarter marks another quarter of strong performance. Comparable revenues accelerated to 5.5%, non-GAAP operating margins held flat to last year despite increased tariff headwinds and non-GAAP EPS grew 7.4%. Our results and continued success relative to the industry reflect that our strong value proposition of high quality, design-led, sustainable products is resonating with our customers. In a fragmented home furnishings industry, it is hard to overstate how important it has been for us to continually evolve to stay ahead of the pack and remain at the forefront of driving profitable growth. Importantly, our digital-first model is a key component of our success.”