Williams-Sonoma, Inc. (WSM) shares initially jumped Wednesday morning after the home furnishings retailer posted third-quarter results that topped expectations, then gave up those gains and traded lower by day's end. Sometimes the market is just in a mood.
The numbers themselves looked pretty good. The company delivered diluted earnings of $1.96 per share versus the $1.86 estimate, while revenue reached $1.883 billion against a forecast of $1.866 billion. Comparable brand revenue climbed 4.0%, and diluted earnings per share rose 4.8% from the same quarter last year.
Gross margin improved to 46.1%, up 70 basis points from a year ago, thanks to higher merchandise margins and supply chain efficiencies. That's the good news.
Brand Performance Shows Mixed Momentum
Across the company's portfolio, performance varied by brand. Williams-Sonoma itself posted the strongest showing with revenue of $276.4 million and comparable store growth of 7.3%. Pottery Barn Kids and Teen generated $291.4 million with comps up 4.4%. West Elm reached $468.2 million with a 3.3% comparable sales increase. Pottery Barn, the largest brand, brought in $741.5 million with a more modest 1.3% comparable sales gain. Other brands contributed $105.2 million to the total.
Operating expenses tell part of the story. SG&A expenses increased 7.0% to $549 million, representing 29.1% of revenue. Operating income held steady at $319 million with a 17.0% margin.
The balance sheet looks solid. Williams-Sonoma ended the quarter with $885 million in cash and generated $316 million in operating cash flow. Inventories increased 9.6% to $1.5 billion, though management noted this reflects both incremental tariff costs and a strategic decision to pull forward receipts.
The company returned $347 million to shareholders during the quarter through $267 million in buybacks and $80 million in dividends. The board reported $637 million remaining under its September 2024 repurchase authorization and approved a fresh $1 billion buyback program to kick in once the current one wraps up.
Following the results, Telsey Advisory Group's Cristina Fernandez reaffirmed an Outperform rating on Williams-Sonoma with a $225 price target.
Navigating the Tariff Maze
Here's where things get interesting. Williams-Sonoma reaffirmed its fiscal 2025 revenue guidance of $7.751 billion to $7.982 billion, representing growth of 0.5% to 3.5%. That matches the $7.852 billion analyst consensus. Comparable brand revenue should rise 2.0% to 5.0%.
But the company actually raised its operating margin forecast to a range of 17.8% to 18.1%. How do you pull that off while absorbing a bunch of new tariffs? That's the multi-billion-dollar question investors are wrestling with.
The guidance now incorporates new Section 232 furniture tariffs, revised China tariffs of 20%, India tariffs of 50%, Vietnam tariffs of 20%, average tariffs of 18% on goods from other countries, and 50% tariffs on steel, aluminum, and copper. That's a lot of moving parts.
Management continues to expect about $35 million in annual interest income and a 26% effective tax rate. Longer term, the company is still targeting mid-to-high single-digit revenue growth with operating margins in the mid-to-high teens.
At last check Wednesday, WSM shares were trading lower by 2.82% to $175.65.
