Shares of Williams-Sonoma, Inc. (WSM) got a nice bump on Wednesday. The catalyst? A classic case of the market liking what it sees on the bottom line more than it worries about the top line. The home furnishings retailer reported fourth-quarter earnings that came in above what analysts were expecting, even though revenue fell a bit short. To top it all off, the company decided to sweeten the deal for shareholders with a hefty dividend hike.
Let's dig into the numbers. For the quarter, Williams-Sonoma reported GAAP earnings per share of $3.04. That beat the Street's estimate of $2.91. The revenue side of the story was a little less rosy. Net revenue came in at $2.36 billion, which was below the estimated $2.42 billion and also down from $2.46 billion in the same period last year. The company noted that last year's quarter had an extra week, which helps explain the year-over-year decline.
But here's the interesting part: if you look at sales from stores and brands that have been open for more than a year—what the retail world calls "comparable" sales—they actually grew by 3.2%. So, the business from its existing footprint is getting stronger. The company's operating income was $478 million, resulting in a solid operating margin of 20.3%, though that's down 1.2 percentage points from the prior year.
Peeling Back the Layers on Margins and Costs
When you run a business that sells physical goods, margins are everything. Williams-Sonoma's gross margin for the quarter was 46.9%, a slight decrease of 0.4 percentage points. The company pointed to lower merchandise margins and something called "occupancy deleverage" as the main culprits. On the bright side, efficiencies in its supply chain and favorable results from managing its inventory helped offset some of that pressure.
Selling, general, and administrative (SG&A) expenses actually decreased by 1.3% to $627 million. But one number that grew was merchandise inventories, which were up 9.8% to $1.5 billion. Buried in that figure is about $80 million in costs related to tariffs, a reminder that global trade policies can still show up on a retailer's balance sheet.
Which Brands Are Hot, and Which Are Not?
Williams-Sonoma isn't just one store; it's a portfolio of brands, and they performed differently. The big Pottery Barn brand brought in $838 million in revenue, but its comparable sales declined by 2.3%. Its sibling, West Elm, fared better with $486 million in revenue and a 4.8% increase in comparable sales.
The star of the show was the company's namesake brand, Williams Sonoma. It generated $579 million in revenue and saw its comparable sales jump by an impressive 7.2%. The Pottery Barn Kids and Teen segment also did well, recording $330 million in revenue with comparable sales up 4.0%. The company ended the quarter with 506 stores, a slight reduction from 512 stores a year ago.
