Williams-Sonoma (Williams-Sonoma (WSM)) had a good quarter. A really good quarter, actually, and the company wants you to know that its improved outlook for the rest of the year is about operational strength, not a one-time windfall from tariff refunds.
On Wednesday, the home goods retailer reported second-quarter 2026 results that topped Wall Street's expectations. Net revenue rose 6.7% year over year to $1.96 billion, beating the $1.93 billion consensus. Adjusted diluted earnings increased 5% to $2.10 per share, edging past the $2.08 estimate. On a GAAP basis, diluted earnings jumped 42% to $2.84 per share, thanks in part to some tariff-related income that we'll get to in a moment.
Brand Growth Broadens
What's particularly encouraging is that the growth wasn't concentrated in one brand. Comparable brand revenue increased 6.2%, with all major brands contributing.
Pottery Barn, the largest brand, saw revenue rise to $770.8 million, with comparable sales up 5.1%. West Elm revenue reached $496.3 million, and comparable sales grew 6.4%. The namesake Williams Sonoma brand posted revenue of $268.8 million and comparable sales growth of 7.6%, the strongest of the group. Pottery Barn Kids and Teen brought in $297.4 million, with comparable sales up 3.5%.
Tariffs Shape Margins
Now, about those tariffs. The quarter was a bit of a mixed bag on margins, depending on how you look at it.
GAAP gross margin expanded a whopping 450 basis points to 51.6%, helped by IEEPA tariff refunds, occupancy leverage, and supply chain efficiencies. But adjusted gross margin, which strips out some of those items, fell 160 basis points to 45.5%. Tariff costs alone drove a 230-basis-point decline in merchandise margins.
The picture is similar at the operating line. GAAP operating income rose to $448.8 million, producing a 22.9% operating margin. Adjusted operating income was $338.5 million, with the adjusted margin down 60 basis points to 17.3%.
So what's behind the gap? The quarter included $167.8 million in IEEPA tariff refund income and $6.3 million in related interest. Those were partially offset by a $47.5 million vendor reimbursement provision and a one-time $10 million employee recognition expense. Williams-Sonoma also deferred another $29.3 million in tariff refund income, which it expects to recognize in the third quarter.
Cash Flow And Inventory
On the balance sheet, merchandise inventories rose 1% year over year to $1.45 billion. The company ended the quarter with 508 stores, down one from a year earlier.
Operating cash flow totaled $695.9 million during the first 26 weeks of the year, including $200.2 million in collected tariff refunds and related interest. Cash and cash equivalents stood at $1.03 billion at quarter's end. The company returned $90 million to shareholders through dividends.
Williams-Sonoma Raises 2026 Outlook
Looking ahead, Williams-Sonoma raised its fiscal 2026 guidance. It now expects comparable revenue growth of 4% to 6.5%, up from its previous forecast. Net revenue is expected to grow 4.7% to 7.2%, translating to sales of $8.17 billion to $8.37 billion, up from the prior range of $8.02 billion to $8.33 billion. The midpoint of $8.27 billion is above the $8.18 billion analyst estimate.
The company also expects an adjusted operating margin of 17.8% to 18.2%.
Here's the key point: Williams-Sonoma stressed that its upgraded outlook reflects underlying business momentum rather than its $200 million tariff refund. The company said its non-GAAP guidance excludes the refund and related interest, calling the increase "operational." The forecast assumes current tariffs remain in place, oil prices stay elevated, and the company receives no benefit from tariff refunds or related interest.
In other words, this is the company saying, "We're doing well because we're doing well, not because of a one-time check from the government." That's a confident stance, and it's backed by the broad-based brand growth we saw in the quarter.
Over the long term, Williams-Sonoma continues to target mid- to high-single-digit annual net revenue growth and a mid- to high-teens operating margin.
Williams-Sonoma Price Action
Shares were up 0.11% at $235.00 at the time of publication on Wednesday.
