Williams Sonoma Posts Solid Earnings

(Sundry Photography)
(Sundry Photography)
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Yesterday after hours, Williams Sonoma (WSM) reported quarterly earnings. Our coverage analyst, Shant K, takes us through the report today.


Key Takeaways

See the earnings release here.

  • Consolidated Q4 Revenue was $2.581 billion, slightly below expectations.
  • Q4 Net Income was $402 million, beating the consensus estimate of $364 million.
  • A new buyback program was announced and the dividend was raised by 10%.

Company Overview

  • Williams-Sonoma is a consumer retail company.
    • Primary products include kitchenware and home furnishings.
    • Owns the brands Williams-Sonoma, Pottery Barn, West Elm, Mark and Graham, and Rejuvenation.

Q4 Earnings Highlights

Operational

  • Williams-Sonoma, Inc. (NYSE: WSM) announced today that its Board of Directors has authorized a 10% increase in the company’s quarterly cash dividend to $0.78 per share. 
  • The Board of Directors also approved a new $1.5 billion stock repurchase authorization
    •  Replaces the $750 million that remains outstanding under the company’s current stock repurchase authorization.
  • Supply chain congestions continue to persist, resulting in backlogs of orders and suboptimal inventory levels. 
  • Had a net closure of 33 stores, reducing the overall store count to 544.
    • This is part of WSM’s broader strategy to optimize store locations and concentrate on the e-commerce segment of the business.


Financials

  • Net sales of $2,501 million in Q4, up 9% YoY
  • Net sales of $8,245 million in 2021, up 22% YoY
  • Operating income of $524 million in Q4, up from $402 million in the same period last year
  • Operating income of $1,453 million in 2021, compared to a net loss of $910 million the previous year.

Results by subsidiary:

  • Poetry Barn:
    • Q4 sales: $921 million, up 16% YoY
  • West Elm:
    • Q4 sales: $598 million, up 18.3% YoY
  • Williams Sonoma:
    • Q4 sales: $552 million, up 4.5% YoY
  • Pottery Barn Kids and Teen:
    • Q4 sales: $314 million, down 6% YoY
  • Mark and Graham, Rejuvenation, and other:
    • Q4 sales: $116 million


Management Commentary + Guidance

Laura Alber, President + CEO

  • On the primary challenges facing the business
    • “…unprecedented challenges within the supply chain, material and labor shortages and capacity limitations from our incredible consumer demand.”
  • On differentiation
    • “In-house design, our digital-first channel strategy and our values, continue to provide the framework for execution both in our core business and in our growth areas like B2B, Marketplace, cross-brands and our global business…B2B is an underserved and fractured industry as we continue to take share in this white space, servicing businesses that need high-quality, sustainable furnishings at good price points.”
  • On the B2B business
    • B2B grew over 100%, and it just continues to go. So our stadium and arena work continues to build momentum. We had big projects for the San Diego Padres and the New York Mets. In hospitality, we’re seeing a promising and encouraging return of our large Marriott brand standard business. In health care, we’re building a strong relationship with a big account”
  • On future growth avenues
    • “While new customer acquisition is always a priority and continues to grow, we believe we have even more upside by increasing our share of wallet with our existing customer base.”
  • On the transition to a digital-first company
    • “We’ve improved several product finding and purchasing experiences on our website, from improved room styling, native registry applications and the removal of friction in the checkout process.”
  • On supply chain disruptions
    • “We were not entirely immune to the ripple effect from delays resulting from the supply chain disruption around the world. In particular, the shutdown in related backlogs from Vietnam had a larger impact on our children’s home furnishings business, which ran a negative 6.1% comp for the quarter. Unfortunately, we expect to feel this impact at least through the second quarter this year.…[Disruptions had] a decent impact on the fourth quarter, unfortunately.
  • On inflationary pressures
    • “Of course, costs have gone up. And so we — not only did we stop site-wide promotions, but we’ve strategically taken price increases carefully where we could. And if prices to us come down, we would give our customers a break on some products because we always want to offer them the best value…Our perspective is that this year [inflation is] going to be about the same as last year, and we thought nothing could be worse than last year. So I would say it’s as bad as last year.”
  • On the retail optimization strategy
    • “[It’s] really working. We’re seeing the new stores, the remodeled stores beat our expectations, and we’re seeing better transfer from the closed stores. And then our fantastic real estate team has — last year, I mean we renegotiated 90% of our leases that came up for renewal.”

Valuation + Analysis

  • Williams-Sonoma (WSM) is trading around $155/share as of writing.
  • At $155/share, CNR trades at an enterprise value of $11.1 billion.
  • Based on analyst estimates, WSM is trading at 7.1x NTM EBITDA based on analyst forecasts prior to the earnings report.
  • The fact that supply chains are as congested as last year could signal that such trends will persist throughout companies with international supply chains. 
  • WSM’s limited pricing power, as noted by management, will limit its ability to maintain margins in an inflationary environment. The growth of the B2B business could provide some upside as the economy continues to reopen.
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