Williams-Sonoma Earnings: Resilient Profit Margins Signal Operating Prowess but Valuation Is Rich

Williams-Sonoma closed its first quarter with results that handily outperformed our expectations on the profit line. While sales of $1.7 billion tracked our forecast, the adjusted operating margin of 16.6% was 290 basis points above our estimate and 370 basis points higher than last year. This was attributable to a massive 680-basis-point rise in the gross margin (to 45.4%) that was helped primarily by better merchandise margins (freight and price) and supply chain gains (lower damages). Although this allowed the firm to lift its full-year operating margin guidance to 17%-17.4% (from 16.5%-16.8% prior), this reflects the first-quarter outperformance and signals operating margins gains will be limited over the remaining three quarters of fiscal 2024.