Williams-Sonoma's stock sheds gains even after first-quarter profit crushed estimates

By Ciara Linnane

Core brand saw gains but same-store sales at Pottery Barn and West Elm brands were soft

Williams-Sonoma Inc.'s stock (WSM) shed its early gains to trade down 7% Wednesday, after the upscale home-goods retailer crushed profit estimates for the first quarter, weighing against a weaker performance at its Pottery Barn and West Elm brands.

The San Francisco-based company had net income of $265.7 million, or $4.07 a share, for the quarter, up from $156.5 million, or $2.35 a share, in the year-earlier period. Revenue fell to$1.660 billion from $1.755 billion a year ago.

The FactSet consensus was for EPS of $2.74 and revenue of $1.654 billion.

Same-store sales fell 4.9%, while FactSet was expecting a decline of 6.2%.

The numbers built on the momentum created by fourth-quarter earnings, which also exceeded estimates despite a slow housing market and geopolitical unrest.

"We remain committed to executing on our three key priorities in 2024-returning to growth, elevating our world-class customer service, and driving margin," said Laura Alber, president and chief executive, in prepared remarks.

The numbers include a $49 million out-of-period adjustment related to freight costs from fiscal 2021, 2022 and 2023, which it determined after the quarter close had been inflated by that amount.

The company said the over-recognized costs were not material to its projected fiscal 2024 results.

On a call with analysts, Alber said the adjustment contributed 59 cents to EPS and 290 basis points to operating margin. Excluding that gain, the EPS number was still 74 cents above consensus.

Gross margin came to 48.3%, including the out-of-period adjustment, and to 46.4%, excluding it, up 690 basis points from a year ago.

The company reaffirmed its full-year guidance for revenue to range from down 3% to up 3%, and for same-store sales to be down 4.5% to up 1.5%.

Williams-Sonoma, which also owns Pottery Barn and West Elm, said its core brand saw same-store sales rise 0.9%.

But West Elm's same-store sales were down 4.1%, while Pottery Barn's were down 10.8%. Pottery Barn Kids and Teen fared better with a same-store sales gain of 2.8%.

Pottery Barn's revenue fell to $677 million from $768 million a year ago, while West Elm's revenue fell to $430 million from $452 million.

Pottery Barn Kids and Teen's revenue rose to $222 million from $216 million.

The stock has gained 42% in the year to date, while the S&P 500 has gained 12%.

-Ciara Linnane

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05-22-24 1352ET

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