01—Abstract
Summary
Summary of the 10-K filed March 29, 2018. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. reported fiscal 2017 (52 weeks ended January 28, 2018) net revenues of $5.29 billiona, up 4.1% from $5.08 billion in fiscal 2016, with comparable brand revenue growth of 3.2%.
E-commerce net revenues rose 5.5% to $2.78 billionb, representing 52.5% of net revenues, while retail net revenues rose 2.6% to $2.51 billion. Growth was led by West Elm and Pottery Barn, with particular strength in furniture. Profitability was pressured: gross margin declined to 36.5% from 37.0%, operating income fell to $453.8 million from $472.6 million, and net earnings declined to $259.5 million from $305.4 million.
Diluted EPS was $3.02c versus $3.41, including $0.48 of tax expense related to the Tax Cuts and Jobs Act and $0.11 from severance-related charges and the Outward, Inc. acquisition. The effective tax rate rose to 42.6% from 35.3%. The company acquired Outward, Inc., a 3-D imaging and augmented reality platform, on December 1, 2017, for a contractual purchase price of $112 million.
Management plans to focus in fiscal 2018 on its four strategic priorities of digital leadership, product innovation, retail transformation and operational excellence, including the early closure of a number of domestic stores. Capital returns remained significant: the company returned $331.2 milliond to stockholders through repurchases and dividends, and in March 2018 it increased the stock repurchase authorization to $500 million and raised its quarterly dividend 10%, from $0.39 to $0.43 per share. Balance sheet activity included $300 million of term loan borrowings under an amended credit facility with a $500 million unsecured revolver.
Cash and cash equivalents rose to $390.1 million from $213.7 million, and long-term debt was $299.4 million at year-end versus none a year earlier. Management stated that cash on hand and available credit facilities should provide adequate liquidity over the next 12 months.
02—Key points
Key Highlights
- Net revenues rose 4.1% to $5.29 billion, with comparable brand revenue growth of 3.2%; e-commerce made up 52.5% of net revenues.
- Net earnings fell to $259.5 million from $305.4 million, and diluted EPS declined to $3.02 from $3.41.
- Gross margin decreased to 36.5% from 37.0%, and cost of goods sold rose to 63.5% of net revenues from 63.0%.
- The effective tax rate increased to 42.6% from 35.3%, reflecting the provisional impact of the Tax Cuts and Jobs Act; the filing cites $0.48 of diluted EPS impact from this tax expense.
- Williams-Sonoma acquired Outward, Inc., a 3-D imaging and augmented reality platform, for a contractual purchase price of $112 million.
- Shareholder returns totaled $331.2 million in fiscal 2017, and in March 2018 the company raised its quarterly dividend 10% to $0.43 per share and increased its buyback authorization to $500 million.
- Cash rose to $390.1 million, and the company took on $300 million of term loan debt under a new $500 million unsecured revolving credit facility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Williams-Sonoma kept $0.05.
- Revenue$5.29B100.0%
- Cost of revenue−$3.36B63.5%
- Gross profit$1.93B36.5%
- Operating costs−$1.48B27.9%
- Operating income$453.8M8.6%
- Interest, other & tax−$194.3M3.7%
- Net income$259.5M4.9%
Where FY2018 revenue went
$5.29B- Cost of revenue: $3.36B, 64% of revenue
- SG&A: $1.48B, 28% of revenue
- Net income: $259.5M, 4.9% of revenue
- Interest, other & tax: $194.3M, 3.7% of revenue
Kept 4.9% as net incomeNet income $259.5M · 4.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 29, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.29B$5.08B | +4.1% |
| Gross Profit | $1.93B$1.88B | +2.6% |
| SG&A Expenses | $1.48B$1.41B | +4.8% |
| Operating Income | $453.81M$472.60M | −4.0% |
| Net Income | $259.55M$305.39M | −15.0% |
| EPS (Basic) | $3.03$3.45 | −12.2% |
| EPS (Diluted) | $3.02$3.41 | −11.4% |
| Shares Outstanding (Basic) | 85.59M88.59M | −3.4% |
| Shares Outstanding (Diluted) | 86.08M89.46M | −3.8% |
05—Questions
Frequently Asked Questions
Why did earnings decline despite revenue growth?
Net revenues grew 4.1%, but net earnings fell to $259.5 million from $305.4 million. The filing attributes the margin pressure to lower merchandise margins, higher shipping costs and reduced shipping income, and higher digital advertising expenses. The effective tax rate also rose to 42.6% from 35.3%, mainly due to the provisional impact of the Tax Cuts and Jobs Act, which contributed $0.48 to diluted EPS.
How strong is the e-commerce business relative to retail?
E-commerce net revenues were $2.78 billion, up 5.5%, and made up 52.5% of net revenues, compared with 51.8% a year earlier. Retail net revenues were $2.51 billion, up 2.6%. The filing states that the e-commerce business has been the company's fastest growing business over the last several years and represents more than half of its sales and profits.
What is the company's plan for fiscal 2018?
Management plans to drive growth through its four strategic priorities of digital leadership, product innovation, retail transformation and operational excellence, as well as new product categories and markets. In retail, it plans to optimize top-performing stores while closing underperforming stores, including the early closure of a number of domestic stores. It also expects cost savings in supply chain and inventory management.
How is the company returning capital to shareholders?
In fiscal 2017 the company repurchased 4,050,697 shares for $196.2 million and paid dividends of $135.0 million in cash. In March 2018 it raised its quarterly dividend from $0.39 to $0.43 per share, an annual rate of $1.72, and increased its stock repurchase authorization to $500 million from the $214.4 million remaining at year-end.
Does the company have liquidity concerns?
Management believes cash on hand and available credit facilities will provide adequate liquidity over the next 12 months and states that it is in compliance with its financial covenants. At year-end it had $390.1 million in cash and cash equivalents, $300 million outstanding under its term loan, and no revolver borrowings. The filing notes that $73.6 million of cash was held by foreign subsidiaries.
06—Continue