01—Abstract
Summary
Summary of the 10-Q filed May 26, 2023. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. reported net revenues of $1.76 billiona for the first quarter of fiscal 2023 (thirteen weeks ended April 30, 2023), a decrease of $135.8 million or 7.2% from $1.89 billion a year earlier.
Company comparable brand revenue declined 6.0%, driven by lower consumer demand for high-ticket furniture items, partially offset by fewer undelivered furniture orders. West Elm brand comp fell 15.8%, Pottery Barn declined 0.4%, Williams Sonoma declined 4.4%, and Pottery Barn Kids and Teen declined 3.3%. Net earnings fell to $156.5 millionb from $254.1 million, and diluted earnings per share was $2.35 versus $3.50, including a $0.20 impact from exit costs and a $0.09 impact from reduction-in-force initiatives.
Gross margin pressure was evident, with cost of goods sold rising to 61.5% of net revenues from 56.2%, and SG&A rising to 27.1% of revenues from 26.7%. Cash generation and capital returns were strong relative to earnings. Operating cash flow was $342.5 millionc, versus $184.5 million a year earlier, and cash and cash equivalents ended at $297.3 million.
The company invested $50.0 milliond in capital expenditures and returned $358.1 million to stockholders through repurchases and dividends. Total stock repurchases were $300.0 million, and the Board authorized a new $1 billion repurchase program in March 2023, with $700.0 million remaining at quarter end. The quarterly dividend was raised 15%, from $0.78 to $0.90 per share.
The revolving credit facility of $500 million was undrawn, and the company stated it was in compliance with its financial covenants. Management stated that the uncertain macroeconomic environment, including a weak housing market, layoffs, inflationary pressure and possible recession, may continue to affect results, and expects supply chain cost challenges to weigh on results through the first half of fiscal 2023.
It anticipates gross margin pressures may become tailwinds in the back half of the year. Exit and reduction-in-force initiatives are expected to yield pre-tax annualized savings of $40 million, primarily in SG&A.
02—Key points
Key Highlights
- Net revenues declined $135.8 million, or 7.2%, to $1.76 billion, with company comparable brand revenue down 6.0%.
- Diluted earnings per share was $2.35, compared with $3.50 a year earlier, including $0.20 from exit costs and $0.09 from reduction-in-force initiatives.
- Net earnings were $156.5 million, down from $254.1 million, and operating income was $199.5 million versus $323.5 million.
- Gross margin pressure: cost of goods sold rose to 61.5% of net revenues from 56.2%, driven by higher product, freight and occupancy costs.
- West Elm comparable brand revenue fell 15.8%, the steepest decline among brands, while Pottery Barn was nearly flat at a 0.4% decline.
- Operating cash flow was $342.5 million, up from $184.5 million, and cash ended at $297.3 million with no revolver borrowings.
- Shareholder returns totaled $358.1 million via $300.0 million in buybacks and dividends, with a new $1 billion repurchase program authorized and the quarterly dividend raised 15% to $0.90 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Williams-Sonoma kept $0.09.
- Revenue$1.76B100.0%
- Cost of revenue−$1.08B61.5%
- Gross profit$675.1M38.5%
- Operating costs−$475.6M27.1%
- Operating income$199.5M11.4%
- Interest, other & tax−$42.9M2.4%
- Net income$156.5M8.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 26, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $1.76B$1.89B | −7.2% |
| Gross Profit | $675.06M$828.55M | −18.5% |
| SG&A Expenses | $475.58M$505.07M | −5.8% |
| Operating Income | $199.48M$323.48M | −38.3% |
| Net Income | $156.53M$254.11M | −38.4% |
| EPS (Basic) | $2.38$3.59 | −33.7% |
| EPS (Diluted) | $2.35$3.50 | −32.9% |
| Shares Outstanding (Basic) | 65.85M70.85M | −7.1% |
| Shares Outstanding (Diluted) | 66.70M72.65M | −8.2% |
05—Questions
Frequently Asked Questions
Why did Williams-Sonoma's revenue and earnings decline in the first quarter of fiscal 2023?
Net revenues fell 7.2% to $1.76 billion, and company comparable brand revenue declined 6.0%. The filing attributes this to lower consumer demand for high-ticket furniture items, partially offset by fewer undelivered furniture orders. Earnings also declined as cost of goods sold rose to 61.5% of net revenues from 56.2%, and SG&A rose to 27.1% from 26.7%, with deleverage from lower sales and $24.1 million in exit and reduction-in-force costs.
Which brands were most affected by the sales decline?
West Elm was the most affected, with brand comparable revenue down 15.8%, following 12.8% growth a year earlier. The filing says its high furniture assortment made it most exposed to the tough macroeconomic environment. Williams Sonoma declined 4.4%, Pottery Barn Kids and Teen declined 3.3%, and Pottery Barn declined 0.4%.
How is the company returning cash to shareholders?
During the quarter the company repurchased 2,510,718 shares for $300.0 million at an average cost of $119.49 per share. In March 2023 the Board authorized a new $1 billion repurchase program, leaving $700.0 million available at April 30, 2023. The Board also raised the quarterly cash dividend 15%, from $0.78 to $0.90 per share, subject to capital availability.
Is the company's liquidity position adequate, and does it carry debt?
The company had $297.3 million in cash and cash equivalents and no borrowings under its $500 million unsecured revolving credit facility. Operating cash flow was $342.5 million for the quarter. The company stated that cash on hand, operating cash flows and available credit facilities will provide adequate liquidity over the next 12 months, and that it was in compliance with its financial covenants.
What does management expect for the rest of the year?
Management expects supply chain cost challenges, including higher product costs, freight and distribution center costs, to negatively affect results through the first half of fiscal 2023. It believes gross margin pressures from supply chain costs may become tailwinds in the back half of the year. Exit and reduction-in-force initiatives are expected to produce pre-tax annualized savings of $40 million, primarily in SG&A. Management also flagged the weak housing market, layoffs, inflation and possible recession as risks.
06—Continue