01—Abstract
Summary
Summary of the 10-Q filed September 1, 2023. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. reported net revenues of $1.86 billiona for the second quarter of fiscal 2023 (13 weeks ended July 30, 2023), a decrease of $274.9 million or 12.9% from the prior-year quarter, with company comparable brand revenue declining 11.9%.
The filing attributes the decline to lower consumer demand for high-ticket discretionary items, partially offset by relative strength in certain other categories. Net earnings fell to $201.5 millionb from $267.1 million, and diluted earnings per share were $3.12 compared with $3.87. Cost of goods sold rose to 59.3% of net revenues from 56.5%, driven by higher input, freight and occupancy costs, while SG&A expenses fell 13.7% to $486.0 million, aided by reduction-in-force savings.
For the first half of fiscal 2023, net revenues were $3.62 billionc, down 10.2%, and operating cash flow was $715.0 million, up from $383.6 million, largely due to lower inventory spending. Cash and cash equivalents rose to $514.4 million, and the company had no borrowings under its $500 million Revolver. Stockholder returns totaled $426.6 million in the first half through repurchases and dividends, with $690.0 million remaining under the current repurchase program.
Management expects gross margin pressures from past supply chain costs may become tailwinds in the back half of the year and anticipates approximately $42 milliond in pre-tax annualized savings from its exit and reduction-in-force initiatives. The filing describes management's belief that current liquidity and credit facilities are adequate for the next 12 months. It also notes an expected fiscal 2023 effective tax rate of approximately 26.0%, and that the company was in compliance with its Credit Facility financial covenants as of July 30, 2023.
02—Key points
Key Highlights
- Net revenues of $1,862.6 million in Q2 fiscal 2023, down 12.9% from $2,137.5 million; company comp declined 11.9%.
- Diluted EPS of $3.12 for Q2 fiscal 2023, versus $3.87 in Q2 fiscal 2022; net earnings were $201.5 million versus $267.1 million.
- Gross margin pressure: cost of goods sold rose to 59.3% of net revenues from 56.5%, citing product costs, ocean freight, shipping and new East and West Coast distribution center costs.
- SG&A expenses decreased 13.7% to $486.0 million in Q2, reflecting employment cost leverage from reduction-in-force actions and lower advertising spend.
- First-half operating cash flow of $715.0 million, up from $383.6 million, primarily from lower merchandise inventory spending; cash and equivalents ended at $514.4 million.
- Stockholder returns of $426.6 million in the first half through share repurchases and dividends; $690.0 million remained under the stock repurchase program.
- Pottery Barn brand comp declined 10.6% and West Elm declined 20.8% in Q2, with West Elm most affected by weakness in furniture demand.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Williams-Sonoma kept $0.11.
- Revenue$1.86B100.0%
- Cost of revenue−$1.11B59.3%
- Gross profit$757.6M40.7%
- Operating costs−$486.0M26.1%
- Operating income$271.5M14.6%
- Interest, other & tax−$70.0M3.8%
- Net income$201.5M10.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed September 1, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.86B$2.14B | −12.9% |
| Gross Profit | $757.57M$928.81M | −18.4% |
| SG&A Expenses | $486.02M$563.29M | −13.7% |
| Operating Income | $271.55M$365.52M | −25.7% |
| Net Income | $201.51M$267.07M | −24.6% |
| EPS (Basic) | $1.57$3.92 | −59.9% |
| EPS (Diluted) | $1.56$3.87 | −59.7% |
| Shares Outstanding (Basic) | 128.33M68.18M | +88.2% |
| Shares Outstanding (Diluted) | 129.05M69.08M | +86.8% |
05—Questions
Frequently Asked Questions
How did Williams-Sonoma's revenue and earnings perform in the second quarter of fiscal 2023?
Net revenues were $1.86 billion, down $274.9 million or 12.9% year over year, with company comparable brand revenue down 11.9%. Net earnings were $201.5 million and diluted EPS was $3.12, compared with $267.1 million and $3.87 a year earlier.
What drove the decline in sales and margins?
The filing cites lower consumer demand for high-ticket discretionary items, particularly furniture, as the main driver of the revenue decline. Gross margin compressed as cost of goods sold rose to 59.3% of net revenues from 56.5%, due to higher product, freight and occupancy costs.
How strong is the company's liquidity position?
As of July 30, 2023, the company held $514.4 million in cash and cash equivalents and had no outstanding borrowings under its $500 million Revolver. Management believes cash on hand, operating cash flow and credit facilities will provide adequate liquidity for the next 12 months.
What cost actions is management taking, and what savings are expected?
Management expects its exit and reduction-in-force initiatives to produce approximate pre-tax annualized savings of $42 million, primarily in SG&A expenses. The filing notes these actions contributed to lower employment expenses in the second quarter.
What is the company doing with its capital, and what is the outlook?
In the first half of fiscal 2023, the company repurchased $310.0 million of stock and paid $116.6 million in dividends, with $690.0 million remaining under its repurchase program. Dividends declared were $0.90 per share for the quarter. Management said gross margin pressures from past supply chain costs may become tailwinds in the back half of fiscal 2023, while the weak housing market, layoffs and inflation may continue to affect results.
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