01—Abstract
Summary
Summary of the 10-Q filed November 28, 2023. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. reported a weaker third quarter of fiscal 2023 (thirteen weeks ended October 29, 2023).
Net revenues were $1,853,650 thousanda ($1.85 billion), down $338.9 million or 15.5% from $2,192,574 thousand, with company comparable brand revenue declining 14.6%. The filing attributes the decline to lower consumer demand for high-ticket discretionary items, partially offset by relative strength in kitchen electrics, textiles and seasonal offerings. Net earnings were $237,285 thousand, versus $251,723 thousand a year earlier, and diluted earnings per share were $3.66 compared with $3.72.
Operating income fell to $315,077 thousandb from $339,633 thousand. Cost of goods sold as a percentage of net revenues improved to 55.6% from 58.5%, while SG&A expenses rose to 27.4% of net revenues from 26.0%. For the first thirty-nine weeks of fiscal 2023, net revenues decreased $749.6 million, or 12.0%, to $5.47 billion, and diluted earnings per share were $9.12 versus $11.08.
Cash and cash equivalents were $698.8 millionc at October 29, 2023, up from $367.3 million at January 29, 2023. Net cash provided by operating activities was $1.0 billion, and the company had no borrowings under its $500 million revolving credit facility.
The company repurchased $313.0 milliond of stock and paid $174.6 million in dividends during the period, and $687.0 million remained under its current repurchase program. Management states that the weak housing market, interest rates, layoffs and inflationary pressure may continue to affect results in the near term, and expects exit and reduction-in-force initiatives to produce approximate pre-tax annualized savings of $42 million.
02—Key points
Key Highlights
- Third-quarter net revenues of $1.85 billion, down 15.5% year over year, with company comparable brand revenue down 14.6%.
- Pottery Barn comparable brand revenue fell 16.6% in the quarter, while West Elm fell 22.4%, which the filing says reflects its high concentration in furniture.
- Diluted EPS was $3.66 for the quarter versus $3.72 a year earlier; year-to-date diluted EPS was $9.12 versus $11.08.
- Gross margin improved: cost of goods sold fell to 55.6% of net revenues from 58.5%, driven by lower ocean freight and shipping costs and higher pricing power.
- SG&A rose to 27.4% of net revenues from 26.0%, reflecting deleveraged employment costs and lower revenues, partially offset by reduction-in-force savings.
- Cash rose to $698.8 million, operating cash flow was $1.0 billion year to date, and the $500 million revolver was undrawn.
- Shareholder returns of $487.6 million year to date through repurchases and dividends; $687.0 million remains under the repurchase program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Williams-Sonoma kept $0.13.
- Revenue$1.85B100.0%
- Cost of revenue−$1.03B55.6%
- Gross profit$822.4M44.4%
- Operating costs−$507.3M27.4%
- Operating income$315.1M17.0%
- Interest, other & tax−$77.8M4.2%
- Net income$237.3M12.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed November 28, 2023Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $1.85B$2.19B | −15.5% |
| Gross Profit | $822.36M$910.53M | −9.7% |
| SG&A Expenses | $507.28M$570.89M | −11.1% |
| Operating Income | $315.08M$339.63M | −7.2% |
| Net Income | $237.28M$251.72M | −5.7% |
| EPS (Basic) | $1.85$3.77 | −50.9% |
| EPS (Diluted) | $1.83$3.72 | −50.8% |
| Shares Outstanding (Basic) | 128.28M66.70M | +92.3% |
| Shares Outstanding (Diluted) | 129.55M67.62M | +91.6% |
05—Questions
Frequently Asked Questions
Why did net revenues decline in the third quarter of fiscal 2023?
The filing attributes the 15.5% decline in net revenues to lower consumer demand for high-ticket discretionary items. Relative strength in kitchen electrics, textiles and seasonal offerings partially offset the decline. Furniture demand was a major drag, particularly at Pottery Barn and West Elm.
Did profitability hold up despite lower sales?
Partially. Gross margin improved, with cost of goods sold at 55.6% of net revenues versus 58.5% a year earlier, helped by lower freight and shipping costs. However, operating income fell to $315.1 million from $339.6 million, because SG&A deleveraged to 27.4% of net revenues from 26.0%.
How strong is the company's liquidity position?
As of October 29, 2023, the company held $698.8 million in cash and cash equivalents and had no outstanding borrowings under its $500 million unsecured revolver. It was in compliance with its financial covenants. Management believes cash on hand, operating cash flow and available credit will provide adequate liquidity over the next 12 months.
What is management's outlook?
Management says its key differentiators and growth initiatives should drive long-term growth, but the uncertain macroeconomic environment, including a weak housing market, interest rates, layoffs and inflationary pressure, may continue to affect results in the near term. Exit and reduction-in-force initiatives are expected to yield approximate pre-tax annualized savings of $42 million, primarily in SG&A. The expected fiscal 2023 effective tax rate is approximately 26.0%.
How is the company returning capital to shareholders?
Year to date, the company repurchased $313.0 million of common stock and paid $174.6 million in dividends. It declared $0.90 per share in dividends in the quarter, up from $0.78. As of October 29, 2023, $687.0 million remained under the current stock repurchase program, which has no expiration date.
06—Continue