01—Abstract
Summary
Summary of the 10-Q filed August 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. reported net revenues of $1.79 billiona for the second quarter of fiscal 2024 (13 weeks ended July 28, 2024), down $74.3 million or 4.0% from the prior-year quarter, with a company comparable brand revenue decline of 3.3%.
The filing attributes the decline to continuing customer hesitancy toward furniture purchases, partially offset by strength in emerging brands and children's home furnishings. Pottery Barn, the largest brand, had a 7.1%b comparable brand revenue decline, while Pottery Barn Kids and Teen grew 1.5%. Profitability improved despite lower sales.
Gross margin rose to 46.2% from 40.7%, driven by higher merchandise margins of 380 basis points and supply chain efficiencies of 180 basis points. SG&A rose $50.4 millionc, or 10.4%, to 30.0% of net revenues, mainly due to higher performance-based incentive compensation and advertising. Net earnings were $225.7 million, and diluted earnings per share were $1.74 compared with $1.56.
Interest income, net, was $15.2 milliond versus $3.3 million a year earlier. The balance sheet remained strong, with $1.3 billion in cash and cash equivalents and no borrowings under the $500 million revolver as of July 28, 2024. First-half operating cash flow was $473.3 million, down from $715.0 million.
The company repurchased 921,466 shares in the quarter for $129.8 million, declared dividends of $0.57 per share, and completed a 2-for-1 stock split on July 9, 2024. The filing also discloses a $49.0 million out-of-period freight expense adjustment recorded in the first quarter of fiscal 2024 that reduced cost of goods sold.
02—Key points
Key Highlights
- Second-quarter net revenues of $1,788.3 million, down $74.3 million or 4.0%, with company comparable brand revenue down 3.3%
- Gross margin expanded to 46.2% from 40.7%, driven by 380 basis points of higher merchandise margins and 180 basis points of supply chain efficiencies
- Diluted EPS of $1.74 versus $1.56 in the prior-year quarter; net earnings of $225.7 million versus $201.5 million
- SG&A increased $50.4 million, or 10.4%, to 30.0% of net revenues, due to higher performance-based incentive compensation and advertising expenses
- Brand performance was mixed: Pottery Barn comparable brand revenue fell 7.1%, West Elm fell 4.8%, Williams Sonoma fell 0.8%, and Pottery Barn Kids and Teen grew 1.5%
- Cash and cash equivalents of $1.3 billion with no revolver borrowings; first-half operating cash flow of $473.3 million versus $715.0 million a year earlier
- Returned capital through 921,466 shares repurchased in the quarter for $129.8 million, $826.4 million remaining under the program, and dividends of $0.57 per share after a 2-for-1 stock split on July 9, 2024
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2025, Williams-Sonoma kept $0.12.
- Revenue$1.79B100.0%
- Cost of revenue−$984.4M55.0%
- Gross profit$803.9M45.0%
- Operating costs−$526.0M29.4%
- Operating income$277.9M15.5%
- Interest, other & tax−$61.0M3.4%
- Net income$216.9M12.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2025filed August 23, 2024Financial Statements
Q2 FY2025 against Q2 FY2024
| Line item | Q2 FY2025Q2 FY2024 | Change |
|---|---|---|
| Revenue | $1.79B$1.86B | −4.0% |
| Cost of Revenue | $984.37M— | — |
| Gross Profit | $803.94M$757.57M | +6.1% |
| SG&A Expenses | $526.04M$486.02M | +8.2% |
| Operating Income | $277.90M$271.55M | +2.3% |
| Net Income | $216.85M$201.51M | +7.6% |
| EPS (Basic) | $1.69$1.57 | +7.6% |
| EPS (Diluted) | $1.67$1.56 | +7.1% |
| Shares Outstanding (Basic) | 128.26M128.33M | −0.1% |
| Shares Outstanding (Diluted) | 129.81M129.05M | +0.6% |
05—Questions
Frequently Asked Questions
Why did net revenues decline in the second quarter of fiscal 2024?
The filing states that the $74.3 million, or 4.0%, decrease was driven by continuing customer hesitancy toward furniture purchases. This was partially offset by strength in emerging brands and the children's home furnishings business. Pottery Barn's comparable brand revenue fell 7.1%, driven by reduced higher-ticket furniture sales, and West Elm fell 4.8%, affected by the customer pullback in furniture and a strategy to reduce promotional activity.
How did gross margin improve even though sales declined?
Gross margin increased to 46.2% from 40.7%. The filing attributes the 550 basis point increase to higher merchandise margins of 380 basis points and supply chain efficiencies of 180 basis points, including fewer returns, replacements, accommodations and damages and fewer out-of-market and multiple shipments. Occupancy deleverage from lower sales reduced margin by 10 basis points.
What was the effect of the out-of-period freight adjustment?
The company determined it had over-recognized freight expense in fiscal 2021, 2022 and 2023 by a cumulative $49.0 million. It judged that no prior periods were materially misstated and recorded the adjustment in the first quarter of fiscal 2024, reducing cost of goods sold and accounts payable. The adjustment contributed 140 basis points to first-half fiscal 2024 gross margin.
How is Williams-Sonoma positioned financially and how is it returning capital?
As of July 28, 2024, the company held $1.3 billion in cash and cash equivalents and had no outstanding revolver borrowings under its $500 million unsecured revolving credit facility. In the second quarter it repurchased 921,466 shares for $129.8 million, leaving $826.4 million under its repurchase program. It declared dividends of $0.57 per share in the quarter, compared with $0.45 a year earlier, and effected a 2-for-1 stock split on July 9, 2024.
06—Continue