01—Abstract
Summary
Summary of the 8-K filed August 22, 2024. Cited figures are marked; the original filing is the authoritative source.
Williams-Sonoma, Inc. (NYSE: WSM) reported second quarter 2024 results for the thirteen weeks ended July 28, 2024, in a press release furnished as Exhibit 99.1 under Item 2.02.
Net revenues were $1,788.3 milliona versus $1,862.6 million a year earlier, and comparable brand revenue declined 3.3%. Gross margin rose to 46.2% from 40.7%, and SG&A rose to 30.0% of revenues from 26.1%, producing operating income of $289.9 million and an operating margin of 16.2% versus 14.6%. Diluted EPS was $1.74 compared with $1.56, reflecting a 2-for-1 stock split effected July 9, 2024, with historical per-share amounts restated.
The company revised its fiscal 2024 outlook, now expecting net revenue growth of -4.0% to -1.5% and comparable revenue of -5.5% to -3.0%, while raising its operating margin guidance to 18.0% to 18.4%, including a 60 basis point benefit from a first-quarter out-of-period adjustment of $49 millionb related to over-recognized freight expense in fiscal 2021 through 2023. Excluding that adjustment, operating margin guidance is 17.4% to 17.8%. Management states that the net effect of the changes holds earnings materially in line with prior implied EPS guidance.
Fiscal 2024 is a 53-week year, which the company expects to add 150 basis points to net revenue growth. At quarter end, cash and cash equivalents were $1,265.3 millionc, merchandise inventories were $1,247.4 million, and the company returned $203 million to stockholders through $130 million of repurchases and $73 million of dividends. The filing notes that the Form 10-Q for the quarter had not yet been filed, so results are preliminary and subject to change.
02—Key points
Key Highlights
- Comparable brand revenue declined 3.3% in Q2 2024; net revenues were $1,788.3 million versus $1,862.6 million a year earlier.
- Gross margin expanded to 46.2% from 40.7%, driven by higher merchandise margins and supply chain efficiencies, partly offset by occupancy deleverage.
- SG&A rate rose to 30.0% from 26.1%, reflecting higher performance-based incentive compensation and advertising spend.
- Operating income was $289.9 million, a 16.2% operating margin versus 14.6% a year earlier; diluted EPS was $1.74 versus $1.56.
- Fiscal 2024 revenue guidance was lowered to -4.0% to -1.5% growth, while operating margin guidance was raised to 18.0% to 18.4% (17.4% to 17.8% excluding a $49 million out-of-period freight adjustment).
- Cash and equivalents were $1,265.3 million at quarter end; the company returned $203 million to stockholders in the quarter.
- A 2-for-1 stock split was effected July 9, 2024, with historical share and per-share amounts retroactively adjusted.
03—Questions
Frequently Asked Questions
Why did Williams-Sonoma's operating margin improve despite lower sales?
Gross margin rose 550 basis points to 46.2%, driven by higher merchandise margins (+380 basis points) and supply chain efficiencies (+180 basis points), which more than offset higher SG&A and occupancy deleverage. The company attributes the SG&A rate increase to higher performance-based incentive compensation and advertising spend.
How did the company change its fiscal 2024 outlook?
Net revenue growth guidance was lowered to a range of -4.0% to -1.5%, and comparable revenue guidance is -5.5% to -3.0%. Operating margin guidance was raised to 18.0% to 18.4%, including a 60 basis point benefit from a $49 million out-of-period freight expense adjustment. Management says the net effect keeps earnings materially in line with prior implied EPS guidance.
What was the $49 million out-of-period adjustment?
In April 2024 the company determined it had over-recognized freight expense in fiscal 2021, 2022 and 2023 by a cumulative $49 million. It determined no prior interim or annual periods were materially misstated and recorded the correction in Q1 2024 as a reduction to cost of goods sold and accounts payable.
How did the 2-for-1 stock split affect reported per-share results?
The stock split was effected through a stock dividend on July 9, 2024. All historical share and per-share amounts were retroactively adjusted, so Q2 2024 diluted EPS of $1.74 is compared with $1.56 for the prior-year quarter on the same adjusted basis.
What did the company do with its cash in the quarter?
The company reported $1.3 billion in cash and operating cash flow of $246 million for the quarter. It returned $203 million to stockholders, consisting of $130 million in stock repurchases and $73 million in dividends.
04—Continue