Williams-Sonoma rockets on improved 2024 outlook, Q3 earnings and margin beat

Investing.com -- Shares in Williams-Sonoma (NYSE:WSM ) rocketed more than 23% in premarket trading Wednesday after the company raised its annual outlook and reported better-than-expected Q3 results.

For the third quarter, the retailer reported earnings per share (EPS) of $1.96, beating analyst expectations of $1.77.

Revenue came in at $1.8 billion, just ahead of the consensus estimate of $1.79 billion.

Comparable sales declined 2.9% year-over-year, a notable improvement from the 14.6% drop a year ago and better than the projected decline of 3.36%.

Operating margin for the quarter rose to 17.8%, compared to 17% in the same period last year, and higher than the consensus estimate of 16.7%. Gross margins also climbed by 230 basis points to 46.7%, above the estimated 45.9%. 

"The expectation heading into the print was that margin upside would begin to wane as compares got tougher," RBC Capital Markets analysts commented. "This is likely still the case, but the pace of erosion was probably over-estimated, which means 2025 numbers likely need to drift higher."

Willimas-Sonoma repurchased a record $533 million of shares during the quarter and introduced a new $1 billion buyback plan. 

Higher margins, alongside strong repurchase activity "are likely to cause a squeeze" in WSM shares, RBC analysts added. 

Looking ahead, Williams-Sonoma hiked its 2024 outlook “to reflect higher net revenue trends and higher operating margin expectations.”

It now forecasts an annual net revenue decline of 1.5% to 3.0%, with comparable sales expected to decrease by 3.0% to 4.5% for the fiscal year.

Operating margin guidance for fiscal 2024 has also been adjusted upward. Including a 60-basis-point first-quarter adjustment, the operating margin is expected to be between 18.4% and 18.8%. Excluding this adjustment, the margin is projected to range from 17.8% to 18.2%.

The company maintains its long-term outlook, expecting mid-to-high single-digit annual net revenue growth with operating margins remaining in the mid-to-high teens.

“We are pleased with the results of our third quarter, beating both top and bottom-line expectations,” said Laura Alber, President and CEO of Williams-Sonoma. “The quarter was driven by continued improvement in our sales trend, market-share gains, and strong profit.”

Similar to RBC, analysts at UBS said Williams-Sonoma's print indicates that its margin strength is sustainable, and provides "a bit more visibility towards a top-line recovery into ’25."

That being said, following the stock's sharp surge, WSM is now trading close to 20x the company's updated 2024 EPS guidance. 

"So, at this multiple, combined with tougher margin compares and potential exogenous risks like tariffs in ahead, we retain a modest sense of caution on shares," UBS analysts concluded.

Source: Investing.com