Williams-Sonoma's Resilient Cost Management Amidst Sales Decline, Analyst Highlights

Telsey Advisory Group analyst Cristina Fernandez reiterated an Outperform rating on Williams-Sonoma, Inc. WSM with a price target of $146.

WSM reported a second-quarter FY23 revenue decline of 12.9% year-over-year to $1.86 billion, missing the consensus of $1.96 billion. Non-GAAP EPS was $3.12, above the consensus of $2.71. 

Similar to other home furnishings retailers, Williams-Sonoma saw demand deteriorate in Q2, with comparable brand sales coming in short at (11.9%) vs. TAG at (7.4%) and the FactSet (FS) consensus at (8.5%).

However, Williams-Sonoma managed promotions and SG&A costs very tightly in Q2.

Fernandez thinks that the company managed operating expenses (mainly employment and advertising) to lever 26 bps YoY to 26.1% (TAG 26.0%; FS 26.7%) despite the lower sales.

The analyst adds that the performance demonstrates the company's ability to adjust as demand slows. The slowdown was broad-based, with all brands down YoY.

Going forward, Williams-Sonoma lowered its 2023 sales guidance to down 5%-10% (TAG -5.1%; FS at -5.6%).

The analyst thinks the market had been pricing in a reduction to the company's sales and operating margin guidance. The EPS beat and raised operating margin should support the stock.

Based on the above, the analyst sees FY23 EPS of $13.75. Same-store sales is expected to fall 4.4%.

For FY24, the analyst expects EPS of $14.55, with same-store sales rising 3.2%.

Price Action: WSM shares are trading higher by 12.92% to $141.32 on the last check Wednesday.