Sales and profits may be falling for home goods retailer Williams-Sonoma (NYSE: WSM), but its profit margins are stronger than what anyone on Wall Street expected. These revelations came before the bell Wednesday morning when the company released the results for its fiscal 2023 second quarter, and led to traders bidding the stock up by 12.8% as of 1 p.m. ET.
In the quarter, which ended July 30, net revenues were down by almost 13% year over year to less than $1.9 billion. And Williams-Sonoma’s operating income fell by almost 26% to about $275 million as its operating margin contracted from 17.1% in the prior-year quarter to 14.6% this time. But even though the numbers are down, its margin impressed the market.
Management has said it can keep Williams-Sonoma’s operating margins above 15% over the long term, which is quite the promise. Over the last decade, the company’s margins were usually below 10%, only spiking above 15% during the pandemic era. For what it’s worth, that margin spike was common among home goods retailers during the pandemic, which suggests that Williams-Sonoma wasn’t doing anything special.
WSM Operating Margin (TTM) data by YCharts.
The market clearly believed that Williams-Sonoma’s management was overpromising. As evidence, consider that the stock now trades at a price-to-earnings ratio below 10, though it has traded more often in the 15 to 20 range throughout the past decade.
Many home goods retailers have already seen operating margins contract to more normal levels. Wall Street expected the same from Williams-Sonoma and was already pricing in lower profits. But in fiscal Q2, the company lived up to management’s lofty expectations.
Williams-Sonoma was guiding for an operating margin of 14% to 15% in fiscal 2023. On Wednesday, management raised its guidance range to 15% to 16%.
Fiscal Q2 was a good quarter, and if the company can maintain its margins in this range, it could bring in over $1 billion annually in operating income. That’s substantial for a company with a market capitalization of just $9.3 billion, which suggests the stock could have more upside ahead.
10 stocks we like better than Williams-Sonoma
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Williams-Sonoma wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 21, 2023
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
