Williams-Sonoma, Inc. (WSM), a well-known specialty retailer of home products, reported adjusted earnings (excluding one-time items) of 43 cents per diluted share in the second quarter of fiscal 2012, up 16% from the comparable prior-year quarter. The year-over-year surge in earnings was driven by strong top-line growth in the quarter.
Reported earnings beat the Zacks Consensus Estimate of 41 cents per diluted share for the second quarter of fiscal 2012 by 2 cents.
Quarter Highlights
The company reported net revenue of $874 million in the second quarter of fiscal 2012, up 7.3% year over year, driven by double-digit growth in the direct-to-customer segment. The comparable brand revenue (including retail comparable store sales, direct-to-customer sales and other adjustments like shipping fees, sales returns and other discounts associated with current period sales) grew 7.4%.
The company’s net revenue comprises direct-to-customer net revenue and retail net revenue. The direct-to-customers net revenue is generated from sales through e-commerce websites, catalogs and shipping fees. Retail net revenue is generated from sales in retail stores and shipping fees for home delivery of products.
During the second quarter of 2012, direct-to-customer net revenue was $414.4 million, up 12.6%. Retail net revenue grew 3% to $460 million in the quarter.
The company’s adjusted operating margin of 8.0% was flat year over year.
Outlook
Williams-Sonoma expects to report adjusted diluted earnings per share (EPS) in the range of 43 cents to 46 cents for the third quarter of 2012. The company expects to generate net revenue in the range of $905 million to $925 million in the third quarter of 2012, which implies 4% – 7% growth from the comparable quarter of the prior year.
The company expects to report adjusted diluted EPS in the range of $2.44 to $2.51 for fiscal 2012. The company expects to generate net revenue in the range of $3.98 billion to $4.03 billion in fiscal 2012, implying a 5% – 6% growth from the prior-year quarter.
Williams-Sonoma further announced that it intends to open company-operated stores in Sydney, Australia in early fiscal 2013, representing the Williams-Sonoma, Pottery Barn, Pottery Barn Kids and West Elm brands. These four stores will be an integral part of the company’s long-term strategy of global expansion.
Our Recommendation
We currently have a Neutral recommendation on Williams-Sonoma. The stock carries a Zacks #2 Rank (short-term Buy rating).
We are positive about the company’s year-over-year top-line growth and long term strategy of global expansion. However, we prefer to stay on the sidelines until there are further improvements in the global macroeconomic conditions.
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