- Earnings increase 3% from last year.
- Dividend grew 6.5% from the previous year.
- Earnings were helped by share reduction and increased revenue.
Williams-Sonoma Inc. (NYSE:WSM) is a specialty retailer of products for the home, operating stores under the name of Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation. The company reported earnings after the market closed on 12Mar14 and on the surface all the results seemed excellent with the company reporting earnings of $1.38 per share (beating estimates by $0.03) on revenue of $1.46 billion (beating estimates by $30 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.
Segment Revenues (millions)
Retail net revenues
Looking at the segment revenues at first glance is pretty good as you look at the bottom line and notice that revenue was up 4% from last year. First thing I notice is that there was a 12% increase in Direct-to-customer revenue, which accounts for 48% of all revenue.
Cost of goods sold
Selling, general and administrative expenses
Interest (income), net
Earnings before income taxes
Avg. Diluted Shares
Earnings per dilutes share
The income statement looks decent when you look at the bottom line and see a 3% increase in earnings per share when compared to last year. The company executed pretty well by increasing gross margins by 3% and operating income by the same amount. Interest income happened to decrease by 36% but didn't really affect earnings before income taxes which increased 3%. Net earnings however were flat.
Cash and cash equivalents
Accounts receivable, net
Merchandise inventories, net
Prepaid catalog expenses
Deferred income taxes, net
Total current assets
Property and equipment, net
Non-current deferred income taxes, net
Other assets, net
Accrued salaries, benefits and other
Income taxes payable
Current portion of long-term debt
Total current liabilities
Deferred rent and lease incentives
Other long-term obligations
On the current asset side of things we saw a 22% drop in cash and cash equivalents along with an 11% drop in restricted cash. Merchandise inventories increased 27% while prepaid expenses increased 34%. Deferred income taxes increased 22% and other current assets increased 11%. In total, all current assets increased 8%. Non-current deferred income taxes increased 12% and all other assets increased 17% which helped all total assets increase 7%. From a short-term liabilities standpoint the important things I noticed were a 56% increase in accounts payable, 15% increase in accrued salaries and 10% increase in customer deposits. Income taxes payable increased 18% while other current liabilities increased a whopping 47%! Total current liabilities increased 31%! Long-term debt decreased 48% while other long-term obligations increased 29%. Total liabilities however have increased 23%!
The company reported earnings which were 3% higher than the year before on 4% more revenue while the share price was up 27.39% in the past year excluding dividends. The increase in earnings was due primarily to financial engineering in the form of share reductions. This earnings report is decent because revenue increase, but what held earnings back was the increase in taxes. On a fundamental basis I believe this company is fairly valued with respect to 2015 earnings. The stock was up 6.66% after-hours on the day of reporting earnings. The company also increased the dividend 6.5%! I think I'll be buying small batches of the stock here.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long WSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.