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Summary

  • 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

Segment Revenues (millions)

4Q13

4Q12

Y/Y

Direct-to-customer

$ 706,407

$ 633,503

12%

Retail net revenues

$ 759,917

$ 772,916

-2%

Net revenues

$ 1,466,324

$ 1,406,419

4%

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.

Income Statement

Income Statement

4Q13

4Q12

Y/Y

Net Revenue

$ 1,466,324

$ 1,406,419

4%

Cost of goods sold

$ 870,605

$ 825,687

5%

Gross Margin

$ 595,719

$ 580,732

3%

Selling, general and administrative expenses

$ 377,984

$ 370,291

2%

Operating income

$ 217,735

$ 210,441

3%

Interest (income), net

$ (168)

$ (261)

-36%

Earnings before income taxes

$ 217,903

$ 210,702

3%

Income taxes

$ 84,105

$ 76,968

9%

Net earnings

$ 133,798

$ 133,734

0%

Avg. Diluted Shares

96973

99949

-3%

Earnings per dilutes share

$ 1.38

$ 1.34

3%

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.

Balance Sheet

Balance Sheet

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 330,121

$ 424,555

-22%

Restricted cash

$ 14,289

$ 16,055

-11%

Accounts receivable, net

$ 60,330

$ 62,985

-4%

Merchandise inventories, net

$ 813,160

$ 640,024

27%

Prepaid catalog expenses

$ 33,556

$ 37,231

-10%

Prepaid expenses

$ 35,309

$ 26,339

34%

Deferred income taxes, net

$ 121,486

$ 99,764

22%

Other assets

$ 10,852

$ 9,819

11%

Total current assets

$ 1,419,103

$ 1,316,772

8%

Property and equipment, net

$ 849,293

$ 812,037

5%

Non-current deferred income taxes, net

$ 13,824

$ 12,398

12%

Other assets, net

$ 54,514

$ 46,472

17%

Total asset

$ 2,336,734

$ 2,187,679

7%

Accounts payable

$ 404,791

$ 259,162

56%

Accrued salaries, benefits and other

$ 138,181

$ 120,632

15%

Customer deposits

$ 228,193

$ 207,415

10%

Income taxes payable

$ 49,365

$ 41,849

18%

Current portion of long-term debt

$ 1,785

$ 1,724

4%

Other liabilities

$ 38,781

$ 26,345

47%

Total current liabilities

$ 861,096

$ 657,127

31%

Deferred rent and lease incentives

$ 157,856

$ 171,198

-8%

Long-term debt

$ 1,968

$ 3,753

-48%

Other long-term obligations

$ 59,812

$ 46,463

29%

Total liabilities

$ 1,080,732

$ 878,541

23%

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%!

Conclusion

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!

Source: Williams-Sonoma Earnings Increase 3% Year Over Year, But Is It A Buy?