Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • Revenues increased 10% and earnings increased 22%.
  • The stock is fairly valued on 2015 earnings estimates.
  • Comp store sales were very healthy.

The last time I wrote about Williams-Sonoma Inc. (NYSE:WSM) I stated:

"I'm going to actually pull the trigger on this particular name in the face of this market pullback."

Since that article was published, the stock is up 20.4% while the S&P 500 (NYSEARCA:SPY) is up 6.41%. Williams-Sonoma 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 21May14 and on the surface the results were great with the company reporting earnings of $0.48 per share (beating estimates by $0.04) on revenue of $974.33 million (beating estimates by $32.45 million). The stock increased 5.7% in after-hours trading and 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.

Income Statement

Segment Revenues (millions)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Direct to customer

$ 491,289

$ 706,407

$ 419,084

-30%

17%

Retail net revenues

$ 483,041

$ 759,917

$ 468,724

-36%

3%

Net revenues

$ 974,330

$ 1,466,324

$ 887,808

-34%

10%

Looking at the segment revenues at first glance is pretty good as you look at the bottom line and notice that revenue was up 10% from last year. First thing I notice is that there was a 17% increase in Direct-to-customer revenue, which accounts for 50% of all revenue.

Balance Sheet

Income Statement

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net Revenue

$ 974,330

$ 1,466,324

$ 887,808

-34%

10%

Cost of goods sold

$ 605,922

$ 870,605

$ 553,623

-30%

9%

Gross Margin

$ 368,408

$ 595,719

$ 334,185

-38%

10%

Selling, general and administrative expenses

$ 294,082

$ 377,984

$ 270,402

-22%

9%

Operating income

$ 74,326

$ 217,735

$ 63,783

-66%

17%

Interest (income), net

$ (69)

$ (168)

$ (189)

-59%

-63%

Earnings before income taxes

$ 74,395

$ 217,903

$ 63,972

-66%

16%

Income taxes

$ 28,233

$ 84,105

$ 24,506

-66%

15%

Net earnings

$ 46,162

$ 133,798

$ 39,466

-65%

17%

Avg. Diluted Shares

95618

96973

99515

-1%

-4%

Earnings per dilutes share

$ 0.48

$ 1.38

$ 0.40

-65%

22%

With the 10% on the top-line I'd expect the bottom line to exhibit the same characteristics but we got an even bigger boost, to the tune of 22%! The company executed pretty well, increasing gross margins by 10% and operating income by 17%. Interest income happened to decrease by 63% but didn't really affect earnings before income taxes which increased 16%. Income taxes increased for obvious reasons to the tune of 15%, bringing net earnings to an increase of 17% from last year. After a 4% reduction to shares, the bottom line saw a 22% increase from the prior year.

Balance Sheet

1Q14

4Q13

1Q13

Q/Q

Y/Y

Cash and cash equivalents

$ 112,870

$ 330,121

$ 252,536

-66%

-55%

Restricted cash

$ 14,295

$ 14,289

$ 16,061

0%

-11%

Accounts receivable, net

$ 54,725

$ 60,330

$ 60,667

-9%

-10%

Merchandise inventories, net

$ 850,416

$ 813,160

$ 661,541

5%

29%

Prepaid catalog expenses

$ 34,986

$ 33,556

$ 36,407

4%

-4%

Prepaid expenses

$ 79,491

$ 35,309

$ 52,695

125%

51%

Deferred income taxes, net

$ 121,443

$ 121,486

$ 99,739

0%

22%

Other assets

$ 9,261

$ 10,852

$ 9,434

-15%

-2%

Total current assets

$ 1,277,487

$ 1,419,103

$ 1,189,080

-10%

7%

Property and equipment, net

$ 837,012

$ 849,293

$ 817,249

-1%

2%

Non-current deferred income taxes, net

$ -

$ 13,824

$ 10,738

-100%

-100%

Other assets, net

$ 53,601

$ 54,514

$ 46,152

-2%

16%

Total asset

$ 2,168,100

$ 2,336,734

$ 2,063,219

-7%

5%

Accounts payable

$ 369,279

$ 404,791

$ 211,086

-9%

75%

Accrued salaries, benefits and other

$ 88,796

$ 138,181

$ 84,886

-36%

5%

Customer deposits

$ 233,563

$ 228,193

$ 222,018

2%

5%

Income taxes payable

$ 2,571

$ 49,365

$ 13,377

-95%

-81%

Current portion of long-term debt

$ 1,785

$ 1,785

$ 1,696

0%

5%

Other liabilities

$ 40,232

$ 38,781

$ 27,207

4%

48%

Total current liabilities

$ 736,226

$ 861,096

$ 560,270

-15%

31%

Deferred rent and lease incentives

$ 158,339

$ 157,856

$ 172,312

0%

-8%

Long-term debt

$ 1,968

$ 1,968

$ 3,753

0%

-48%

Non-current deferred income taxes, net

$ 2,850

$ -

$ -

N/A

N/A

Other long-term obligations

$ 60,425

$ 59,812

$ 44,666

1%

35%

Total liabilities

$ 959,808

$ 1,080,732

$ 781,001

-11%

23%

From a balance sheet perspective, there was a 55% decrease on the cash and equivalents line item. Restricted cash decreased by 11%, but the bulk of the short-term assets is found in merchandise inventories which increased by 29%! Prepaid expenses increased by 51% and deferred income taxes increased by 22% to help bring total current assets to a 7% increase from last year. There was a complete reduction of non-current deferred income taxes and 16% increase to other assets that helped bring total assets to an increase of 5%.

On the other side of the equation, accounts payable increased 75% while income taxes payable decreased 81%, and other short-term liabilities increased 48%, bringing a 31% increase in total current liabilities. Long-term debt decreased by 48% while other long-term obligations increased by 35%, making total liabilities increase 23% from the prior year.

Conclusion

The company reported earnings which were 22% higher than a year ago on 10% more revenue while the share price was up 15.81% since the last earnings call. These were good results to me and make me want to buy shares of the company. The stock is one of the average-sized positions in my dividend portfolio. Second quarter guidance is a bit below estimates, but full year 2015 was guided higher. That being said, I think the stock is fairly valued and I'll be buying it on any dips. With these results, the stock is on my team and in the starting lineup.

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 Throws Out An Excellent Quarter