Williams-Sonoma Earnings: Consistent Profit Prowess Displays Success of Merchandising Strategy

Shares of no-moat Williams-Sonoma soared 30% during Nov. 20 trading on its third-quarter results and updated outlook, as the business continues to fare well despite a difficult consumer landscape. The third quarter was the fourth consecutive of improving comparable sales declines (down 2.9% versus a 3.3% drop last quarter), with all brands improving sequentially. This implies Williams-Sonoma continues to take share in a home furnishings market the firm noted was down 7% in the period. Themes from the second quarter carried over into the recent period, with gross margin up 230 basis points (46.7%) helped again by strong merchandise margins (130 basis points of the expansion). Also, the operating expense ratio rose 150 basis points (28.9%) weighed by higher advertising spend to facilitate sales. Regardless, this still generated a nearly 18% operating margin, a third-quarter high-water mark for the firm.