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Why Williams-Sonoma’s Net Margin Improved

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May. 28 2018, Updated 6:34 a.m. ET

Q1 2018 performance

Williams-Sonoma (WSM) posted a gross margin, EBITDA margin, and net margin of 36.0%, 10.2%, and 4.7%, respectively. These margins were at 35.6%, 10.2%, and 4.0%, respectively, in the corresponding quarter of the previous year.

During the quarter, WSM’s adjusted gross margin improved by 0.4% due to a new revenue recognition standard, and it also benefitted from improved supply chain efficiencies and lower occupancy expenses. Selling, general, and administrative expenses increased from 29.5% in the corresponding quarter of the previous year to 29.7% due to the new accounting standard, which was partially offset by a decline in labor and advertising expenses.

The lower effective income tax rate benefitted the company’s net margins. The company’s effective tax rate stood at 23.8% during the quarter, compared to 34.5% in the corresponding quarter of the previous year due to tax reforms in December 2017.

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Peer comparisons

Home Depot (HD) and Lowe’s Companies (LOW) posted net margins of 9.6% and 5.7%, respectively, while the net margin for Bed Bath & Beyond (BBBY) is expected at 1.6%.

Outlook

For the next four quarters, analysts expect WSM to post a gross margin, EBITDA margin, and net margin of 36.6%, 11.8%, and 6.3%, respectively. The margins were at 36.6%, 12.3%, and 6.0%, respectively, in the corresponding four quarters of the previous year.

Next in this series, we’ll look at WSM’s EPS for the first quarter.

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