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WSM Failed to Meet Comp Brand Revenue Growth Expectations in Q3

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Third-quarter performance

In the third quarter of fiscal 2018, Williams-Sonoma (WSM) posted comparable brand revenue growth of 3.1%, lower than analysts’ expectation of 4.2%. However, the company’s management stated that its demand comp for the quarter stood at 4.6%, and it blamed the delay in product receipts on port congestion for products shipped out of China for the difference between its comp brand revenue growth and demand comp.

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Performance across the brands

During the quarter, Pottery Barn, West Elm, and Williams Sonoma posted comp brand revenue growths of 1.4%, 8.3%, and 2.1%, respectively. The company brand revenue growth of Pottery Barn Kids and Teen remained flat during the quarter.

WSM continues to focus on digital leadership, product innovations, and retail transformation to drive its sales. During the quarter, the company launched its Design Crew Room Planner, a photo-realistic space-planning tool that allows customers to build their floor plans. The tool is built on Outward’s 3D imaging and augmented reality platform, which Williams-Sonoma acquired in November 2017. The company also introduced its cross-brand registry program, the One Registry Collective, in October, allowing customers to create a registry that includes products from across a variety of brands.

The membership of its cross-brand loyalty program, the Key, has grown threefold in the last four quarters. The growth in its membership was driven by improvements in the overall design of the program and the improved ease of the online enrollment process.

In terms of product innovations, the company has expanded its partnership with the Harry Potter franchise to all three of its Pottery Barn brands. WSM has also introduced Design Crew Basics, a proprietary collection of low-priced, high-quality products across all of its brands. Moving on to retail transformation, WSM has remodeled five stores and has opened three new stores during the quarter.

Peer comparison and outlook

During the third quarter, Home Depot (HD) posted same-store sales growth of 4.8%. For 2018, Williams-Sonoma has reiterated its comp brand revenue growth guidance of 3.0%–5.0%. Next, we’ll look at WSM’s fiscal 2018 third-quarter margins.

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