What Led Williams-Sonoma’s EBIT Margin to Improve in Q1?



First-quarter gross margin

In the first quarter, Williams-Sonoma (WSM) reported a gross margin of 35.9%, representing a marginal contraction from 36.0% in the first quarter of 2018. Increased shipping costs, primarily due to a greater mix of furniture sales, lowered the company’s gross margin. However, an expansion in its product margin and a decline in its occupancy expenses offset the majority of the contraction in WSM’s gross margin.

Article continues below advertisement

The company’s management has credited its strategy of focusing on relevant products rather than broad-based promotions and improving its supply chain efficiency for its higher product margin. Its occupancy expenses fell 0.4% due to its retail optimization initiatives, the closure of its underperforming stores, and lower occupancy-related other expenditures.

Expansion in EBIT margin

During the quarter, WSM’s SG&A (selling, general, and administrative) expenses fell 0.8% to 28.9% of its total revenue compared to 29.7% in the corresponding quarter of the previous year. The company’s implementation of cost-saving initiatives led to a decline in its advertising, employment, and general expenses, leading to an expansion in its EBIT margin.

Peer comparison and outlook

For the comparable quarter, analysts expect Bed Bath & Beyond (BBBY) and RH (RH) to report EBIT margins of 1.9% and 10.5%, respectively.

For 2019, WSM’s management expects its adjusted operating margin to be in line with its previous year’s margin of 8.5%.


More From Market Realist