Williams-Sonoma, Inc. (WSM) Earnings

Management highlights

- Overall Q1 2026 Results - Delivered operating income of $292 million with an operating margin of 16.2%, which exceeded analyst expectations - Diluted earnings per share came in at $1.93, a 4% increase year-over-year - Gross margin was 44%, down 30 basis points year-over-year, partially offset by 50 basis points of benefit from supply chain efficiencies - SG&A was 27.8% of revenue, up 30 basis points year-over-year, with advertising leverage of 10 basis points from disciplined spend optimization - Returned $373 million to shareholders via $288 million in share repurchases and $85 million in dividends (a 15% year-over-year dividend increase) - Gained market share as the overall home furnishings market declined low single digits in Q1, while maintaining stable full-price selling - Operational and Strategic Initiatives - Expanded artificial integration across the customer journey, scaled personalization, and optimized the shopping/checkout experience; used AI to improve customer care, product discovery, and design tools - Drove supply chain efficiency improvements focused on on-time delivery, lower returns, and cost reduction, which helped offset headwinds from higher tariffs and fuel costs - Maintained lean organizational cost structures and managed variable costs to preserve profitability amid macro headwinds - Announced leadership changes at Pottery Barn: promoted Jennifer Kellor to President of Pottery Barn, following the departure of former President Monica Bhargava - Inventories totaled $1.46 billion (up 9% year-over-year), with ~$60 million of incremental embedded tariff costs; inventory composition is well positioned to support sales and service goals - Capital expenditure totaled $58 million in Q1, focused on long-term growth initiatives

Guidance

- Management maintained the full-year 2026 guidance it issued after Q4 2025, declining to raise guidance despite a Q1 earnings beat due to ongoing external uncertainty - Full-year comparable brand revenue growth is projected at 2% to 6%, with total net revenue growth expected to be 2.7% to 6.7% - Operating margin is projected to be 17.5% to 18.1%, with a midpoint of 17.8% - Guidance assumes no material housing market recovery, and continued volatility in geopolitics, energy prices, trade policy, tariffs, and interest rates. It does not include any potential benefit from future tariff refunds due to regulatory uncertainty - Tariff impact is expected to be front-half weighted, with peak impact in Q2, moderating through the second half of the year. Guidance assumes all current tariffs remain in place for the full year, with expiring Section 122 tariffs replaced by similar rates - Full-year capital expenditure guidance is unchanged at ~$275 million, with 95% of investment focused on e-commerce, retail, and supply chain. Full-year year-end store count is expected to be flat to 2025, with 1% to 3% annual store count growth starting in 2027 - The 70 basis point non-comparable revenue growth benefit from retail investment is still projected for the full year, with most of this benefit coming in the second half due to construction timelines - Full-year interest income is expected to be ~$25 million, with an effective full-year tax rate of ~25.5% - Capital allocation priorities remain unchanged: fund internal operations and growth, then return excess cash to shareholders via dividend increases and opportunistic share repurchases; there is ~$1.1 billion remaining under current share repurchase authorizations - Long-term guidance is reiterated: mid- to high-single-digit annual revenue growth and operating margins in the mid- to high-teens

Segment performance

Williams-Sonoma, Inc. reported Q1 2026 total net revenue of $1.81 billion with 4.8% comparable growth across the entire company. All individual brand segments delivered positive comparable growth: - Pottery Barn: 1% positive comp; saw improvements across furniture, lighting, and textiles, with strong retail performance and improving DTC digital experience - Pottery Barn Children's: 4.5% positive comp; growth driven by product innovation, successful collaborations, strong momentum in baby registry and gifting, and the launch of new Dormify brand for dorm/small space living - West Elm: 8.5% positive comp; driven by strong new product introductions, standout retail performance, and high-performing collaborations that attracted younger customers; 5 new store openings planned for 2026 - Williams-Sonoma: 5% positive comp (following 7.3% comp growth in the prior year); growth in the core kitchen category driven by exclusive in-house designs, multiple high-profile collaborations, growing momentum in Williams-Sonoma Home, and strong in-store experiential engagement - B2B: 13.7% total growth; 9% growth in the trade segment and 22% growth in the contract segment, marking a new record quarterly revenue for the division - Emerging Brands: Rejuvenation delivered double-digit comp growth driven by project-led categories and trade engagement; Mark and Graham delivered double-digit comp growth as a leading personalized gift destination; GreenRow continued growing and opened its first physical store in SoHo - Global business: Strong performance across Canada, Mexico, and the U.K. driven by omnichannel improvements and growth in design/trade segments On a channel basis, e-commerce delivered 4.8% comp growth and retail delivered 4.7% comp growth. Both furniture and non-furniture categories posted positive accelerating comps.

Risks & headwinds

- Ongoing macroeconomic and external uncertainty, including geopolitical conflict, volatile fuel and energy prices, trade policy changes, shifting interest rates, and a weak housing market, create unpredictability for full-year results - Existing tariffs on imported goods increase cost of goods sold, pressuring merchandise margins; policy changes could lead to unexpected additional cost pressure - Higher oil and fuel prices increase ocean freight and domestic shipping costs, which could pressure margins if current mitigation efforts are insufficient - Extreme unforeseen outlier events cannot be planned for and could materially impact actual results relative to guidance

Analyst Q&A

• Q: What has consumer behavior looked like this quarter, and would persistent inflation require future price increases?

  A: Williams-Sonoma has seen consistent strong consumer demand across product categories, channels, and income cohorts, driven by a distinctive, appealing product pipeline and strong brand trust in quality and value. Current oil prices at recent levels are already fully embedded in full-year guidance, and supply chain efficiencies have offset most cost pressure to date. Management noted it is too early to comment on future price changes, and the brand competes on full product experience rather than just price, so customers are relatively less price sensitive for its exclusive offerings.

• Q: How sustainable is the current strong growth at West Elm, and what is driving its recent acceleration?

  A: West Elm's strong performance is broad-based, not driven by promotions, and management expects the momentum to be sustainable. The brand built its growth foundation over multiple quarters, resolving prior inventory issues to support new product introductions, and growth is coming from both core category expansion and high-profile collaborations like the Emma Chamberlain collection that attract new younger customers. There is still plenty of untapped growth opportunity in underdeveloped categories for the brand.

• Q: What is driving the strong performance of your B2B/trade segment, and how do you compete with increasingly promotional competitors?

  A: B2B had its largest ever quarter in Q1, with 9% trade growth and 22% contract growth. Trade growth is not driven by pricing or promotions; the company competes on deep local relationships between stores and local designers, plus strong product selection and delivery service. The biggest growth opportunity remains on the contract side, where management is targeting long-term growth to $2 billion in revenue, and the division recently won industry awards that signal strong growing market recognition.

• Q: What initiatives will drive further acceleration at Pottery Barn for the rest of the year?

  A: Management is prioritizing improvements to the DTC digital experience, starting with upgraded product photography that aligns with Pottery Barn's classic heritage aesthetic, which is already resonating with customers and will get even stronger in the fall season. The brand is also developing new popular product looks across high-priority furniture and textile categories, and continues optimizing in-store experiences to drive incremental growth.