Williams-Sonoma (WSM)

Kitchenware and home goods retailer Williams-Sonoma (NYSE:WSM) announced better-than-expected revenue in Q3 CY2025, with sales up 4.6% year on year to $1.88 billion. Its GAAP profit of $1.96 per share was 4.7% above analysts’ consensus estimates.

Company Overview

Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE:WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.

Furniture retailers understand that ‘home is where the heart is’ but that no home is complete without that comfy sofa to kick back on or a dreamy bed to rest in. These stores focus on providing not only what is practically needed in a house but also aesthetics, style, and charm in the form of tables, lamps, and mirrors. Decades ago, it was thought that furniture would resist e-commerce because of the logistical challenges of shipping large furniture, but now you can buy a mattress online and get it in a box a few days later; so just like other retailers, furniture stores need to adapt to new realities and consumer behaviors.

Competitors that offer kitchenware and home goods include TJX (NYSE:TJX), Target (NYSE:TGT), and Walmart (NYSE:WMT).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $7.91 billion in revenue over the past 12 months, Williams-Sonoma is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Williams-Sonoma’s sales grew at a tepid 5% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it closed stores.

This quarter, Williams-Sonoma reported modest year-on-year revenue growth of 4.6% but beat Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months, a deceleration versus the last six years. This projection is underwhelming and suggests its products will see some demand headwinds.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Williams-Sonoma operated 513 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 2% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Williams-Sonoma’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and Williams-Sonoma is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Williams-Sonoma’s same-store sales rose 4% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Williams-Sonoma has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 46% gross margin over the last two years. That means Williams-Sonoma only paid its suppliers $54.02 for every $100 in revenue.

Williams-Sonoma’s gross profit margin came in at 46.1% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Williams-Sonoma’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 18.3% over the last two years. This profitability was elite for a consumer retail business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Williams-Sonoma’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Williams-Sonoma generated an operating margin profit margin of 17%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Williams-Sonoma has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 14.9% over the last two years.

Taking a step back, we can see that Williams-Sonoma’s margin dropped by 1.9 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

Williams-Sonoma’s free cash flow clocked in at $248.1 million in Q3, equivalent to a 13.2% margin. This result was good as its margin was 3.7 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Williams-Sonoma hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 44.4%, splendid for a consumer retail business.

Williams-Sonoma reported $884.7 million of cash and $1.47 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.73 billion of EBITDA over the last 12 months, we view Williams-Sonoma’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $40.88 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Williams-Sonoma blew past analysts’ EBITDA expectations this quarter. We were also glad its gross margin outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. Investors were likely hoping for more, and shares traded down 6.5% to $169 immediately following the results.

Updated: December 4, 2025 at 9:42 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Williams-Sonoma isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue has declined over the last three years. And while its impressive operating margins show it has a highly efficient business model, the downside is its declining physical locations suggests its demand is falling. On top of that, its poor same-store sales performance has been a headwind.

Williams-Sonoma’s P/E ratio based on the next 12 months is 20.1x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $198.21 on the company (compared to the current share price of $176.66).