Williams-Sonoma (WSM)

Kitchenware and home goods retailer Williams-Sonoma (NYSE:WSM) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 2.7% year on year to $1.84 billion. Its GAAP profit of $2 per share was 11.4% 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 sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $7.83 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 5.1% 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 grew its revenue by 2.7% year on year, and its $1.84 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us 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 509 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

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Williams-Sonoma’s demand has been shrinking over the last two years as its same-store sales have averaged 2.8% annual declines. 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 3.7% 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 45.9% gross margin over the last two years. That means for every $100 in revenue, only $54.08 went towards paying for inventory, transportation, and distribution.

Williams-Sonoma produced a 47.1% gross profit margin in Q2, in line with the same quarter last year and exceeding analysts’ estimates by 5.6%. 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.

This quarter, Williams-Sonoma generated an operating margin profit margin of 17.9%, up 2.3 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Williams-Sonoma’s EPS grew at a remarkable 26.6% compounded annual growth rate over the last six years, higher than its 5.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q2, Williams-Sonoma reported EPS of $2, up from $1.67 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Williams-Sonoma’s full-year EPS of $9.00 to shrink by 2.5%.

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 3.7 percentage points over the last year. This decrease warrants extra caution because Williams-Sonoma failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Williams-Sonoma’s free cash flow clocked in at $230.7 million in Q2, equivalent to a 12.6% margin. This cash profitability was in line with the comparable period last year but below its two-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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 44.7%, splendid for a consumer retail business.

Williams-Sonoma reported $985.8 million of cash and $1.39 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 $1.71 billion of EBITDA over the last 12 months, we view Williams-Sonoma’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $42.9 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’ earnings expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.7% to $203 immediately after reporting.

Updated: November 16, 2025 at 9:34 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Williams-Sonoma.

Williams-Sonoma isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was a little slower over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its declining physical locations suggests its demand is falling.

Williams-Sonoma’s P/E ratio based on the next 12 months is 21.4x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $204.32 on the company (compared to the current share price of $184.43).