Discussing Williams-Sonoma, Inc. (NYSE:WSM) on the August 26 episode of Mad Money, Jim Cramer said:
This morning, we got results from one of the best-performing retailers of the year. It’s Williams-Sonoma, which is also the parent company of Pottery Barn and West Elm, among others. They posted a healthy top and bottom-line beat. Raised full-year forecast across the board. But initially, the stock sold off hard. That was wrong. It opened down 5%. That was stupid because the stock was already up 31%. Maybe that’s what was going on… That said though, buyers came around. Stock finished up 1% for the day.
Strong Sales, But Margins Still Matter
Williams-Sonoma, Inc. (NYSE:WSM) reported second-quarter revenue of nearly $1.96 billion, up 6.7% year over year, while comparable-brand revenue increased 6.2%. Non-GAAP diluted earnings per share were $2.10. Williams Sonoma comparable sales rose 7.6%, West Elm rose 6.4%, and Pottery Barn rose 5.1%. Management raised fiscal 2026 guidance to revenue growth of 4.7% to 7.2%, comparable-brand revenue growth of 4% to 6.5% and non-GAAP operating margin of 17.8% to 18.2%. CFO Jeff Howie said the outlook assumes no housing recovery or material change in housing turnover or interest rates. That makes the company’s market-share gains important. Management said the home-furnishings industry was essentially flat. Howie also said the company increased full-price penetration without discounting.
Margin Recovery Still Has to Materialize
The problem is margin pressure. Non-GAAP gross margin fell to 45.5%, down 160 basis points year over year, while non-GAAP operating margin was 17.3%. Tariffs reduced merchandise margins by 230 basis points. Management expects tariff pressure to moderate after the second quarter, which it described as the peak period for tariff costs. But higher oil prices are still affecting transportation and supplier costs, leaving the timing of a full margin recovery uncertain. Williams-Sonoma, Inc. (NYSE:WSM) is gaining market share and growing without relying on a housing recovery, but sales growth has not yet translated into higher non-GAAP margins. If tariff-related pressure takes longer to ease, or other costs remain elevated, earnings could grow more slowly than revenue.
Hedge-Fund Interest Rises as Short Interest Stays Moderate
Institutional positioning has improved. According to Insider Monkey’s tracking of more than 1,000 hedge funds, 48 hedge funds held WSM in the second quarter, up from 39 in the first quarter. Short interest points to measured caution rather than an aggressively crowded bearish trade, at 4.55% of the public float.
Williams-Sonoma, Inc. (NYSE:WSM) is gaining market share, growing without relying on discounting and raising guidance. But the stock now requires margin recovery to accompany that sales growth. Cramer may be right that the initial earnings-day selloff was misplaced. It remains to be seen whether the company’s future earnings can grow fast enough to justify what investors are already paying for that execution.
READ NEXT: Jim Cramer Breaks Down McDonald’s (MCD) Q2 Earnings and Execution Flaws and Jim Cramer Backs NVIDIA (NVDA) Compute Bonds.
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center