Williams-Sonoma, Inc. WSM posted second-quarter fiscal 2026 adjusted earnings of $2.10 per share, up 5% year over year and above the Zacks Consensus Estimate of $2.05 by 2.4%. Net revenues rose 6.7% to $1.96 billion and beat the consensus mark of $1.91 billion by 2.5%.
Comparable brand revenues increased 6.2%, with every major brand posting positive growth. Broad-based brand gains and supply-chain efficiencies supported the quarter, while tariff costs weighed on merchandise margins. Our model predicted consolidated comps growth of 4% for the fiscal second quarter.
However, WSM shares lost about 5% following the earnings release, likely reflecting investor concerns about profitability. Non-GAAP gross margin and operating margin contracted year over year, as lower merchandise margins, primarily due to tariff-related costs, pressured results. Investor sentiment may also have been tempered by the company’s outlook, which assumes that current tariffs will remain in place and oil prices will stay elevated for the remainder of fiscal 2026, potentially sustaining cost pressures.
WSM's Brand Gains Support Revenue Growth
Pottery Barn remained the largest revenue contributor, generating $770.8 million in the quarter. Comparable brand revenues for Pottery Barn increased 5.1% from the year-ago period compared with 1.1% growth in the prior-year quarter.
West Elm delivered $496.3 million of revenues, with comps up 6.4% compared with 3.3% a year ago. Williams Sonoma, including Williams Sonoma Home, generated $268.8 million and posted 7.6% comparable growth compared with 5.1%. Pottery Barn Kids and Teen recorded $297.4 million in revenues, while comps rose 3.5%. The Other category contributed $126.4 million.
Williams-Sonoma Sees Adjusted Margin Pressure
Non-GAAP gross profit totaled $891.6 million, with gross margin of 45.5%, down 160 basis points (bps) year over year. Lower merchandise margins reduced the rate by 230 bps, primarily because of tariff costs. Supply-chain efficiencies contributed 30 basis points of benefit, while occupancy leverage added 40 bps. Our model predicted a 180-bps year-over-year decline in the gross margin to 45.3% for the fiscal second quarter.
Non-GAAP selling, general and administrative expenses were $553.2 million, up 3.1% year over year. The SG&A rate fell 100 bps to 28.2%, helped by 120 basis points of employment expense leverage. Higher general and advertising expenses each added 10 bps.
WSM's Profitability Reflects Tariff Adjustments
Non-GAAP operating income was $338.5 million, up from $328.06 million a year ago. The adjusted operating margin was 17.3%, down 60 bps from 17.9% in the prior-year quarter as gross-margin pressure offset expense leverage. We anticipated the adjusted operating income to drop 3.9% year over year and the operating margin to contract 140 bps to 16.5% for the fiscal second quarter.
On a GAAP basis, operating income was $448.8 million and operating margin reached 22.9%. During the quarter, WSM recognized $167.8 million of tariff refund income as a reduction to cost of goods sold, partly offset by $47.5 million of vendor concessions and a $10.00 million employee recognition cost. The company excluded these items from non-GAAP results. It also excluded $6.4 million of interest income tied to the tariff refund.
Williams-Sonoma Strengthens Cash Generation
Cash and cash equivalents were $1.03 billion at Aug. 2, 2026, compared with $985.8 million a year earlier. Merchandise inventories were $1.45 billion, up 1.0% year over year, net of $29.3 million of deferred tariff refund income recorded as a reduction of inventory. The deferred amount is expected to be recognized as a reduction to cost of goods sold in the third quarter.
For the first 26 weeks of fiscal 2026, net cash provided by operating activities totaled $695.9 million, up from $401.7 million in the year-ago period. WSM repurchased $287.8 million of common stock and paid $175.4 million in dividends over the same period. Purchases of property and equipment were $116.4 million.
WSM Raises Fiscal 2026 Outlook
Williams-Sonoma raised its fiscal 2026 guidance after strong year-to-date performance. The company now expects annual net revenues to increase 4.7% to 7.2%, with comparable brand revenue growth of 4.0% to 6.5%. Non-GAAP operating margin is projected to be between 17.8% and 18.2%.
The outlook assumes currently imposed tariffs remain in place for fiscal 2026, including Section 232 tariffs and existing and newly announced Section 301 tariffs. It also assumes oil prices stay elevated for the rest of the year and no benefit from tariff refunds or related interest.
WSM expects annual interest income of approximately $25 million and an effective tax rate of approximately 26% on a non-GAAP basis. Its long-term targets remain mid-to-high single-digit annual net revenue growth and an operating margin in the mid-to-high teens.
WSM Stock’s Zacks Rank & Peer Releases
Williams-Sonoma currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Home Depot, Inc. HD has delivered solid second-quarter fiscal 2026 results, with the top and bottom lines surpassing the Zacks Consensus Estimate. Adjusted earnings were $4.92 per share, up 5.1% year over year from $4.68. The figure topped the Zacks Consensus Estimate of $4.71.
Home Depot reaffirmed its fiscal 2026 outlook, calling for total sales growth of 2.5-4.5% and comps growth of flat to 2%. The company anticipates earnings per share to be flat to up 4% from $14.23 in the year-ago quarter. Meanwhile, adjusted earnings per share are also projected to be flat to up 4% from the $14.69 reported in the year-ago quarter.
Lowe’s Companies, Inc. LOW reported second-quarter fiscal 2026 adjusted earnings of $4.40 per share, up 1.6% year over year, surpassing the Zacks Consensus Estimate of $4.22. Revenues rose 8.3% to $25,956 million but missed the consensus estimate of $26,135 million.
Lowe’s expects fiscal 2026 total sales of $92 billion compared with its prior range of $92-$94 billion. Comparable sales are projected to be flat, versus the previous expectation of flat to up 2%. The revision reflects first-half operating results and current demand trends.
Wayfair W reported second-quarter 2026 earnings of 95 cents per share, which beat the Zacks Consensus Estimate of 94 cents. Net revenues for the second quarter of 2026 rose 7.5% year over year to $3.52 billion, surpassing the Zacks Consensus Estimate of $3.47 billion by 1.41%.
For the third quarter of 2026, Wayfair expects revenues to grow in the high single digits year over year. Adjusted EBITDA margin is guided in the 6% to 7% range for the third quarter.
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Williams-Sonoma, Inc. (WSM): Free Stock Analysis Report
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Wayfair Inc. (W): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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