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WILLIAMS SONOMA INC (WSM)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 2026 delivered broad-based strength: revenue $1.84B, comparable brand revenue +3.7%, gross margin 47.1%, operating margin 17.9%, and diluted EPS $2.00, with operating margin expanding +240bps YoY and EPS +19.8% YoY .
  • Significant beat vs S&P consensus: EPS $2.00 vs $1.81*, revenue $1.84B vs $1.83B*; prior quarter (Q1 2026) also beat on both EPS and revenue*, reinforcing estimate momentum. Guidance raised on the top line and maintained on operating margin amid tariff volatility .
  • Top-line FY2025 guidance raised to net revenues +0.5% to +3.5% and comps +2% to +5%, while operating margin held at 17.4%–17.8% due to higher tariff costs; interest income ~$30M and ETR ~26.5% added for modeling .
  • Management highlighted actionable catalysts: accelerating furniture and non-furniture comps across core and emerging brands; AI already driving measurable conversion gains and cost savings; B2B comp +10% and contract near record .

What Went Well and What Went Wrong

What Went Well

  • All brands again posted positive comps; retail +7.3% and e-commerce +2% comps, with furniture and non-furniture both positive, underscoring balanced demand recovery and execution .
  • Gross margin outperformed expectations at 47.1%, driven by select price increases, higher full-price selling (+190bps merchandise margin) and supply chain efficiencies (+30bps) .
  • AI initiatives are delivering “very real impact” in financial results (higher conversion and measurable cost savings); scaling an AI customer-service assistant across brands, plus supply chain and internal automations .

What Went Wrong

  • Tariff headwinds intensified: incremental tariff rate doubled to 28% since Q1 (China 30%, India 50%, Vietnam 20%, ROW ~18%, steel/aluminum 50%, copper 50%), forcing operating margin guidance to be reiterated rather than raised .
  • Employment expense deleveraged 100bps within SG&A due to higher incentive compensation tied to strong results, partially offsetting lower advertising and general expense leverage .
  • Management emphasized tariff uncertainty and elasticity risk by category; price actions are surgical with vigilance on competitive value, but near-term gross margin pressure may build as higher-cost inventory flows through .

Financial Results

Headline Metrics vs Prior Periods

MetricQ4 2025Q1 2026Q2 2026
Net Revenues ($USD Billions)$2.462 $1.730 $1.837
Comparable Brand Revenue Growth (%)+3.1 +3.4 +3.7
Gross Margin (%)47.3 44.3 47.1
Operating Margin (%)21.5 16.8 17.9
Diluted EPS ($)$3.28 $1.85 $2.00

Actuals vs S&P Global Consensus

MetricQ1 2026Q2 2026
EPS Consensus Mean ($)1.7536*1.8135*
EPS Actual ($)1.85 2.00
EPS Surprise ($ / %)+0.0964* / +5.5%*+0.1865* / +10.3%*
EPS # of Estimates20*18*
Revenue Consensus Mean ($USD Billions)1.6693*1.82798*
Revenue Actual ($USD Billions)1.730 1.837
Revenue Surprise ($ / %)+0.0608* / +3.6%*+0.0098* / +0.5%*

Values retrieved from S&P Global.

Segment Breakdown (Q2 2026)

BrandNet Revenues ($USD Millions)Comparable Brand Revenue Growth (%)
Pottery Barn$724.6 +1.1
West Elm$468.6 +3.3
Williams Sonoma$249.1 +5.1
Pottery Barn Kids & Teen$286.7 +5.3
Other (Rejuvenation, Mark & Graham, International Franchise, GreenRow)$107.8 N/A

KPIs and Channels

KPIQ1 2026Q2 2026
Retail Channel Comp (%)+6.2 +7.3
E-commerce Channel Comp (%)+2.1 +2.0
B2B Comparable Growth (%)+8 +10

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2026)Current Guidance (Q2 2026)Change
Net Revenue (YoY)FY2025-1.5% to +1.5% +0.5% to +3.5% Raised
Comparable Brand RevenueFY2025Flat to +3.0% +2% to +5% Raised
Operating MarginFY202517.4%–17.8% 17.4%–17.8% Maintained
Interest IncomeFY2025N/A~$30M New detail
Effective Tax RateFY2025N/A~26.5% New detail
Capital ExpendituresFY2025$250–$275M $250–$275M Maintained
Quarterly DividendFY2025$0.66 (raised on 3/19/25) $0.66 (continue paying) Maintained
Share Repurchase Authorization RemainingFY2025$1.1B ~$900M Lower remaining (buybacks executed)
Tariff AssumptionsFY2025China 30%, reciprocal 10% Incremental tariff rate doubled to 28%; China 30%, India 50%, Vietnam 20%, ROW ~18%, steel/aluminum 50%, copper 50% Higher tariff headwinds

Note: FY2024 had a 53rd week contributing ~150bps to revenue and ~20bps to operating margin; FY2025 comps reported on 52-week vs 52-week basis .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2025, Q1 2026)Current Period (Q2 2026)Trend
AI/TechnologyQ1: Integrating AI across digital, personalization; supply chain improvements .Scaling AI service assistant across brands; measurable conversion/cost improvements; proprietary AI platform amplifies vertical integration .Strengthening; tangible ROI now evident.
Supply ChainQ4/Q1: Efficiency gains, on-time delivery, lower returns; front-loading inventory against tariffs .“All-time best” service metrics, efficiency savings; inventory includes ~$70M lower-tariff receipts and ~$20M incremental tariff costs .Efficiency momentum sustained; tariff-mitigation via receipts.
Tariffs/MacroQ1: Absorbing China 30% and reciprocal 10% tariffs; reiterating margin guidance .Incremental rate doubled to 28%; detailed global tariff mix; margin guide reiterated to preserve flexibility .Tariff pressure increasing; focus on mitigation, price/value.
Product PerformanceQ4/Q1: Seasonal and furniture strength; collaborations (Pearson Ward, AERIN, Breville Brass) .Positive comps in furniture and non-furniture across brands; fall launch momentum, collaborations continue to drive demand .Broad-based demand; newness driving comps.
B2BQ1: Record quarter; +8% growth; hospitality/education pipelines .+10% comp; near-record contract quarter; differentiation via commercial-grade assortment .Accelerating; strong pipeline.
Regional TrendsQ1: Canada, Mexico expansion; UK online launch upcoming .Strength across Canada, Mexico, India, UK; Pottery Barn UK online launch this fall .Expanding presence; sustained momentum.
Strategic M&A/White SpaceQ1: Emerging brands growth .Dormify IP acquisition to expand dorm category; planned relaunch 2026 .Targeted expansion into life-stage white space.

Management Commentary

  • “We exceeded profitability estimates with an operating margin of 17.9% and earnings per share of $2, with earnings growth of nearly 20%... positive comps in both furniture and non furniture and strong performance in our retail and e commerce channels” — Laura Alber .
  • “We are raising our top line guidance... we are reiterating our expectation that our full year operating margin will be in the range of 17.4% to 17.8%... incremental tariff rates have doubled since our Q1 earnings call” — Laura Alber .
  • “Operating income grew 18% to $328M... Merchandise margins accounted for 190bps of our gross margin improvement... Supply chain efficiencies drove the remaining 30bps” — Jeff Howie .
  • “Our incremental tariff rate has doubled... to 28%... includes the additional 30% China tariffs, 50% India tariff, 20% Vietnam tariff, average 18% on the rest of the world, as well as the 50% steel and aluminum and 50% copper tariffs” — Jeff Howie .
  • “We are already seeing very real impact in financial results from [AI]... higher conversion and sales growth to measurable cost savings and productivity gains” — Laura Alber .

Q&A Highlights

  • Pricing strategy and elasticity: Price actions are surgical, focused on value and differentiation; category-specific elasticity with less sensitivity for proprietary/differentiated SKUs; higher full-price mix supported margins .
  • Gross margin vs SG&A bridge: Gross margin will be pressured by tariffs in the back half; supply chain efficiencies and SG&A levers expected to partially offset; margin guidance reiterated to preserve flexibility .
  • Tariff phasing: Weighted-average cost method implies gradually building tariff impact through the year; too early to discuss FY2026 effects given policy volatility .
  • Resourcing and Made in USA: Flexible multi-sourcing strategy; expanding Made-in-USA capabilities with upholstery and Rejuvenation manufacturing; industry capacity limits likely slow full reshoring .
  • Demand cadence: No evidence of demand pull-forward; comps have been consistent across recent quarters, driven by newness, innovation, and whitespace initiatives like Dorm and West Elm Kids .

Estimates Context

  • Q2 2026 beat: EPS $2.00 vs $1.81*, revenue $1.84B vs $1.83B*; Q1 2026 also beat on EPS and revenue*, suggesting upside bias to near-term models. Raised FY2025 comp and revenue guidance likely drives upward revisions to sell-side top line, while margin guidance held amid higher tariffs tempers EBITDA/EPS raises .
  • Expect estimate dispersion to narrow as tariff flow-through clarifies and AI/supply chain benefits quantify in 2H. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Broad-based demand recovery: Positive comps across brands, channels, and categories; furniture returning to growth is a key inflection for the thesis .
  • Quality of beat: Strong gross margin execution via price/mix and efficiency; EPS and revenue beats vs consensus reinforce operational discipline .
  • Guidance strategy: Top-line raised; margin held to protect customer service and growth amid tariff volatility—expect near-term multiples to reflect confidence in revenue while debating margin durability .
  • AI as an operational moat: Proprietary data + vertical integration enable measurable conversion uplift and cost savings; early ROI positions WSM ahead of peers .
  • B2B acceleration: +10% comp and near-record contract quarter support diversified growth vectors less sensitive to consumer cycles .
  • Tariff risk managed, not eliminated: Doubling of incremental rates underscores macro policy risk; mitigation plan (vendor concessions, resourcing, efficiencies, selective pricing, Made in USA) is credible but warrants monitoring .
  • Actionable setup: Momentum into fall/holiday, collaborations driving brand heat, elevated in-stock/on-time delivery metrics; traders should watch for back-half gross margin trajectory vs tariff timing and any subsequent guidance updates .

Appendix: Additional Data and Disclosures

  • Q2 balance sheet highlights: Cash $986M; inventory $1.43B (+17.7% YoY) including ~$70M pull-forward at lower tariffs and ~$20M incremental tariff costs; shareholder returns $280M (repurchases $199M, dividends $81M) .
  • FY2024 calendar effects: 53rd week added ~150bps revenue and ~20bps operating margin; Q1 FY2024 included a $49M out-of-period freight adjustment benefiting prior-year comparisons .
  • Dormify IP acquisition to expand dorm white space; relaunch expected in 2026 .