Williams-Sonoma, Guess?, and Express surprised with their stellar Q1 performance. What stands out at this point is that these retailers have managed to grow sales and expand operating margins despite the macro and margin headwinds.
Thanks to the stellar Q1 performance, shares of Williams-Sonoma and Guess? are trading higher in the pre-market session. Meanwhile, Express stock, which closed 6.7% higher on Wednesday following its Q1 results, is down about 5% in the pre-market session on Thursday.
Let’s look at how these companies fared in Q1 and what the future holds.
Williams-Sonoma (NYSE: WSM)
Home furnishings and kitchenware retailer Williams-Sonoma delivered EPS of $3.50 on revenues of $1.89 billion. This compared favorably to the Street’s estimates of an EPS of $2.90 on revenues of $1.81 billion. Furthermore, its top and bottom line improved by 8.1% and 19.5%, respectively.
Its multi-brand portfolio and strong demand drove the comparable sales and overall revenues. Meanwhile, its adjusted operating margin expanded by 120 basis points as higher demand for full-priced products more than offset the negatives stemming from higher product and freight costs.
Williams-Sonoma expects to deliver mid to high single-digit revenue growth in 2022. Furthermore, it is confident that, despite ongoing cost challenges, it will be able to maintain operating margins relatively in line with those of 2021. Sales leverage and focus on high-margin segments like B2B and e-commerce will likely cushion its margins.
While WSM’s outlook impresses, Wells Fargo analyst Zachary Fadem believes a “deteriorating macro narrative” and rising margin pressures could negatively impact its performance. Fadem stated, “WSM is doing it right and valuation screens favorable (-49% vs. 3-yr P/E avg), but looming macro headwinds keep us sidelined.”
On TipRanks, WSM stock has a Hold consensus rating, based on five Buy, five Hold, and Six Sell recommendations. Moreover, due to the negative indicators from hedge funds, insiders, and retail investors, WSM stock sports a Neutral Smart Score of 5 out of 10. However, given the recent pullback, the average price target of 161.69 implies 40.6% upside potential.
Guess? (NYSE: GES)
Clothing and accessories retailer Guess? posted strong Q1 financial numbers that came ahead of management’s expectations. Its adjusted EPS of $0.24 increased 14.3% year-over-year, reflecting higher sales and margin expansion.
Its net sales increased by 14% (21% on a constant currency basis) to $593.5 million, driven by higher retail and wholesale revenues in the Americas. Its adjusted operating margin expanded by 200 basis points. Moreover, it continued to enhance shareholders’ returns through share repurchases and dividend payments.
GES expects its top line to benefit from category expansion, market share gains, strength in digital business, and a growing store base.
However, currency headwinds could remain a drag. Also, its sales growth could moderate in Q2, while inflationary pressures will likely impact its margins.
GES has received one Buy and one Hold recommendation. Meanwhile, hedge funds have been accumulating GES stock. According to TipRanks’ Hedge Fund Trading Activity tool, hedge funds bought 1.2M GES shares in the last quarter. Further, GES stock has an Outperform Smart Score of 9 out of 10.
Express (NYSE: EXPR)
Apparel and accessories retailer Express delivered robust comparable sales and managed to significantly expand its gross margins in Q1.
EXPR’s net sales improved 30%, driven by strong comparable sales growth of 31%. Strong e-commerce demand, customer acquisitions, and a loyal membership base supported its growth. Moreover, increased sales of high-margin products supported the gross margin, which expanded by 640 basis points.
In response to the Q1 performance, EXPR’s CEO, Tim Baxter, stated that the Q1 “exceeded” management’s expectations due to the double-digit positive comparable sales in major categories and channels. Moreover, he added that Q1 “recorded the highest number of active loyalty program members in the Company’s history.”
Thanks to the strong Q1 performance and ongoing momentum in its business, EXPR expects an 8-10% increase in its full-year comparable sales. Moreover, the gross margin is expected to expand by 100 basis points.
Its multi-channel offerings, store remodeling, strong loyalty program, and increased sales of higher-margin products bode well for growth. However, its business investments, increased labor costs, and inflationary pressure on margins could remain a drag.
Per the TipRanks’ Stock Investors tool, 4.1% of retail investors holding portfolios on TipRanks have sold EXPR stock in the last 30 days. On the contrary, hedge funds bought 498.6K shares in the last quarter. Overall, EXPR stock has a Neutral Smart Score of 7 out of 10.
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