Williams-Sonoma's Q2 2026 Earnings Call: Contradictions Emerge on Pricing Strategy, Tariff Mitigation, and Consumer Spending

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $1.84B; comparable brand sales up 3.7% YOY
• EPS: $2.00 per diluted share, up ~20% YOY
• Gross Margin: 47.1%, up 220 bps YOY
• Operating Margin: 17.9%, up 240 bps YOY

Guidance:

• FY25 comparable brand revenue growth now 2%–5%.
• FY25 total net revenue growth 0.5%–3.5% (53rd week headwind in prior year).
• FY25 operating margin reiterated at 17.4%–17.8% despite higher tariffs.
• Incremental tariff rate doubled to 28%; fully reflected; mitigation plan ongoing.
• Guidance assumes no meaningful changes in macro, interest rates, or housing turnover.
• FY25 interest income ≈ $30M; effective tax rate ≈ 26.5%.
• FY25 capex $250M–$275M (85% for e-comm, retail optimization, supply chain).
• Quarterly dividend $0.66 (+15% YOY); $900M buyback authorization remaining.
• Long-term: mid- to high-single-digit revenue growth; mid- to high-teens operating margin.

Business Commentary:

• Revenue Growth and Comparable Sales:

  • Williams Sonoma reported a 3.7% increase in comparable brand revenue for Q2, surpassing expectations.
  • This growth was attributed to positive comps in both furniture and non-furniture categories, strong performance in retail and e-commerce channels, and strategic brand collaborations.

• Operational Efficiency and Margin Improvement:

  • The operating margin reached 17.9%, an improvement of 240 basis points over the previous year, with earnings per share of $2.
  • The improvement was driven by improved inventory levels, supply chain efficiencies, and effective tariff mitigation strategies, including obtaining cost concessions from vendors.

• Emerging Brands and Product Innovation:

  • Rejuvenation brand delivered its seventh consecutive quarter of double-digit comps, leading the company's emerging brands.
  • Growth was driven by innovation in product offerings, strategic collaborations, and strong performance in core renovation categories.

• B2B Growth and Market Positioning:

  • Williams Sonoma's B2B business grew 10% in Q2, with both trade and contract delivering double-digit comps.
  • This was supported by leveraging design expertise and a commercial-grade product range, expanding client bases across multiple industries.

• AI Integration and Impact:

  • AI investments are delivering results, including improved customer service resolution and productivity gains.
  • The company's vertically integrated model and proprietary data enable AI applications across design, sourcing, and delivery, enhancing customer experiences and internal operations.
  

  Sentiment Analysis:

  • All brands delivered positive comps; Q2 comp +3.7%. EPS grew nearly 20% to $2. Gross margin 47.1% (+220 bps YOY) and operating margin 17.9% (+240 bps YOY). Management raised FY25 top-line (comp 2%–5%) while reiterating operating margin (17.4%–17.8%) despite tariffs doubling to 28%, citing momentum in newness, B2B (+10%), and emerging brands.

Q&A:

• Question from Oliver Wintermantel (Evercore): What drove the comp outperformance—transactions vs. ticket—and how should we think about gross margin vs. SG&A in 2H as you raise sales but keep margin guidance?
  Response: They don’t break out AUR/ticket; comps reflect broad momentum across brands, categories, and initiatives; 2H gross margin will face tariff pressure but mitigated by efficiencies, while operating margin is maintained via flexibility across levers.

• Question from Andres (Jefferies): What is the pricing strategy for the back half given recent selective price increases?
  Response: Maintain strong value with targeted, surgical increases where underpriced, supported by vendor concessions and ongoing testing to stay competitive without impairing accessibility.

• Question from Peter Benedict (Baird): Update on resourcing/nearshoring and expanding Made in USA given tariff changes?
  Response: They’re diversifying sources with multi-sourcing flexibility; large rapid reshoring is industry‑challenged, but WSM is better positioned via existing U.S. manufacturing (upholstery, Portland facility) and can scale as needed.

• Question from Michael Lasser (UBS): How much industry pricing has occurred and how much has WSM taken; did lower-cost inventory aid gross margin?
  Response: Competitive pricing is obscured by heavy promotions; WSM implemented careful, selective pricing while mix (e.g., furniture) influences AUR; strategy is resonating and supporting margins.

• Question from Christina Fernandez (Telsey Advisory Group): What’s driving positive furniture comps—macro or company-specific factors?
  Response: Strength is product-driven: newness and innovation across brands, not macro tailwinds, are lifting furniture performance.

• Question from Christopher Horvers (JPMorgan): Any demand pull-forward ahead of tariffs and how do inflation/elasticity factor into results?
  Response: No demand pull-forward; comps steady across three quarters; pricing is one factor, elasticity varies by differentiation, and value/service are central to sustaining demand.

• Question from Steven Zaccone (Citi): How to think about Q3 vs. Q4 comps and holiday outlook?
  Response: Momentum is continuing with furniture positive and holiday-oriented brands strong; assortments are compelling and improvements vs. last year support 2H sales.

• Question from Seth Sigman (Barclays): How will higher tariff costs phase into margins and what about next year?
  Response: Tariff impacts build through 2H under weighted-average cost; they don’t guide quarters and it’s too early for 2026 given tariff uncertainty.

• Question from Simeon Gutman (Morgan Stanley): How are you balancing tariff sharing with vendors, pricing, and demand elasticity into 2H?
  Response: Confidence is anchored in innovation and channel execution; vendors are sharing costs; they’ll maintain price-value and avoid drastic pricing actions that would dampen demand.