Williams-Sonoma, Inc. (NYSE:WSM) shares fell sharply on Thursday after posting mixed results for its fiscal first quarter of 2025. The retailer reported revenue of $1.73 billion, a 4.2% increase from the same quarter last year and ahead of Wall Street’s estimate of $1.67 billion. Comparable brand revenue rose 3.4% year over year.

Adjusted earnings per share of $1.56 missed the analyst consensus estimate of $1.76.

Williams-Sonoma reported a gross margin of 44.3%, down 360 basis points from the prior year. The decline includes a 300-basis-point benefit from an out-of-period freight adjustment in the same quarter of 2024.

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Adjusted gross margin fell 60 basis points year over year. The decrease was primarily due to a 220-basis-point drop in merchandise margins, partially offset by 120 basis points of supply chain efficiencies and 40 basis points of occupancy leverage.

Occupancy expenses rose slightly to $198 million, up 0.8% from the prior year.

Quarterly operating income was $291 million with a 16.8% margin, down 230 basis points. Excluding last year’s freight benefit, the margin rose 70 basis points.

Williams-Sonoma increased inventories by 10.3% year over year to $1.3 billion, pulling forward receipts to reduce potential FY25 tariff impacts.

“In the quarter, we saw an acceleration of the positive comp trend coming out of Q4, with all brands running positive comps,” commented Laura Alber, President and Chief Executive Officer.

“There is no doubt that existing macroeconomic and geopolitical uncertainties are a focal point for the market. But volatility is not new in our industry, and we are confident in our ability to adapt and navigate whatever lies ahead,” Alber added.

The company ended the quarter with $1 billion in cash and $119 million in operating cash flow, returning $165 million to shareholders through buybacks and dividends, with $1.1 billion remaining in repurchase authorization.

Williams-Sonoma maintains its fiscal 2025 and long-term outlook despite absorbing higher costs from the current tariff landscape. This includes existing tariffs such as the 30% levy on China, a 10% global reciprocal tariff, and 25% tariffs on imports from Mexico and Canada, as well as on steel and aluminum.

The company emphasized that its guidance does not account for additional future tariffs and may be revised if material changes occur.

Williams-Sonoma expects fiscal 2025 net revenue to range between -1.5% and +1.5%, with comparable sales flat to up 3.0%. Operating margin is forecast between 17.4% and 17.8%, factoring in a 20-basis-point drag from last year’s extra week.