News Release Details

Net revenues grow 4.3% with comparable brand revenue growth of 3.3%
Diluted EPS grows 8% to $0.84
Raises full-year revenue guidance

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third fiscal quarter ended October 29, 2017 (“Q3 17”) versus the third fiscal quarter ended October 30, 2016 (“Q3 16”).

3 ^rd QUARTER 2017 RESULTS

					-	Q3 17 net revenues grew 4.3% to $1.299 billion versus $1.245 billion in Q3 16 with comparable brand revenue growth of 3.3%. Net revenues reflect an estimated $7.0 million impact of lost sales (or approximately 60 basis points) associated with the hurricanes in Texas, Florida and Puerto Rico.
					-	Q3 17 operating margin was 8.5% versus 8.8% in Q3 16. Excluding severance-related reorganization charges, non-GAAP operating margin was 8.9% in Q3 16 (see Note 1 in Exhibit 1). See Exhibit 1 for a reconciliation of GAAP to non-GAAP operating margin.
					-	Q3 17 diluted earnings per share (“EPS”) was $0.84, reflecting an unfavorable impact of approximately $0.02 from the impact of lost sales associated with the hurricanes, versus $0.78 in Q3 16. Excluding severance-related reorganization charges, non-GAAP EPS was $0.79 in Q3 16 (see Note 1 in Exhibit 1). See Exhibit 1 for a reconciliation of GAAP to non-GAAP EPS.
					-	Cash returned to stockholders totaled approximately $95 million, comprising $61 million in stock repurchases and $34 million in dividends.

Laura Alber, President and Chief Executive Officer, commented: “Our third quarter results demonstrate the effectiveness of our strategic priorities to deliver value, quality and excellent customer service. During the quarter, strong execution against our product and digital initiatives drove new customer acquisition and top-line expansion in a competitive and dynamic retail environment. Importantly, our demand during the quarter exceeded or was at least equal to net revenues across all of our brands – most notably in Pottery Barn and PBteen – which is a strong indication of the health of our business. Additionally, our investments in digital innovation and cross-brand services, as well as continued optimization of our supply chain, position us to further differentiate our business and to deliver long-term profitable growth.”

Alber continued, “All of our initiatives are underpinned by our vision to create a high-touch customer service platform that is truly transformational for the home furnishings industry. Our acquisition of Outward, Inc., announced today, will enhance and extend this platform and enable us to create highly engaging and interactive shopping experiences that set a new industry standard.”

Net revenues increased to $1.299 billion in Q3 17 from $1.245 billion in Q3 16.

Comparable brand revenue in Q3 17 grew 3.3% compared to a decline of 0.4% in Q3 16 as shown in the table below:

3 rd Quarter Comparable Brand Revenue Growth by Concept*
			Q3 17				Q3 16
Pottery Barn			(0.3	%)			(4.6	%)
Williams Sonoma			2.3	%			0.1	%
West Elm			11.5	%			12.0	%
Pottery Barn Kids			0.1	%			(1.0	%)
PBteen			3.0	%			(10.9	%)
Total			3.3	%			(0.4	%)
* See the Company's 10-K and 10-Q filings for the definition of comparable brand revenue

E-commerce net revenues in Q3 17 increased 6.4% to $690 million from $649 million in Q3 16. E-commerce net revenues generated 53.1% of total company net revenues in Q3 17 and 52.1% of total company net revenues in Q3 16.

Retail net revenues in Q3 17 increased 2.1% to $609 million from $597 million in Q3 16.

Operating margin in Q3 17 was 8.5% compared to 8.8% in Q3 16. Excluding severance-related reorganization charges, non-GAAP operating margin was 8.9% in Q3 16:

					-	Gross margin was 35.9% in Q3 17 versus 36.8% in Q3 16.
					-	Selling, general and administrative (“SG&A”) expenses were $356 million, or 27.4% of net revenues in Q3 17, versus $348 million, or 28.0% of net revenues in Q3 16. Excluding severance-related reorganization charges of approximately $1.2 million, non-GAAP SG&A expenses were $347 million, or 27.9% of net revenues, in Q3 16.

The effective income tax rate in Q3 17 was 35.3% versus 36.6% in Q3 16. The year-over-year tax rate improvement was primarily driven by the overall mix and level of earnings, as well as the incremental benefits we are seeing from improved profitability across our international operations, which are taxed at a lower tax rate.

EPS in Q3 17 was $0.84 versus $0.78 in Q3 16. Excluding severance-related reorganization charges, non-GAAP EPS was $0.79 in Q3 16.

Merchandise inventories at the end of Q3 17 increased 10.6% to $1.177 billion from $1.064 billion at the end of Q3 16. A large portion of this inventory growth, however, was associated with inventory that is in-transit and not yet received at our distribution centers. The biggest drivers of inventory growth are associated with our higher growth brands, particularly West Elm and Rejuvenation. Based on our estimates, we believe that inventory growth will be relatively in-line with sales growth by the end of the year.

STOCK REPURCHASE PROGRAM

During Q3 17, we repurchased approximately 1.3 million shares of common stock at an average cost of $46.84 per share and a total cost of approximately $61 million. As of October 29, 2017, there was approximately $256 million remaining under our current stock repurchase program.

FISCAL YEAR 2017 FINANCIAL GUIDANCE
4 th Quarter 2017 Guidance Financial Highlights
Total Net Revenues (millions)						$1,610 –  $1,675
Comparable Brand Revenue Growth						2% –  6%
Diluted EPS						$1.49 –  $1.64
Fiscal Year 2017 Financial Guidance
Total Net Revenues (millions)						$5,225 – $5,290
Comparable Brand Revenue Growth						2% – 4%
Non-GAAP Operating Margin*						9.0% – 9.2%
Non-GAAP Diluted EPS*						$3.45 – $3.60
Income Tax Rate						35.0% – 36.0%
Capital Spending (millions)						$200 – $220
Depreciation and Amortization (millions)						$185 – $195
* Excludes certain items affecting comparability. See Notes 1 and 2 in Exhibit 1. Including these items, GAAP operating margin guidance would be 8.9% to 9.1%. See Exhibit 1 for a reconciliation of GAAP to non-GAAP EPS.

Store Opening and Closing Guidance by Retail Concept*
FY 2016 ACT						FY 2017 GUID
	Total					New	Close	End
Williams Sonoma	234					4	(9)	229
Pottery Barn	201					8	(6)	203
West Elm	98					10	(2)	106
Pottery Barn Kids	89					-	(4)	85
Rejuvenation	7					1	-	8
Total	629					23	(21)	631
*  Included in the FY 16 store count are 19 stores in Australia and one store in the UK.      FY 17 guidance includes one additional UK store, and does not reflect the temporary store closures due to the hurricanes.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 16, 2017, at 2:00 P.M. (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, will be open to the general public via live webcast and can be accessed at http://ir.williams-sonomainc.com/events. A replay of the webcast will be available at http://ir.williams-sonomainc.com/events.

SEC REGULATION G — NON-GAAP INFORMATION

This press release includes non-GAAP SG&A, operating income, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of severance-related charges in Q1 16, Q3 16 and Q1 17, a one-time favorable tax adjustment associated with intercompany transactions in Q4 16, and tax expense related to the adoption of new accounting rules related to stock-based compensation in Q1 17. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our actual results and Q4 17 and FY 17 guidance on a comparable basis with prior periods. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements relating to: the progress on our strategic initiatives; our growth drivers; our future financial guidance, including Q4 17 and FY 17 guidance; our stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q3 17; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; the impact of potential corporate tax reform; and other risks and uncertainties described more fully in our public announcements, reports to stockholders and other documents filed with or furnished to the SEC, including our Annual Report on Form 10-K for the fiscal year ended January 29, 2017, and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and retail stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East, the Philippines and South Korea, and stores and e-commerce websites in Mexico.

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended October 29, 2017 and October 30, 2016
(Dollars and shares in thousands, except per share amounts)
						3 rd Quarter
						2017											2016
						$				% of Revenues							$				% of Revenues
E-commerce net revenues						$	690,045			53.1	%						$	648,743			52.1	%
Retail net revenues							609,291			46.9	%							596,642			47.9	%
Net revenues							1,299,336			100.0	%							1,245,385			100.0	%
Cost of goods sold							832,269			64.1	%							787,162			63.2	%
Gross profit							467,067			35.9	%							458,223			36.8	%
Selling, general and administrative expenses							356,254			27.4	%							348,244			28.0	%
Operating income							110,813			8.5	%							109,979			8.8	%
Interest expense, net							594			-								488			-
Earnings before income taxes							110,219			8.5	%							109,491			8.8	%
Income taxes							38,906			3.0	%							40,113			3.2	%
Net earnings						$	71,313			5.5	%						$	69,378			5.6	%
Earnings per share (EPS):
Basic						$0.84											$0.78
Diluted						$0.84											$0.78
Shares used in calculation of EPS:
Basic							84,940											88,382
Diluted							85,384											89,144

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirty-nine weeks ended October 29, 2017 and October 30, 2016
						Year-to-Date
						2017											2016
						$				% of Revenues							$				% of Revenues
E-commerce net revenues						$	1,901,348			52.6	%						$	1,824,660			52.1	%
Retail net revenues							1,711,101			47.4	%							1,677,571			47.9	%
Net revenues							3,612,449			100.0	%							3,502,231			100.0	%
Cost of goods sold							2,326,911			64.4	%							2,240,952			64.0	%
Gross profit							1,285,538			35.6	%							1,261,279			36.0	%
Selling, general and administrative expenses							1,030,667			28.5	%							1,004,499			28.7	%
Operating income							254,871			7.1	%							256,780			7.3	%
Interest expense, net							974			-								587			-
Earnings before income taxes							253,897			7.0	%							256,193			7.3	%
Income taxes							90,112			2.5	%							95,433			2.7	%
Net earnings						$	163,785			4.5	%						$	160,760			4.6	%
Earnings per share (EPS):
Basic						$1.90											$1.81
Diluted						$1.89											$1.79
Shares used in calculation of EPS:
Basic							86,111											88,906
Diluted							86,582											89,764

Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
						Oct. 29, 2017								Jan. 29, 2017								Oct. 30, 2016
Assets
Current assets
Cash and cash equivalents						$	90,779							$	213,713							$	75,381
Accounts receivable, net							92,282								88,803								96,386
Merchandise inventories, net							1,176,941								977,505								1,063,747
Prepaid catalog expenses							22,992								23,625								25,329
Prepaid expenses							65,326								52,882								74,195
Other assets							12,141								10,652								12,176
Total current assets							1,460,461								1,367,180								1,347,214
Property and equipment, net							931,131								923,283								918,020
Deferred income taxes, net							131,793								135,238								136,558
Other assets, net							56,999								51,178								51,540
Total assets						$	2,580,384							$	2,476,879							$	2,453,332
Liabilities and stockholders' equity
Current liabilities
Accounts payable						$	470,783							$	453,710							$	450,144
Accrued salaries, benefits and other liabilities							103,349								130,187								111,445
Customer deposits							288,569								294,276								289,737
Borrowings under revolving line of credit							170,000								-								125,000
Income taxes payable							48,865								23,245								1,122
Other liabilities							55,985								59,838								53,423
Total current liabilities							1,137,551								961,256								1,030,871
Deferred rent and lease incentives							195,220								196,188								192,948
Other long-term obligations							75,439								71,215								70,031
Total liabilities							1,408,210								1,228,659								1,293,850
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized;
none issued							-								-								-
Common stock: $.01 par value; 253,125 shares authorized;
84,478, 87,325 and 88,014 shares issued and outstanding
at October 29, 2017, January 29, 2017 and October 30, 2016,							845								873								881
respectively
Additional paid-in capital							557,198								556,928								547,513
Retained earnings							623,170								701,702								623,243
Accumulated other comprehensive loss							(8,314	)							(9,903	)							(10,772	)
Treasury stock, at cost							(725	)							(1,380	)							(1,383	)
Total stockholders’ equity							1,172,174								1,248,220								1,159,482
Total liabilities and stockholders' equity						$	2,580,384							$	2,476,879							$	2,453,332

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Thirty-nine weeks ended October 29, 2017 and October 30, 2016
(Dollars in thousands)
													Year-to-Date
													2017								2016
Cash flows from operating activities
Net earnings													$	163,785							$	160,760
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization														135,473								127,745
Loss on disposal/impairment of assets														1,299								1,852
Amortization of deferred lease incentives														(18,987	)							(18,789	)
Deferred income taxes														(11,884	)							(14,461	)
Tax benefit related to stock-based awards														15,439								23,571
Excess tax benefit related to stock-based awards														-								(4,817	)
Stock-based compensation expense														30,164								37,975
Other														(416	)							(647	)
Changes in:
Accounts receivable														(2,341	)							(17,400	)
Merchandise inventories														(197,757	)							(82,410	)
Prepaid catalog expenses														633								3,591
Prepaid expenses and other assets														(20,001	)							(29,205	)
Accounts payable														7,544								(17,403	)
Accrued salaries, benefits and other liabilities														(26,883	)							(507	)
Customer deposits														(5,815	)							(7,445	)
Deferred rent and lease incentives														17,000								25,969
Income taxes payable														25,677								(65,915	)
Net cash provided by operating activities														112,930								122,464
Cash flows from investing activities:
Purchases of property and equipment														(135,821	)							(127,169	)
Other														458								370
Net cash used in investing activities														(135,363	)							(126,799	)
Cash flows from financing activities:
Borrowings under revolving line of credit														170,000								125,000
Repurchases of common stock														(154,321	)							(115,167	)
Payment of dividends														(101,928	)							(100,854	)
Tax witholdings related to stock-based awards														(14,836	)							(26,518	)
Excess tax benefit related to stock-based awards														-								4,817
Proceeds related to stock-based awards														-								1,532
Other														(20	)							(48	)
Net cash used in financing activities														(101,105	)							(111,238	)
Effect of exchange rates on cash and cash equivalents														604								(2,693	)
Net decrease in cash and cash equivalents														(122,934	)							(118,266	)
Cash and cash equivalents at beginning of period														213,713								193,647
Cash and cash equivalents at end of period													$	90,779							$	75,381

Exhibit 1
(Unaudited)
Reconciliation of 3 rd Quarter GAAP to Non-GAAP Operating Income and Operating Margin By Segment*
($ in thousands)
			E-commerce						Retail					Unallocated							Total
			Q3 17		Q3 16				Q3 17		Q3 16			Q3 17			Q3 16				Q3 17		Q3 16
Net Revenues			$690,045		$648,743				$609,291		$596,642			$	-		$	-			$1,299,336		$1,245,385
GAAP Operating Income/(Expense)				142,865		150,164				42,804	47,080				(74,856)			(87,265)			110,813			109,979
GAAP Operating Margin				20.7%		23.1%				7.0%	7.9%				(5.8%)			(7.0%)				8.5%		8.8%
Severance-related Charges(1)				-		-				-	-				-			1,185				-		1,185
Non-GAAP Operating Income/ (Expense) (5)			$142,865		$150,164				$42,804		$47,080			$(74,856)			$(86,080)				$110,813		$111,164
Non-GAAP Operating Margin (5)				20.7%		23.1%				7.0%	7.9%				(5.8%)			(6.9%)				8.5%		8.9%
* See the Company’s 10-K and 10-Q filings for additional information on segment reporting and the definition of Operating Income/(Expense) and Operating Margin.

Reconciliation of Quarterly and Fiscal Year GAAP to Non-GAAP
Diluted Earnings Per Share**
(Totals rounded to the nearest cent per diluted share)
						Q1 17						Q2 17						Q3 17						Q4 17						FY 17
						ACT						ACT						ACT						GUID						GUID
2017 GAAP Diluted EPS						$0.45						$0.61						$0.84						$1.49 - $1.64						$3.39 - $3.54
Impact of Severance-related Charges(2)						$0.04						-						-						-						$0.04
Unfavorable Tax Impact from the Adoption of New Accounting Rules (3)						$0.02						-						-						-						$0.02
2017 Non-GAAP Diluted EPS (5)						$0.51						$0.61						$0.84						$1.49 - $1.64						$3.45 - $3.60
						Q1 16						Q2 16						Q3 16						Q4 16						FY 16
						ACT						ACT						ACT						ACT						ACT
2016 GAAP Diluted EPS						$0.44						$0.58						$0.78						$1.63						$3.41
Impact of Severance-related Charges(1)						$0.09						-						$0.01						-						$0.10
One-time Favorable Tax Adjustment(4)						-						-						-						($0.08)						($0.08)
2016 Non-GAAP Diluted EPS (5)						$0.53						$0.58						$0.79						$1.55						$3.43
** Due to the differences between the quarterly and year-to-date weighted average share count calculations and rounding to the nearest cent per diluted share, totals
may not equal the sum of the line items and fiscal year diluted EPS may not equal the sum of the quarters.

Store Statistics
																						Avg. Leased Square Footage
						Store Count																Per Store
						Jul. 30, 2017			Openings			Closings***			Oct. 29, 2017			Oct. 30, 2016				Oct. 29, 2017			Oct. 30, 2016
Williams Sonoma						234			1			(2)			233			241				6,700			6,600
Pottery Barn						204			1			(3)			202			202				13,900			13,800
West Elm						101			5			(1)			105			97				13,100			13,300
Pottery Barn Kids						88			-			-			88			89				7,400			7,500
Rejuvenation						8			-			-			8			6				8,800			9,300
Total						635			7			(6)			636			635				10,200			10,000

						Jul. 30, 2017		Oct. 29, 2017		Oct. 30, 2016
Total store selling square footage						3,998,000		4,031,000		3,966,000
Total store leased square footage						6,428,000		6,468,000		6,381,000

***	Q3 17 closings include two Williams Sonoma, two Pottery Barn and one West Elm temporary closures in Puerto Rico and Florida due to hurricanes in these areas. These stores are expected to reopen in Q4 17.

Notes:

(1)	During Q1 16 and Q3 16 we incurred severance-related reorganization charges due to headcount reduction primarily in our corporate functions totaling approximately $13 million, or $0.09 per diluted share, and $1 million, or $0.01 per diluted share, respectively. These charges were recorded as SG&A expense within the unallocated segment.
(2)	During Q1 17 we incurred severance-related charges associated with the previously announced departure of the former President of the Pottery Barn brands, as well as other severance-related charges, of approximately $6 million, or $0.04 per diluted share. These charges were recorded as SG&A expense within the unallocated segment.
(3)	During Q1 17 we incurred tax expense of approximately $1 million, or $0.02 per diluted share, associated with the adoption of new accounting rules related to stock-based compensation.
(4)	During Q4 16 we incurred a benefit of approximately $8 million, or $0.08 per diluted share, related to a one-time tax adjustment associated with intercompany transactions.
(5)	SEC Regulation G – Non-GAAP Information – These tables include non-GAAP operating income, operating margin and diluted EPS. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our actual results and Q4 17 and FY 17 guidance on a comparable basis with prior periods. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.