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Williams-Sonoma, Inc. Announces Record Third Quarter Results

11/17/2022

Q3 Comparable Brand Revenue Growth of 8.1% and 25.0% on a Two-Year Basis

Operating Margin of 15.5%; Diluted EPS Growth of 13.1% to $3.72

Reiterates Full Year Outlook

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third quarter ended October 30, 2022 versus the third quarter ended October 31, 2021.

“We are proud of another strong quarter generating an 8.1% comp, or a 25% two-year comp and an almost 50% three-year comp, with record EPS growth of 12% over last year to $3.72 per share. These results reflect the continuation of backlog order fulfillment, strong product margins and disciplined cost control,” said Laura Alber, President and Chief Executive Officer.

“We delivered another quarter of record revenues and earnings in a challenging environment. Our topline results illustrate our ability to gain market share. Our bottom-line results demonstrate the power of our operating model to sustain merchandise margin and control SG&A expenses,” added Jeff Howie, Chief Financial Officer.

Alber concluded, “Although the macro backdrop has become more uncertain, we believe our strong positioning, growth initiatives, and culture of financial discipline will allow us to outperform in any environment.”

THIRD QUARTER 2022 HIGHLIGHTS

  • Comparable brand revenue. Increased 8.1% with a 2-year comp of 25.0% and a 3-year comp of almost 50%.
  • Gross margin. Rate of 41.5% which was 220bps below last year, driven by higher shipping and freight costs with merchandise margin flat to last year with occupancy deleverage of 30bps. Occupancy costs increased 10.5% to $202 million.
  • SG&A. Rate of 26.0% leveraging 160bps on a GAAP basis and 150bps on a non-GAAP basis, reflecting employment and advertising leverage.
  • Operating income. $340 million, increasing 2.8% on a GAAP basis and 2.0% on a non-GAAP basis, with operating margin of 15.5%.
  • Diluted EPS. $3.72 per share, increasing 13.1% on a GAAP basis and 12.0% on a non-GAAP basis.
  • Cash and cash flow. Ended the quarter with $113 million in cash and generated $205 million in operating cash flow.

OUTLOOK

  • We are reiterating our fiscal year 2022 guidance of mid-to-high single digit annual net revenue growth and operating margins relatively in-line with our fiscal year 2021 operating margin.
  • Given the macro uncertainty, we will not reiterate or update our guidance through fiscal year 2024.
  • We will provide guidance for fiscal 2023 and beyond in our press release announcing our fourth quarter fiscal 2022 results.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 17, 2022, at 2:00 P.M. (PT). The call 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 financial measures. Exhibit 1 provides reconciliations of these non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential variability and limited visibility of excluded items. We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance 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. In addition, certain other items may be excluded from non-GAAP financial measures when the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for or superior to the GAAP financial measures presented in this press release and our financial statements and other publicly filed reports. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

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, among other things, statements in the quotes of our President and Chief Executive Officer and our Chief Financial Officer, our fiscal year 2022 outlook and long-term financial targets, and statements regarding our growth strategies and initiatives.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; the continuing impact of inflation and measures to control inflation, including raising interest rates, on consumer spending; the continuing impact of the coronavirus, war in Ukraine, and shortages of various raw materials on our global supply chain, retail store operations and customer demand; the outcome of our growth initiatives; 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 and manufacturing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; inventory constraints; our ability to manage customer returns; 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, supply chain, product, transportation, and other operating costs; our ability to improve our systems, operations 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 current and potential future tariffs and our ability to mitigate impacts; the potential for increased corporate income taxes; 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 30, 2022 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. We have not filed our Form 10-Q for the quarter ended October 30, 2022. As a result, all financial results described here should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates that are identified prior to the time we file the Form 10-Q. 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 the world’s largest digital-first, design-led and sustainable home retailer. The company’s products, representing distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and retail stores. These brands are also part of The Key Rewards, our loyalty and credit card program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, offer international shipping to customers worldwide, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico, South Korea and India, as well as e-commerce websites in certain locations. We are also proud to be a leader in our industry with our Environmental, Social and Governance (“ESG”) efforts. Our company is Good By Design — we’ve deeply ingrained sustainability into our business. From our factories to your home, we’re united in a shared purpose to care for our people and our planet.

For more information on our ESG efforts, please visit: https://sustainability.williams-sonomainc.com/

WSM-IR

Condensed Consolidated Statements of Earnings (unaudited)

 

 

For the Thirteen Weeks Ended

 

For the Thirty-nine Weeks Ended

 

October 30, 2022

 

October 31, 2021

 

October 30, 2022

 

October 31, 2021

(In thousands, except per share amounts)

$

 

% of

Revenues

 

$

 

% of

Revenues

 

$

 

% of

Revenues

 

$

 

% of

Revenues

Net revenues

$

2,192,574

 

 

100.0

%

 

$

2,047,539

 

100.0

%

 

$

6,221,338

 

 

100.0

%

 

$

5,744,907

 

100.0

%

Cost of goods sold

 

1,282,048

 

 

58.5

 

 

 

1,152,054

 

56.3

 

 

 

3,553,455

 

 

57.1

 

 

 

3,238,181

 

56.4

 

Gross profit

 

910,526

 

 

41.5

 

 

 

895,485

 

43.7

 

 

 

2,667,883

 

 

42.9

 

 

 

2,506,726

 

43.6

 

Selling, general and administrative expenses

 

570,893

 

 

26.0

 

 

 

565,218

 

27.6

 

 

 

1,639,248

 

 

26.3

 

 

 

1,578,182

 

27.5

 

Operating income

 

339,633

 

 

15.5

 

 

 

330,267

 

16.1

 

 

 

1,028,635

 

 

16.5

 

 

 

928,544

 

16.2

 

Interest (income) expense, net

 

(370

)

 

 

 

 

121

 

 

 

 

(877

)

 

 

 

 

1,954

 

 

Earnings before income taxes

 

340,003

 

 

15.5

 

 

 

330,146

 

16.1

 

 

 

1,029,512

 

 

16.5

 

 

 

926,590

 

16.1

 

Income taxes

 

88,280

 

 

4.0

 

 

 

80,622

 

3.9

 

 

 

256,601

 

 

4.1

 

 

 

203,194

 

3.5

 

Net earnings

$

251,723

 

 

11.5

%

 

$

249,524

 

12.2

%

 

$

772,911

 

 

12.4

%

 

$

723,396

 

12.6

%

Earnings per share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

3.77

 

 

 

 

$

3.37

 

 

 

$

11.27

 

 

 

 

$

9.66

 

 

Diluted

$

3.72

 

 

 

 

$

3.29

 

 

 

$

11.08

 

 

 

 

$

9.40

 

 

Shares used in calculation of EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

66,704

 

 

 

 

 

74,010

 

 

 

 

68,578

 

 

 

 

 

74,865

 

 

Diluted

 

67,617

 

 

 

 

 

75,943

 

 

 

 

69,782

 

 

 

 

 

76,975

 

 

3rd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline)1

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

Comparable Brand Revenue

Growth (Decline)

 

 

(In millions, except percentages)

Q3 22

 

Q3 21

 

Q3 22

 

Q3 21

 

 

Pottery Barn

$

935

 

$

789

 

19.6

%

 

15.9

%

 

 

West Elm

 

600

 

 

580

 

4.2

 

 

22.5

 

 

 

Williams Sonoma

 

262

 

 

272

 

(1.5

)

 

7.6

 

 

 

Pottery Barn Kids and Teen

 

299

 

 

316

 

(4.8

)

 

16.9

 

 

 

Other2

 

97

 

 

91

 

N/A

 

 

N/A

 

 

 

Total

$

2,193

 

$

2,048

 

8.1

%

 

16.9

%

 

 

  1. See the Company’s 10-K and 10-Q for the definition of comparable brand revenue, which is calculated on a 13-week basis, and includes business-to-business revenues.
  2. Primarily consists of net revenues from Rejuvenation, our international franchise operations, and Mark and Graham.

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

 

 

As of

(In thousands, except per share amounts)

October 30,
2022

 

January 30,
2022

 

October 31,
2021

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

113,058

 

 

$

850,338

 

 

$

656,898

 

Accounts receivable, net

 

125,842

 

 

 

131,683

 

 

 

139,511

 

Merchandise inventories, net

 

1,687,895

 

 

 

1,246,372

 

 

 

1,272,028

 

Prepaid expenses

 

104,208

 

 

 

69,252

 

 

 

85,433

 

Other current assets

 

29,729

 

 

 

26,249

 

 

 

22,852

 

Total current assets

 

2,060,732

 

 

 

2,323,894

 

 

 

2,176,722

 

Property and equipment, net

 

1,009,088

 

 

 

920,773

 

 

 

892,226

 

Operating lease right-of-use assets

 

1,277,064

 

 

 

1,132,764

 

 

 

1,159,315

 

Deferred income taxes, net

 

54,247

 

 

 

56,585

 

 

 

61,768

 

Goodwill

 

85,245

 

 

 

85,354

 

 

 

85,392

 

Other long-term assets, net

 

107,631

 

 

 

106,250

 

 

 

101,901

 

Total assets

$

4,594,007

 

 

$

4,625,620

 

 

$

4,477,324

 

Liabilities and stockholders' equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

720,856

 

 

$

612,512

 

 

$

638,371

 

Accrued expenses

 

275,381

 

 

 

319,924

 

 

 

273,722

 

Gift card and other deferred revenue

 

488,771

 

 

 

447,770

 

 

 

431,446

 

Income taxes payable

 

45,879

 

 

 

79,554

 

 

 

38,320

 

Operating lease liabilities

 

220,012

 

 

 

217,409

 

 

 

218,348

 

Other current liabilities

 

103,821

 

 

 

94,517

 

 

 

91,418

 

Total current liabilities

 

1,854,720

 

 

 

1,771,686

 

 

 

1,691,625

 

Deferred lease incentives

 

13,918

 

 

 

16,360

 

 

 

17,268

 

Long-term operating lease liabilities

 

1,208,074

 

 

 

1,066,839

 

 

 

1,095,290

 

Other long-term liabilities

 

104,361

 

 

 

106,528

 

 

 

129,771

 

Total liabilities

 

3,181,073

 

 

 

2,961,413

 

 

 

2,933,954

 

Stockholders' equity

 

 

 

 

 

Preferred stock: $0.01 par value; 7,500 shares authorized, none issued

 

 

 

 

 

 

 

 

Common stock: $0.01 par value; 253,125 shares authorized; 66,556, 71,982, and 73,326 shares issued and outstanding at October 30, 2022, January 30, 2022 and October 31, 2021, respectively

 

666

 

 

 

720

 

 

 

734

 

Additional paid-in capital

 

553,698

 

 

 

600,942

 

 

 

585,449

 

Retained earnings

 

877,157

 

 

 

1,074,084

 

 

 

963,840

 

Accumulated other comprehensive loss

 

(17,848

)

 

 

(10,828

)

 

 

(5,942

)

Treasury stock, at cost

 

(739

)

 

 

(711

)

 

 

(711

)

Total stockholders' equity

 

1,412,934

 

 

 

1,664,207

 

 

 

1,543,370

 

Total liabilities and stockholders' equity

$

4,594,007

 

 

$

4,625,620

 

 

$

4,477,324

 

 

 

 

 

 

 

 

Retail Store Data

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of quarter

 

 

End of quarter

 

As of

 

 

 

July 31, 2022

Openings

Closings

October 30, 2022

 

October 31, 2021

 

 

Pottery Barn

189

2

(2)

189

 

195

 

 

Williams Sonoma

175

175

 

194

 

 

West Elm

121

2

(1)

122

 

121

 

 

Pottery Barn Kids

52

52

 

57

 

 

Rejuvenation

9

9

 

10

 

 

Total

546

4

(3)

547

 

577

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

For the Thirty-nine Weeks Ended

(In thousands)

October 30,
2022

 

October 31,
2021

Cash flows from operating activities:

 

 

 

Net earnings

$

772,911

 

 

$

723,396

 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

 

 

 

Depreciation and amortization

 

157,410

 

 

 

145,897

 

Loss on disposal/impairment of assets

 

5,738

 

 

 

887

 

Amortization of deferred lease incentives

 

(2,442

)

 

 

(3,345

)

Non-cash lease expense

 

169,602

 

 

 

159,757

 

Deferred income taxes

 

(10,494

)

 

 

(11,440

)

Tax benefit related to stock-based awards

 

11,172

 

 

 

10,838

 

Stock-based compensation expense

 

67,797

 

 

 

70,566

 

Other

 

272

 

 

 

4

 

Changes in:

 

 

 

Accounts receivable

 

5,288

 

 

 

4,941

 

Merchandise inventories

 

(443,812

)

 

 

(264,094

)

Prepaid expenses and other assets

 

(39,737

)

 

 

(10,078

)

Accounts payable

 

98,103

 

 

 

74,181

 

Accrued expenses and other liabilities

 

(34,157

)

 

 

24,400

 

Gift card and other deferred revenue

 

42,005

 

 

 

58,189

 

Operating lease liabilities

 

(177,855

)

 

 

(164,569

)

Income taxes payable

 

(33,276

)

 

 

(31,191

)

Net cash provided by operating activities

 

588,525

 

 

 

788,339

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(234,378

)

 

 

(141,010

)

Other

 

100

 

 

 

97

 

Net cash used in investing activities

 

(234,278

)

 

 

(140,913

)

Cash flows from financing activities:

 

 

 

Repurchases of common stock

 

(840,955

)

 

 

(652,699

)

Payment of dividends

 

(165,254

)

 

 

(135,201

)

Tax withholdings related to stock-based awards

 

(80,431

)

 

 

(102,482

)

Repayment of long-term debt

 

 

 

 

(300,000

)

Debt issuance costs

 

 

 

 

(777

)

Net cash used in financing activities

 

(1,086,640

)

 

 

(1,191,159

)

Effect of exchange rates on cash and cash equivalents

 

(4,887

)

 

 

294

 

Net decrease in cash and cash equivalents

 

(737,280

)

 

 

(543,439

)

Cash and cash equivalents at beginning of period

 

850,338

 

 

 

1,200,337

 

Cash and cash equivalents at end of period

$

113,058

 

 

$

656,898

 

Exhibit 1

 

3rd Quarter GAAP to Non-GAAP Reconciliation

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Thirteen Weeks Ended

 

For the Thirty-nine Weeks Ended

 

 

 

October 30, 2022

 

October 31, 2021

 

October 30, 2022

 

October 31, 2021

 

 

(In thousands, except per share data)

$

% of

revenues

 

$

% of

revenues

 

$

% of

revenues

 

$

% of

revenues

 

 

Selling, general and administrative expenses

$

570,893

26.0

%

 

$

565,218

 

27.6

%

 

$

1,639,248

26.3

%

 

$

1,578,182

 

27.5

%

 

 

Outward-related1

 

 

 

 

(2,752

)

 

 

 

 

 

 

(8,348

)

 

 

 

Non-GAAP selling, general and administrative expenses

$

570,893

26.0

%

 

$

562,466

 

27.5

%

 

$

1,639,248

26.3

%

 

$

1,569,834

 

27.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

$

339,633

15.5

%

 

$

330,267

 

16.1

%

 

$

1,028,635

16.5

%

 

$

928,544

 

16.2

%

 

 

Outward-related1

 

 

 

 

2,752

 

 

 

 

 

 

 

8,348

 

 

 

 

Non-GAAP operating income

$

339,633

15.5

%

 

$

333,019

 

16.3

%

 

$

1,028,635

16.5

%

 

$

936,892

 

16.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

Tax rate

 

$

Tax rate

 

$

Tax rate

 

$

Tax rate

 

 

Income taxes

$

88,280

26.0

%

 

$

80,622

 

24.4

%

 

$

256,601

24.9

%

 

$

203,194

 

21.9

%

 

 

Outward-related1

 

 

 

 

473

 

 

 

 

 

 

 

1,446

 

 

 

 

Non-GAAP income taxes

$

88,280

26.0

%

 

$

81,095

 

24.4

%

 

$

256,601

24.9

%

 

$

204,640

 

21.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

$

3.72

 

 

$

3.29

 

 

 

$

11.08

 

 

$

9.40

 

 

 

 

Outward-related1

 

 

 

 

0.03

 

 

 

 

 

 

 

0.09

 

 

 

 

Non-GAAP diluted EPS2

$

3.72

 

 

$

3.32

 

 

 

$

11.08

 

 

$

9.49

 

 

 

 

  1. During Q3 2021 and year-to-date 2021, we incurred approximately $2.8 million and $8.3 million, respectively, associated with acquisition-related compensation expense and the amortization of acquired intangibles for Outward, Inc.
  2. Per share amounts may not sum due to rounding to the nearest cent per diluted share.

 

SEC Regulation G – Non-GAAP Information

These tables include non-GAAP selling, general and administrative expense, operating income, operating margin, income taxes, effective tax rate 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 quarterly actual results 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.

Jeff Howie EVP, Chief Financial Officer – (415) 402 4324
-or-
Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor Relations – (415) 733 2371

Source: Williams-Sonoma, Inc.

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