Williams-Sonoma, Inc. announces second quarter 2023 results

August 23, 2023

Q2 comparable brand revenue -11.9%
Operating margin of 14.6%; diluted EPS of $3.12
Revises 2023 outlook with lower revenues offset by higher operating margin

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the second quarter ended July 30, 2023 versus the second quarter ended July 31, 2022.

“We are pleased to deliver another quarter of strong earnings. We significantly exceeded profitability estimates with an operating margin of 14.6% with earnings per share of $3.12, well-above our pre-pandemic results. Our sales ran -11.9% in Q2, but our 2-year comp was essentially flat, and our 4-year comp to 2019 was +39.7%. We achieved these results against an increasingly promotional environment and softening industry metrics by focusing on regular price selling, driving improved customer service and controlling costs,” said Laura Alber, President and Chief Executive Officer.

Alber concluded, “Connecting these results to our expectation for the balance of the year, we are updating our guidance to reflect both the ongoing topline uncertainty and the proven strength in our operating model. We now expect annual revenues to come in at a range of down 5% to down 10%, but we are raising our outlook on operating margin to a range of 15% to 16%. The reduction in our revenue outlook is offset by our raised operating margin guidance.”

SECOND QUARTER 2023 HIGHLIGHTS

  • Comparable brand revenue -11.9% with a 2-year comp -0.6% and a 4-year comp +39.7%.
  • Gross margin of 40.7% -280bps to LY with selling margin -90bps due to higher shipping and freight costs, and occupancy deleverage of 190bps. Occupancy costs +5.3% to $203 million.
  • SG&A rate of 26.1% -30bps to LY driven by employment and advertising leverage. SG&A -13.7% to $486 million.
  • Operating income of $272 million with an operating margin of 14.6%.
  • Diluted EPS of $3.12 per share.
  • Merchandise inventories -16% to $1.3 billion.
  • Cash at quarter-end of $514 million with no borrowings outstanding.
  • Operating cash flow of $372 million funding dividends and stock repurchases.

OUTLOOK

  • We are revising our fiscal 2023 guidance to reflect lower net revenue trends and higher operating margin expectations. The net effect of these changes holds earnings materially in line with our prior implied EPS guidance.
  • In fiscal 2023, we now expect net revenue growth in the range of -5% to -10% with an operating margin between 15% to 16%.
  • Over the long-term, we continue to expect mid-to-high single-digit annual net revenue growth with operating margin above 15%.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 23, 2023, at 7:00 A.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; these excluded items include exit costs associated with the closure of our West Coast manufacturing facility and the exiting of Aperture, a division of our Outward, Inc. subsidiary, as well as costs related to reduction-in-force initiatives. 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, our updated fiscal year 2023 outlook and long-term financial targets, and statements regarding our industry trends and business strategies.

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; labor and material shortages; 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 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; 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 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 29, 2023 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 July 30, 2023. 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, Mark and Graham and GreenRow — 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 Twenty-six Weeks Ended

 

 

July 30, 2023

 

July 31, 2022

 

July 30, 2023

 

July 31, 2022

(In thousands, except per share amounts)

$

 

% of
Revenues

 

$

 

% of
Revenues

 

$

 

% of
Revenues

 

$

 

% of
Revenues

Net revenues

$

1,862,614

 

100.0

%

$

2,137,537

 

100.0

%

$

3,618,065

 

100.0

%

$

4,028,764

 

100.0

%

Cost of goods sold

 

1,105,047

 

59.3

 

 

1,208,728

 

56.5

 

 

2,185,439

 

60.4

 

 

2,271,407

 

56.4

 

Gross profit

 

757,567

 

40.7

 

 

928,809

 

43.5

 

 

1,432,626

 

39.6

 

 

1,757,357

 

43.6

 

Selling, general and administrative expenses

 

486,019

 

26.1

 

 

563,288

 

26.4

 

 

961,601

 

26.6

 

 

1,068,355

 

26.5

 

Operating income

 

271,548

 

14.6

 

 

365,521

 

17.1

 

 

471,025

 

13.0

 

 

689,002

 

17.1

 

Interest expense (income), net

 

(3,335

)

(0.2

)

 

(344

)

 

 

(8,833

)

(0.3

)

 

(507

)

 

Earnings before income taxes

 

274,883

 

14.8

 

 

365,865

 

17.1

 

 

479,858

 

13.3

 

 

689,509

 

17.1

 

Income taxes

 

73,376

 

3.9

 

 

98,790

 

4.6

 

 

121,820

 

3.4

 

 

168,321

 

4.2

 

Net earnings

$

201,507

 

10.8

%

$

267,075

 

12.5

%

$

358,038

 

9.9

%

$

521,188

 

12.9

%

Earnings per share (EPS):

 

 

 

 

 

 

 

 

Basic

$

3.14

 

 

$

3.92

 

 

$

5.51

 

 

$

7.50

 

 

Diluted

$

3.12

 

 

$

3.87

 

 

$

5.46

 

 

$

7.36

 

 

Shares used in calculation of EPS:

 

 

 

 

 

 

 

 

Basic

 

64,163

 

 

 

68,180

 

 

 

65,006

 

 

 

69,516

 

 

Diluted

 

64,526

 

 

 

69,081

 

 

 

65,586

 

 

 

70,844

 

 

 

2nd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline)1

 

 

 

 

Net Revenues

Comparable Brand Revenue
Growth (Decline)

(In millions, except percentages)

Q2 23

Q2 22

Q2 23

Q2 22

Pottery Barn

$

786

$

879

(10.6

)%

21.5

%

West Elm

 

484

 

608

(20.8

)

6.1

 

Williams Sonoma

 

245

 

249

(0.7

)

0.5

 

Pottery Barn Kids and Teen

 

256

 

284

(9.0

)

5.3

 

Other2

 

92

 

118

N/A

 

N/A

 

Total

$

1,863

$

2,138

(11.9

)%

11.3

%

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)

July 30,
2023

January 29,
2023

July 31,
2022

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

514,435

 

$

367,344

 

$

124,944

 

Accounts receivable, net

 

117,045

 

 

115,685

 

 

133,500

 

Merchandise inventories, net

 

1,300,838

 

 

1,456,123

 

 

1,542,428

 

Prepaid expenses

 

73,521

 

 

64,961

 

 

102,312

 

Other current assets

 

26,293

 

 

31,967

 

 

25,537

 

Total current assets

 

2,032,132

 

 

2,036,080

 

 

1,928,721

 

Property and equipment, net

 

1,036,407

 

 

1,065,381

 

 

973,676

 

Operating lease right-of-use assets

 

1,232,925

 

 

1,286,452

 

 

1,174,354

 

Deferred income taxes, net

 

73,610

 

 

81,389

 

 

52,897

 

Goodwill

 

77,322

 

 

77,307

 

 

85,269

 

Other long-term assets, net

 

119,415

 

 

116,407

 

 

104,257

 

Total assets

$

4,571,811

 

$

4,663,016

 

$

4,319,174

 

Liabilities and stockholders' equity

 

 

 

Current liabilities

 

 

 

Accounts payable

$

597,104

 

$

508,321

 

$

680,097

 

Accrued expenses

 

184,996

 

 

247,594

 

 

244,559

 

Gift card and other deferred revenue

 

435,369

 

 

479,229

 

 

498,354

 

Income taxes payable

 

127,581

 

 

61,204

 

 

87,159

 

Operating lease liabilities

 

222,155

 

 

231,965

 

 

206,931

 

Other current liabilities

 

96,645

 

 

108,138

 

 

93,945

 

Total current liabilities

 

1,663,850

 

 

1,636,451

 

 

1,811,045

 

Long-term operating lease liabilities

 

1,168,221

 

 

1,211,693

 

 

1,115,501

 

Other long-term liabilities

 

118,785

 

 

113,821

 

 

114,349

 

Total liabilities

 

2,950,856

 

 

2,961,965

 

 

3,040,895

 

Stockholders' equity

 

 

 

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

 

 

 

 

 

 

Common stock: $0.01 par value; 253,125 shares authorized; 64,145, 66,226, and 67,057 shares issued and outstanding at July 30, 2023, January 29, 2023 and July 31, 2022, respectively

 

642

 

 

663

 

 

671

 

Additional paid-in capital

 

551,507

 

 

573,117

 

 

541,895

 

Retained earnings

 

1,084,772

 

 

1,141,819

 

 

750,083

 

Accumulated other comprehensive loss

 

(14,540

)

 

(13,809

)

 

(13,631

)

Treasury stock, at cost

 

(1,426

)

 

(739

)

 

(739

)

Total stockholders' equity

 

1,620,955

 

 

1,701,051

 

 

1,278,279

 

Total liabilities and stockholders' equity

$

4,571,811

 

$

4,663,016

 

$

4,319,174

 

 

 

 

 

Retail Store Data
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Beginning of quarter

 

 

End of quarter

 

As of

 

 

 

April 30, 2023

Openings

Closings

July 30, 2023

 

July 31, 2022

 

 

Pottery Barn

188

3

(1

)

190

 

189

 

 

Williams Sonoma

165

(1

)

164

 

175

 

 

West Elm

123

1

(1

)

123

 

121

 

 

Pottery Barn Kids

46

 

46

 

52

 

 

Rejuvenation

9

 

9

 

9

 

 

Total

531

4

(3

)

532

 

546

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

For the Twenty-six Weeks Ended

(In thousands)

July 30, 2023

July 31, 2022

Cash flows from operating activities:

 

 

Net earnings

$

358,038

 

$

521,188

 

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

 

 

Depreciation and amortization

 

110,843

 

 

102,455

 

Loss on disposal/impairment of assets

 

14,185

 

 

5,413

 

Non-cash lease expense

 

126,981

 

 

110,511

 

Deferred income taxes

 

(3,841

)

 

(7,636

)

Tax benefit related to stock-based awards

 

12,334

 

 

10,828

 

Stock-based compensation expense

 

44,159

 

 

51,743

 

Other

 

(1,647

)

 

(1,481

)

Changes in:

 

 

Accounts receivable

 

(1,502

)

 

(1,985

)

Merchandise inventories

 

154,712

 

 

(295,458

)

Prepaid expenses and other assets

 

(6,615

)

 

(30,585

)

Accounts payable

 

87,840

 

 

59,404

 

Accrued expenses and other liabilities

 

(67,955

)

 

(78,895

)

Gift card and other deferred revenue

 

(43,699

)

 

50,503

 

Operating lease liabilities

 

(135,206

)

 

(120,036

)

Income taxes payable

 

66,358

 

 

7,623

 

Net cash provided by operating activities

 

714,985

 

 

383,592

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(92,880

)

 

(148,548

)

Other

 

211

 

 

86

 

Net cash used in investing activities

 

(92,669

)

 

(148,462

)

Cash flows from financing activities:

 

 

Repurchases of common stock

 

(310,000

)

 

(766,424

)

Payment of dividends

 

(116,643

)

 

(112,674

)

Tax withholdings related to stock-based awards

 

(49,950

)

 

(79,275

)

Net cash used in financing activities

 

(476,593

)

 

(958,373

)

Effect of exchange rates on cash and cash equivalents

 

1,368

 

 

(2,151

)

Net increase (decrease) in cash and cash equivalents

 

147,091

 

 

(725,394

)

Cash and cash equivalents at beginning of period

 

367,344

 

 

850,338

 

Cash and cash equivalents at end of period

$

514,435

 

$

124,944

 

 

Exhibit 1

2nd Quarter GAAP to Non-GAAP Reconciliation
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Thirteen Weeks Ended

 

For the Twenty-six Weeks Ended

 

 

 

 

 

July 30, 2023

 

July 31, 2022

 

July 30, 2023

 

July 31, 2022

 

(In thousands, except per share data)

$

 

% of
revenues

 

$

 

% of
revenues

 

$

 

% of
revenues

 

$

 

% of
revenues

Occupancy costs

$

203,259

10.9

%

$

192,964

9.0

%

$

405,871

 

11.2

%

$

379,370

9.4

%

Exit Costs1

 

 

 

 

 

(239

)

 

 

 

Non-GAAP occupancy costs

$

203,259

10.9

%

$

192,964

9.0

%

$

405,632

 

11.2

%

$

379,370

9.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

$

757,567

40.7

%

$

928,809

43.5

%

$

1,432,626

 

39.6

%

$

1,757,357

43.6

%

Exit Costs1

 

 

 

 

$

2,141

 

 

 

 

Non-GAAP gross profit

$

757,567

40.7

%

$

928,809

43.5

%

$

1,434,767

 

39.7

%

$

1,757,357

43.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

$

486,019

26.1

%

$

563,288

26.4

%

$

961,601

 

26.6

%

$

1,068,355

26.5

%

Exit Costs1

 

 

 

 

 

(15,790

)

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

(8,316

)

 

 

 

Non-GAAP selling, general and administrative expenses

$

486,019

26.1

%

$

563,288

26.4

%

$

937,495

 

25.9

%

$

1,068,355

26.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

$

271,548

14.6

%

$

365,521

17.1

%

$

471,025

 

13.0

%

$

689,002

17.1

%

Exit Costs1

 

 

 

 

 

17,931

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

8,316

 

 

 

 

Non-GAAP operating income

$

271,548

14.6

%

$

365,521

17.1

%

$

497,272

 

13.7

%

$

689,002

17.1

%

 

 

 

 

 

 

 

 

$

Tax rate

$

Tax rate

$

Tax rate

$

Tax rate

Income taxes

$

73,376

26.7

%

$

98,790

27.0

%

$

121,820

 

25.4

%

$

168,321

24.4

%

Exit Costs1

 

 

 

 

 

4,690

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

2,174

 

 

 

 

Non-GAAP income taxes

$

73,376

26.7

%

$

98,790

27.0

%

$

128,684

 

25.4

%

$

168,321

24.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

$

3.12

 

$

3.87

 

$

5.46

 

 

$

7.36

 

Exit Costs1

 

 

 

 

 

0.20

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

0.09

 

 

 

 

Non-GAAP diluted EPS3

$

3.12

 

$

3.87

 

$

5.75

 

 

$

7.36

 

1 During Q1 2023, we incurred exit costs of $17.9 million, including $9.3 million associated with the closure of our West Coast manufacturing facility and $8.6 million associated with the exiting of Aperture, a division of our Outward, Inc. subsidiary.
2 During Q1 2023, we incurred costs related to reduction-in-force initiatives of $8.3 million primarily in our corporate functions.
3 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 occupancy costs, gross profit, gross margin, 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
Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor Relations – (415) 733 2371

Source: Williams-Sonoma, Inc.

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