Williams-Sonoma, Inc. Announces Record Second Quarter Results

SAN FRANCISCO--(BUSINESS WIRE)--Williams-Sonoma, Inc. (NYSE: WSM), the world's largest digital-first, design-led and sustainable home retailer, today announced operating results for the second fiscal quarter ended July 31, 2022 ("Q2 22") versus the second fiscal quarter ended August 1, 2021 ("Q2 21").

"The second quarter marks another quarter of strong performance, delivering an 11.3% comp on the top line and earnings growth of over 19% to $3.87 per share. These impressive results reflect the strength of our multi-brand portfolio, the success of our growth initiatives, and the ongoing execution of the team. We continue to demonstrate our ability to perform by offering high-quality, differentiated, and sustainable products that our customers know and love. Our performance was driven by strong order fulfillment, positive demand comps, and our successful continued elimination of site-wide promotions," said Laura Alber, President and Chief Executive Officer.

Alber concluded, "I am very proud of this performance especially given the macroeconomic backdrop and the strong compares we were up against, all while delivering an impressive 41.1% comp on a two-year basis. And it is this continued outperformance that gives us the confidence to reiterate our 2022 guidance and longer-term outlook today."

SECOND QUARTER 2022

• Comparable brand revenue growth of 11.3%, including double-digit growth in both ecommerce and retail, Pottery Barn accelerating from the first quarter to 21.5%, West Elm growing 6.1% on top of last year's 51.1%, Pottery Barn Kids and Teen accelerating from the first quarter to 5.3%, and Williams Sonoma accelerating from negative 2.2% in the first quarter to 0.5%
• Gross margin of 43.5%, 60bps below last year driven by higher shipping and freight costs, partially offset by merchandise margin expansion; occupancy rate was flat to last year
• SG&A rate of 26.4%, leverage of 110bps on a GAAP basis and 90bps on a non-GAAP basis versus last year, reflecting advertising and employment leverage from the strength of our topline outperformance and overall cost discipline
• Operating income of $366 million, increasing 13.1% on a GAAP basis and 12.2% on a non-GAAP basis over last year
• Operating margin of 17.1%; GAAP operating margin expansion of 50bps; non-GAAP operating margin expansion of 40bps
• Diluted EPS of $3.87, increasing 20.6% on a GAAP basis and 19.4% on a non-GAAP basis over last year
• Maintained a strong liquidity position of $125 million in cash and generated $199 million in operating cash flow, enabling the company to repurchase over $265 million in shares and to pay over $54 million in dividends in the second quarter

OUTLOOK

Given our strong performance through the first half of fiscal 2022, the continued success of our new initiatives, and our competitive advantages that are rooted in our key differentiators (our in-house design, our digital-first channel strategy, and our values), we are reiterating our fiscal year 2022 and long-term financial outlook of mid-to-high single digit annual net revenue growth, increasing revenues to $10 billion by fiscal year 2024, and operating margins relatively in-line with our fiscal year 2021 operating margin.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 24, 2022, 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 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, 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 impact of inflation and measures to control inflation 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, 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 July 31, 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 Twenty-six Weeks Ended
	July 31, 2022							August 1, 2021							July 31, 2022							August 1, 2021
(In thousands, except per share amounts)	$				% of Revenues			$				% of Revenues			$				% of Revenues			$				% of Revenues
Net revenues	$	2,137,537			100.0	%		$	1,948,339			100.0	%		$	4,028,764			100	%		$	3,697,368			100	%
Cost of goods sold		1,208,728			56.5				1,089,951			55.9				2,271,407			56.4				2,086,127			56.4
Gross profit		928,809			43.5				858,388			44.1				1,757,357			43.6				1,611,241			43.6
Selling, general and administrative expenses		563,288			26.4				535,288			27.5				1,068,355			26.5				1,012,964			27.4
Operating income		365,521			17.1				323,100			16.6				689,002			17.1				598,277			16.2
Interest (income) expense, net		(344	)		—				(39	)		—				(507	)		—				1,833			—
Earnings before income taxes		365,865			17.1				323,139			16.6				689,509			17.1				596,444			16.1
Income taxes		98,790			4.6				77,069			4.0				168,321			4.2				122,572			3.3
Net earnings	$	267,075			12.5	%		$	246,070			12.6	%		$	521,188			12.9	%		$	473,872			12.8	%
Earnings per share (EPS):
Basic	$	3.92						$	3.29						$	7.50						$	6.29
Diluted	$	3.87						$	3.21						$	7.36						$	6.11
Shares used in calculation of EPS:
Basic		68,180							74,786							69,516							75,293
Diluted		69,081							76,584							70,844							77,516

	2nd Quarter Net Revenues and Comparable Brand Revenue Growth1
		Net Revenues								Comparable Brand Revenue Growth
	(In millions, except percentages)	Q2 22				Q2 21				Q2 22			Q2 21
	Pottery Barn	$	879			$	732			21.5	%		29.6	%
	West Elm		608				580			6.1			51.1
	Williams Sonoma		249				255			0.5			6.4
	Pottery Barn Kids and Teen		284				274			5.3			18.0
	Other2		118				107			N/A			N/A
	Total	$	2,138			$	1,948			11.3	%		29.8	%
	See the Company's 10-K and 10-Q filings for the definition of comparable brand revenue, which is calculated on a 13-week basis for Q2 2022 and Q2 2021. Primarily consists of net revenues from our international franchise operations, Rejuvenation, and Mark and Graham.

Condensed Consolidated Balance Sheets (unaudited)
	As of
(In thousands, except per share amounts)	July 31, 2022				January 30, 2022				August 1, 2021
Assets
Current assets
Cash and cash equivalents	$	124,944			$	850,338			$	655,211
Accounts receivable, net		133,500				131,683				141,814
Merchandise inventories, net		1,542,428				1,246,372				1,170,561
Prepaid expenses		102,312				69,252				85,587
Other current assets		25,537				26,249				20,537
Total current assets		1,928,721				2,323,894				2,073,710
Property and equipment, net		973,676				920,773				875,295
Operating lease right-of-use assets		1,174,354				1,132,764				1,052,617
Deferred income taxes, net		52,897				56,585				58,848
Goodwill		85,269				85,354				85,421
Other long-term assets, net		104,257				106,250				99,146
Total assets	$	4,319,174			$	4,625,620			$	4,245,037
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	680,097			$	612,512			$	601,879
Accrued expenses		244,559				319,924				224,089
Gift card and other deferred revenue		498,354				447,770				403,409
Income taxes payable		87,159				79,554				61,335
Operating lease liabilities		206,931				217,409				213,784
Other current liabilities		93,945				94,517				74,331
Total current liabilities		1,811,045				1,771,686				1,578,827
Deferred lease incentives		14,725				16,360				18,359
Long-term operating lease liabilities		1,115,501				1,066,839				994,165
Other long-term liabilities		99,624				106,528				126,967
Total liabilities		3,040,895				2,961,413				2,718,318
Stockholders' equity
Preferred stock: $0.01 par value; 7,500 shares authorized, none issued		—				—				—
Common stock: $0.01 par value; 253,125 shares authorized; 67,057, 71,982, and 74,426 shares issued and outstanding at July 31, 2022, January 30, 2022 and August 1, 2021, respectively		671				720				745
Additional paid-in capital		541,895				600,942				569,734
Retained earnings		750,083				1,074,084				964,000
Accumulated other comprehensive loss		(13,631	)			(10,828	)			(7,049	)
Treasury stock, at cost		(739	)			(711	)			(711	)
Total stockholders' equity		1,278,279				1,664,207				1,526,719
Total liabilities and stockholders' equity	$	4,319,174			$	4,625,620			$	4,245,037

	Retail Store Data (unaudited)
		Beginning of quarter						End of quarter			As of
		May 1, 2022		Openings		Closings		July 31, 2022			August 1, 20211
	Pottery Barn	188		2		(1	)	189			195
	Williams Sonoma	175		1		(1	)	175			196
	West Elm	121		1		(1	)	121			123
	Pottery Barn Kids	52		—		—		52			57
	Rejuvenation	9		—		—		9			10
	Total	545		4		(3	)	546			581
	Retail store data for fiscal 2021 includes stores temporarily closed due to COVID-19. All stores were reopened as of the end of fiscal 2021.

Condensed Consolidated Statements of Cash Flows (unaudited)
	For the Twenty-six Weeks Ended
(In thousands)	July 31, 2022				August 1, 2021
Cash flows from operating activities:
Net earnings	$	521,188			$	473,872
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		102,455				96,687
Loss on disposal/impairment of assets		5,413				455
Amortization of deferred lease incentives		(1,635	)			(2,254	)
Non-cash lease expense		110,511				105,739
Deferred income taxes		(7,636	)			(7,037	)
Tax benefit related to stock-based awards		10,828				10,302
Stock-based compensation expense		51,743				46,260
Other		154				(274	)
Changes in:
Accounts receivable		(1,985	)			2,002
Merchandise inventories		(295,458	)			(163,621	)
Prepaid expenses and other assets		(30,585	)			(4,622	)
Accounts payable		59,404				48,457
Accrued expenses and other liabilities		(78,895	)			(43,653	)
Gift card and other deferred revenue		50,503				30,308
Operating lease liabilities		(120,036	)			(108,791	)
Income taxes payable		7,623				(8,162	)
Net cash provided by operating activities		383,592				475,668
Cash flows from investing activities:
Purchases of property and equipment		(148,548	)			(78,281	)
Other		86				97
Net cash used in investing activities		(148,462	)			(78,184	)
Cash flows from financing activities:
Repurchases of common stock		(766,424	)			(451,388	)
Payment of dividends		(112,674	)			(91,069	)
Tax withholdings related to stock-based awards		(79,275	)			(100,160	)
Repayment of long-term debt		—				(300,000	)
Net cash used in financing activities		(958,373	)			(942,617	)
Effect of exchange rates on cash and cash equivalents		(2,151	)			7
Net decrease in cash and cash equivalents		(725,394	)			(545,126	)
Cash and cash equivalents at beginning of period		850,338				1,200,337
Cash and cash equivalents at end of period	$	124,944			$	655,211

Exhibit 1
	2nd Quarter GAAP to Non-GAAP Reconciliation (unaudited)
		For the Thirteen Weeks Ended												For the Twenty-six Weeks Ended
		July 31, 2022						August 1, 2021						July 31, 2022						August 1, 2021
	(In thousands, except per share data)	$			% of revenues			$			% of revenues			$			% of revenues			$			% of revenues
	Selling, general and administrative expenses	$	563,288		26.4	%		$	535,288		27.5	%		$	1,068,355		26.5	%		$	1,012,964		27.4	%
	Outward-related1		—						(2,757	)					—						(5,596	)
	Non-GAAP selling, general and administrative expenses	$	563,288		26.4	%		$	532,531		27.3	%		$	1,068,355		26.5	%		$	1,007,368		27.2	%
	Operating income	$	365,521		17.1	%		$	323,100		16.6	%		$	689,002		17.1	%		$	598,277		16.2	%
	Outward-related1		—						2,757						—						5,596
	Non-GAAP operating income	$	365,521		17.1	%		$	325,857		16.7	%		$	689,002		17.1	%		$	603,873		16.3	%
		$			Tax rate			$			Tax rate			$			Tax rate			$			Tax rate
	Income taxes	$	98,790		27.0	%		$	77,069		23.9	%		$	168,321		24.4	%		$	122,572		20.6	%
	Outward-related1		—						462						—						973
	Non-GAAP income taxes	$	98,790		27.0	%		$	77,531		23.8	%		$	168,321		24.4	%		$	123,545		20.5	%
	Diluted EPS	$	3.87					$	3.21					$	7.36					$	6.11
	Outward-related1		—						0.03						—						0.06
	Non-GAAP diluted EPS2	$	3.87					$	3.24					$	7.36					$	6.17
	During Q2 2021 and year-to-date 2021, we incurred approximately $2.8 million and $5.6 million, respectively, associated with acquisition-related compensation expense and the amortization of acquired intangibles for Outward, Inc. 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.

Contacts

Julie Whalen EVP, Chief Financial Officer - [phone]
-or-
Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor Relations - [phone]