WSM Williams Sonoma

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the first fiscal quarter ended April 30, 2017 (“Q1 17”) versus the first fiscal quarter ended May 1, 2016 (“Q1 16”).

1st QUARTER 2017 RESULTS

          - Q1 17 net revenues grew 1.2% to $1.112 billion versus $1.098 billion in Q1 16 with comparable brand revenue growth of 0.1%.   - Q1 17 operating margin was 5.6% versus 5.8% in Q1 16. Excluding certain items affecting comparability, non-GAAP operating margin was 6.1% in Q1 17 and 7.0% in Q1 16 (see Notes 1 and 2 in Exhibit 1). See Exhibit 1 for a reconciliation of GAAP to non-GAAP operating margin.   - Q1 17 diluted earnings per share (“EPS”) was $0.45 versus $0.44 in Q1 16. Excluding certain items affecting comparability, non-GAAP EPS was $0.51 in Q1 17 and $0.53 in Q1 16 (see Notes 1–3 in Exhibit 1). See Exhibit 1 for a reconciliation of GAAP to non-GAAP EPS.   - Cash returned to stockholders totaled $72 million, comprising $38 million in stock repurchases and $34 million in dividends.  

Laura Alber, President and Chief Executive Officer, commented, “In the first quarter, we saw strong sequential improvement in the Pottery Barn brand, demonstrating the effectiveness of the brand initiatives that we are implementing. West Elm, our newer businesses (Rejuvenation and Mark and Graham), and our company-owned global operations delivered another quarter of double-digit growth, and Williams Sonoma started the year off strongly. We also continued to realize positive results from our supply chain initiatives, as we drive continuous improvements across the organization to deliver increased efficiencies and a superior customer experience.”

Alber continued, “We remain highly focused on delivering innovative, high-quality products that are inspiring, relevant and competitively priced. We believe that our iconic multi-aesthetic brands and profitable multi-channel model, together with our lifestyle merchandising approach and high-touch service model, create a sustainable competitive advantage. As we continue to make strong progress against our key strategic initiatives, we believe we are well positioned to deliver on both our near and longer-term goals.”

Net revenues increased to $1.112 billion in Q1 17 from $1.098 billion in Q1 16.

Comparable brand revenue in Q1 17 increased 0.1% on top of 4.5% in Q1 16 as shown in the table below:

 

1st Quarter Comparable Brand Revenue Growth by Concept*

            Q1 17          

 Q1 16

Pottery Barn           (1.4 %)           0.2 % Williams Sonoma 3.2 % 3.5 % West Elm 6.0 % 19.0 % Pottery Barn Kids (5.7 %) 1.7 % PBteen           (14.3 %)           1.9 % Total           0.1 %           4.5 %

* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue. 

 

E-commerce net revenues in Q1 17 increased 0.7% to $581 million from $576 million in Q1 16. E-commerce net revenues generated 52.2% of total company net revenues in Q1 17 and 52.5% of total company net revenues in Q1 16.

Retail net revenues in Q1 17 increased 1.8% to $531 million from $522 million in Q1 16.

Operating margin in Q1 17 was 5.6% compared to 5.8% in Q1 16. Excluding certain items affecting comparability, non-GAAP operating margin was 6.1% in Q1 17 and 7.0% in Q1 16:

          - Gross margin was 35.6% in Q1 17 versus 35.8% in Q1 16.   - Selling, general and administrative (“SG&A”) expenses were $333 million, or 30.0% of net revenues in Q1 17, versus $329 million, or 30.0% of net revenues, in Q1 16. Excluding certain items affecting comparability, non-GAAP SG&A expenses were $328 million, or 29.5% of net revenues in Q1 17, and $316 million, or 28.8% of net revenues, in Q1 16 (see Notes 1 and 2 in Exhibit 1).  

The effective income tax rate in Q1 17 was 36.8% versus 37.7% in Q1 16. Excluding certain items affecting comparability, the effective tax rate in Q1 17 was 34.5% (see Note 3 in Exhibit 1). See Exhibit 1 for a reconciliation of GAAP to non-GAAP effective income tax rate. The year-over-year tax rate improvement was driven by the incremental benefits we are seeing from improved profitability across our international operations, which are taxed at a lower tax rate.

EPS in Q1 17 was $0.45 versus $0.44 in Q1 16. Excluding certain items affecting comparability, non-GAAP EPS was $0.51 in Q1 17 and $0.53 in Q1 16 (see Notes 1–3 in Exhibit 1).

Merchandise inventories at the end of Q1 17 increased 9.8% to $1.037 billion from $945 million at the end of Q1 16. On-hand and available for sale inventory grew 3.5%, driven by our higher growth brands. On-hand and available for sale inventory decreased 0.4% across the Pottery Barn brands.

STOCK REPURCHASE PROGRAM

During Q1 17, we repurchased 764,543 shares of common stock at an average cost of $50.16 per share and a total cost of approximately $38 million. As of April 30, 2017, there was approximately $372 million remaining under our current stock repurchase authorization.

FISCAL YEAR 2017 FINANCIAL GUIDANCE

         

2nd Quarter 2017 Financial Guidance

 

Total Net Revenues (millions)

$1,195 – $1,230

Comparable Brand Revenue Growth

2% – 5%

Diluted EPS

$0.55 – $0.61

               

Fiscal Year 2017 Financial Guidance

  Total Net Revenues (millions) $5,165 – $5,265 Comparable Brand Revenue Growth 1% – 3% Non-GAAP Operating Margin* 9.4% – 9.6% Non-GAAP Diluted EPS* $3.45 – $3.65 Income Tax Rate 36.5% – 37.5% Capital Spending (millions) $200 – $220 Depreciation and Amortization (millions)           $185 – $195

* Excludes certain items affecting comparability. See Notes 2 and 3 in Exhibit 1. Including

these items, GAAP operating margin guidance would be 9.3% to 9.5%. 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     (7)     231 Pottery Barn 201 8 (6) 203 West Elm 98 10 (3) 105 Pottery Barn Kids 89 - (4) 85 Rejuvenation     7       2     -     9 Total     629       24     (20)     633

* Included in the FY 16 store count are 19 stores in Australia and one store in the UK.      

 

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 24, 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, income taxes, effective tax rate 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 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 quarterly actual results 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: our product strategy, our multi-brand, multi-aesthetic strategy, our sustainable competitive advantage; our execution of key strategic initiatives; our ability to deliver on near and longer-term goals; our future financial guidance, including Q2 17 and FY 2017 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 Q1 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; 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 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 and the Philippines and stores and e-commerce websites in Mexico

  Williams-Sonoma, Inc. Condensed Consolidated Statements of Earnings (unaudited) Thirteen weeks ended April 30, 2017 and May 1, 2016 (Dollars and shares in thousands, except per share amounts)            

1st Quarter

  2017           2016   $    

% ofRevenues

  $    

% ofRevenues

E-commerce net revenues $ 580,510   52.2 % $ 576,234   52.5 % Retail net revenues   530,997     47.8     521,583     47.5   Net revenues 1,111,507 100.0 1,097,817 100.0   Cost of goods sold   715,747     64.4     705,300     64.2   Gross profit 395,760 35.6 392,517 35.8   Selling, general and administrative expenses   333,286     30.0     328,992     30.0   Operating income 62,474 5.6 63,525 5.8   Interest (income) expense, net   (103 )   -     (68 )   -   Earnings before income taxes 62,577 5.6 63,593 5.8   Income taxes   23,022     2.1     23,996     2.2   Net earnings $ 39,555     3.6 % $ 39,597     3.6 %   Earnings per share (EPS): Basic $0.45 $0.44 Diluted $0.45 $0.44   Shares used in calculation of EPS: Basic 86,962 89,298 Diluted 87,710 90,514   Williams-Sonoma, Inc. Condensed Consolidated Balance Sheets (unaudited) (Dollars and shares in thousands, except per share amounts)                                     Apr. 30, 2017 Jan. 29, 2017

 May 1, 2016

Assets Current assets Cash and cash equivalents $ 93,975 $ 213,713 $ 99,217 Accounts receivable, net 63,982 88,803 75,364 Merchandise inventories, net 1,037,107 977,505 944,632 Prepaid catalog expenses 23,066 23,625 29,916 Prepaid expenses 62,014 52,882 53,689 Other assets   10,901     10,652     9,844   Total current assets   1,291,045     1,367,180     1,212,662     Property and equipment, net 920,531 923,283 893,640 Deferred income taxes, net 124,977 135,238 131,597 Other assets, net   54,624     51,178     52,469   Total assets $ 2,391,177   $ 2,476,879   $ 2,290,368     Liabilities and stockholders' equity Current liabilities Accounts payable $ 399,336 $ 453,710 $ 339,392 Accrued salaries, benefits and other liabilities 91,038 130,187 96,577 Customer deposits 289,852 294,276 275,116 Borrowings under revolving line of credit 45,000 - 100,000 Income taxes payable 37,792 23,245 7,764 Other liabilities   49,647     59,838     52,907   Total current liabilities   912,665     961,256     871,756     Deferred rent and lease incentives 195,201 196,188 188,715 Other long-term obligations   73,160     71,215     67,041   Total liabilities   1,181,026     1,228,659     1,127,512       Stockholders’ equity

Preferred stock: $.01 par value; 7,500 shares authorized;none issued

- - -

Common stock: $.01 par value; 253,125 shares authorized;86,883, 87,325 and 89,350 shares issued and outstandingat April 30, 2017, January 29, 2017 and May 1, 2016,respectively

869 873 894 Additional paid-in capital 549,281 556,928 534,414 Retained earnings 671,758 701,702 636,986 Accumulated other comprehensive loss (10,830 ) (9,903 ) (7,875 ) Treasury stock, at cost   (927 )   (1,380 )   (1,563 ) Total stockholders’ equity   1,210,151     1,248,220     1,162,856         Total liabilities and stockholders' equity $ 2,391,177   $ 2,476,879   $ 2,290,368     Williams-Sonoma, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Thirteen weeks ended April 30, 2017 and May 1, 2016 (Dollars in thousands)             Year-to-Date                         2017     2016   Cash flows from operating activities Net earnings $ 39,555 $ 39,597   Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 44,950 41,240 Loss on disposal/impairment of assets 519 880 Amortization of deferred lease incentives (6,477 ) (5,987 ) Deferred income taxes (3,848 ) (5,796 ) Tax benefit related to stock-based awards 13,742 20,087 Excess tax benefit related to stock-based awards - (3,824 ) Stock-based compensation expense 9,817 15,732 Other (76 ) (418 )   Changes in: Accounts receivable 24,610 3,781 Merchandise inventories (60,246 ) 37,424 Prepaid catalog expenses 559 (997 ) Prepaid expenses and other assets (12,472 ) (7,683 ) Accounts payable (65,990 ) (113,510 ) Accrued salaries, benefits and other liabilities (47,235 ) (20,875 ) Customer deposits (4,154 ) (22,465 ) Deferred rent and lease incentives 5,806 9,439 Income taxes payable   14,564     (59,285 ) Net cash used in operating activities   (46,376 )   (72,660 )   Cash flows from investing activities: Purchases of property and equipment (32,153 ) (28,149 ) Other   5     294   Net cash used in investing activities   (32,148 )   (27,855 )   Cash flows from financing activities: Borrowings under revolving line of credit 45,000 100,000 Repurchase of common stock (38,350 ) (40,639 ) Payment of dividends (34,189 ) (34,423 ) Tax withholdings related to stock-based awards (13,780 ) (22,904 ) Excess tax benefit related to stock-based awards - 3,824 Proceeds related to stock-based awards - 995 Other   -     (48 ) Net cash provided by (used in) financing activities   (41,319 )   6,805     Effect of exchange rates on cash and cash equivalents 105 (720 ) Net decrease in cash and cash equivalents (119,738 ) (94,430 ) Cash and cash equivalents at beginning of period   213,713     193,647   Cash and cash equivalents at end of period $ 93,975   $ 99,217     Exhibit 1

(Unaudited)

Reconciliation of 1st Quarter GAAP to Non-GAAP Operating Income and Operating Margin By Segment*

($ in thousands)

        E-commerce     Retail     Unallocated     Total       Q1 17   Q1 16 Q1 17   Q1 16 Q1 17   Q1 16 Q1 17   Q1 16 Net Revenues     $

  580,510

  $

  576,234

$

  530,997

  $

  521,583

$ -   $ - $ 1,111,507   $ 1,097,817

GAAP Operating Income/(Expense)

      132,004       131,545     21,714       30,125    

  (91,244

)    

  (98,145

)   62,474       63,525   GAAP Operating Margin       22.7 %     22.8 %   4.1 %     5.8 %   (8.2 %)     (8.9 %)   5.6 %     5.8 % Severance-related Charges(1,2)       -       -     -       -     5,705       13,221     5,705       13,221  

Non-GAAP Operating Income/(Expense) (5)

    $ 132,004     $ 131,545   $ 21,714     $ 30,125   $ (85,539 )   $ (84,924 ) $ 68,179     $ 76,746   Non-GAAP Operating Margin(5)       22.7 %     22.8 %   4.1 %     5.8 %   (7.7 %)     (7.7 %)   6.1 %     7.0 %

* 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 1st Quarter GAAP to Non-GAAP Effective Tax Rate

($ in thousands)

              Q1 17     Q1 16 Earnings Before Income Taxes           $62,577     $63,593 GAAP Income Taxes           23,022     23,996 GAAP Effective Tax Rate           36.8%     37.7%   Unfavorable Tax Impact from the Adoption of New Accounting Rules (3)           1,429     - Non-GAAP Income Taxes Excluding Adoption of New Accounting Rules (5)           $21,593     $23,996 Non-GAAP Effective Tax Rate Excluding Adoption of New Accounting Rules (5)           34.5%     37.7%   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           FY 17             ACT           GUID 2017 GAAP Diluted EPS          

    $0.45    

          $3.39 - $3.59 Impact of Severance-related Charges(2)           $0.04           $0.04

Unfavorable Tax Impact from the Adoption of NewAccounting Rules (3)

          $0.02           $0.02 2017 Non-GAAP Diluted EPS (5)           $0.51          

$3.45 - $3.65

                            Q1 16 FY 16             ACT           ACT 2016 GAAP Diluted EPS           $0.44           $3.41 Impact of Severance-related Charges(1)           $0.09           $0.10 One-time Favorable Tax Adjustment(4)           -           ($0.08) 2016 Non-GAAP Diluted EPS (5)           $0.53           $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

 

        Jan. 29, 2017    

     Openings

   

     Closings

    Apr. 30, 2017    

 May 1, 2016

Apr. 30, 2017    

 May 1, 2016

Williams Sonoma 234     2     (3)     233     241 6,600     6,600 Pottery Barn 201 1 (3) 199 200 13,800 13,800 West Elm 98 1 - 99 87 13,300 13,200 Pottery Barn Kids 89 - - 89 90 7,400 7,500 Rejuvenation         7     1     -     8     6 8,800     9,000 Total         629     5     (6)     628     624 10,100     10,000                                                       Jan. 29, 2017 Apr. 30, 2017

 May 1, 2016

Total store selling square footage 3,951,000 3,942,000 3,867,000 Total store leased square footage 6,359,000 6,341,000 6,218,000  

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, 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 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.

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WILLIAMS-SONOMA, INC.Julie P. Whalen, 415-616-8524EVP, Chief Financial Officer-or-Beth Potillo-Miller, 415-616-8643SVP, Finance & Corporate TreasurerInvestor Relations