Q2 comparable brand revenue -3.3% Q2
operating margin of 16.2%; diluted EPS growth of 11.5% to $1.74
Revises 2024 outlook with lower revenues offset by higher operating
margin
Williams-Sonoma, Inc. (NYSE: WSM) today announced operating
results for the second quarter ended July 28, 2024 versus the
second quarter ended July 30, 2023.
“Today we are reporting strong results for the second quarter of
2024, which were driven by our Q2 improved top-line trend,
market-share gains, and continued delivery on our commitment to
profitability. In Q2, our comp came in at -3.3%, and we exceeded
profitability estimates with an operating margin of 16.2% and
earnings per share of $1.74, reflecting the 2-for-1 stock split we
completed in July,” said Laura Alber, President and Chief Executive
Officer.
Alber concluded, “We are pleased with our operating results. Our
revised outlook today reflects our prudent view of the top-line,
and the confidence we have in our profitability profile. We now
expect full year revenues to come in at a range of down 4.0% to
down 1.5%, but we are raising our guidance on operating margin to
be in the range of 17.4% to 17.8%. The reduction in our revenue
outlook is offset by our raised operating margin guidance."
SECOND QUARTER 2024 HIGHLIGHTS
- Comparable brand revenue -3.3%.
- Gross margin of 46.2% +550bps to LY driven by (i) higher
merchandise margins of +380bps, (ii) supply chain efficiencies of
+180bps, partially offset by (iii) occupancy deleverage of -10bps.
Occupancy costs of $197 million, -3.0% to LY.
- SG&A rate of 30.0% +390bps to LY driven by higher
performance-based incentive compensation and advertising spend.
SG&A of $536 million, +10.4% to LY.
- Operating income of $290 million with an operating margin of
16.2%. +160bps to LY.
- Diluted EPS of $1.74. +11.5% to LY.
- Merchandise inventories -4.1% to the second quarter LY to $1.2
billion.
- Maintained strong liquidity position of $1.3 billion in cash
and operating cash flow of $246 million, enabling the company to
deliver returns to stockholders of $203 million through $130
million in stock repurchases and $73 million in dividends.
- On July 9, 2024, the Company effected a 2-for-1 stock split of
its common stock through a stock dividend. All historical share and
per share amounts in this release have been retroactively adjusted
to reflect the stock split.
FIRST QUARTER 2024 OUT-OF-PERIOD ADJUSTMENT
Subsequent to the filing of our Form 10-K, in April 2024, the
Company determined that it over-recognized freight expense in
fiscal years 2021, 2022 and 2023 for a cumulative amount of $49
million. The Company evaluated the error, both qualitatively and
quantitatively, and determined that no prior interim or annual
periods were materially misstated. The Company then evaluated
whether the cumulative amount of the over-accrual was material to
its projected fiscal 2024 results, and determined the cumulative
amount was not material. Therefore, the Condensed Consolidated
Financial Statements for the twenty-six weeks ended July 28, 2024
include an out-of-period adjustment of $49 million, recorded in the
first quarter of fiscal 2024, to reduce cost of goods sold and
accounts payable, which corrected the cumulative error on the
balance sheet as of January 28, 2024.
OUTLOOK
- We are revising our fiscal 2024 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 2024, we now expect annual net revenue growth in the
range of -4.0% to -1.5% with comps in the range of -5.5% to -3.0%
in fiscal 2024.
- We are raising our guidance on our operating margin for fiscal
2024. We now expect an operating margin between 18.0% to 18.4%,
including the impact of the first quarter out-of-period adjustment
of 60bps. Without this adjustment, we expect an operating margin
between 17.4% to 17.8% in fiscal 2024.
- For fiscal 2024, we expect annual interest income to be
approximately $45 million and our annual effective tax rate to be
approximately 25.5%.
- Fiscal 2024 is a 53-week year. Our financial statements will be
prepared on a 53-week basis in fiscal 2024 and a 52-week basis in
fiscal 2023. However, we will report comps on a 53-week versus
53-week comparable basis. All other year-over-year comparisons will
be 53-weeks in fiscal 2024 versus 52-weeks in fiscal 2023. We
expect the additional week in fiscal 2024 to contribute 150bps to
net revenue growth and 10bps to operating margin, both of which are
reflected in our guidance.
- Over the long-term, we continue to expect mid-to-high
single-digit annual net revenue growth with an operating margin in
the mid-to-high teens.
CONFERENCE CALL AND WEBCAST INFORMATION
Williams-Sonoma, Inc. will host a live conference call today,
August 22, 2024, 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 as we cannot do so without unreasonable
efforts due to the potential variability and limited visibility of
excluded items, and for the same reasons, we are unable to address
the probable significance of the unavailable information. 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 2024
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 changing interest rates, on
consumer spending; the continuing impact of global conflicts, such
as the conflicts in Ukraine and the Middle East, 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 and grow 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 28, 2024 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 28, 2024. 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 values-based culture and commitment
to achieving our sustainability goals. 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 sustainability 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 28, 2024
July 30, 2023
July 28, 2024
July 30, 2023
(In thousands, except per share
amounts)
$
% of Revenues
$
% of Revenues
$
% of Revenues
$
% of Revenues
Net revenues
$
1,788,307
100.0
%
$
1,862,614
100.0
%
$
3,448,655
100.0
%
$
3,618,065
100.0
%
Cost of goods sold
961,981
53.8
1,105,047
59.3
1,819,814
52.8
2,185,439
60.4
Gross profit
826,326
46.2
757,567
40.7
1,628,841
47.2
1,432,626
39.6
Selling, general and administrative
expenses
536,410
30.0
486,019
26.1
1,015,097
29.4
961,601
26.6
Operating income
289,916
16.2
271,548
14.6
613,744
17.8
471,025
13.0
Interest income, net
15,208
0.9
3,335
0.2
31,261
0.9
8,833
0.3
Earnings before income taxes
305,124
17.1
274,883
14.8
645,005
18.7
479,858
13.3
Income taxes
79,379
4.4
73,376
3.9
153,594
4.5
121,820
3.4
Net earnings
$
225,745
12.6
%
$
201,507
10.8
%
$
491,411
14.2
%
$
358,038
9.9
%
Earnings per share (EPS):
Basic
$
1.76
$
1.57
$
3.83
$
2.75
Diluted
$
1.74
$
1.56
$
3.78
$
2.73
Shares used in calculation of
EPS:
Basic
128,256
128,326
128,334
130,012
Diluted
129,810
129,051
130,103
131,173
2nd Quarter Net Revenues and
Comparable Brand Revenue Growth (Decline)1
Net Revenues
Comparable Brand
Revenue
Growth (Decline)
(In millions, except percentages)
Q2 24
Q2 23
Q2 24
Q2 23
Pottery Barn
$
726
$
786
(7.1
)%
(10.6
)%
West Elm
459
484
(4.8
)
(20.8
)
Williams Sonoma
240
245
(0.8
)
(0.7
)
Pottery Barn Kids and Teen
259
256
1.5
(9.0
)
Other2
104
92
N/A
N/A
Total
$
1,788
$
1,863
(3.3
)%
(11.9
)%
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, Mark and
Graham, and GreenRow.
Condensed Consolidated Balance
Sheets (unaudited)
As of
(In thousands, except per share
amounts)
July 28, 2024
January 28, 2024
July 30, 2023
Assets
Current assets
Cash and cash equivalents
$
1,265,259
$
1,262,007
$
514,435
Accounts receivable, net
112,492
122,914
117,045
Merchandise inventories, net
1,247,426
1,246,369
1,300,838
Prepaid expenses
99,409
59,466
73,521
Other current assets
19,711
29,041
26,293
Total current assets
2,744,297
2,719,797
2,032,132
Property and equipment, net
975,137
1,013,189
1,036,407
Operating lease right-of-use assets
1,150,180
1,229,650
1,232,925
Deferred income taxes, net
106,080
110,656
73,610
Goodwill
77,307
77,306
77,322
Other long-term assets, net
158,671
122,950
119,415
Total assets
$
5,211,672
$
5,273,548
$
4,571,811
Liabilities and stockholders'
equity
Current liabilities
Accounts payable
$
595,601
$
607,877
$
597,104
Accrued expenses
207,633
264,306
184,996
Gift card and other deferred revenue
576,458
573,904
435,369
Income taxes payable
53,373
96,554
127,581
Operating lease liabilities
233,361
234,517
222,155
Other current liabilities
92,369
103,157
96,645
Total current liabilities
1,758,795
1,880,315
1,663,850
Long-term operating lease liabilities
1,081,108
1,156,104
1,168,221
Other long-term liabilities
121,539
109,268
118,785
Total liabilities
2,961,442
3,145,687
2,950,856
Stockholders' equity
Preferred stock: $0.01 par value; 7,500
shares authorized, none issued
—
—
—
Common stock: $0.01 par value; 253,125
shares authorized; 127,788, 128,301, and 128,289 shares issued and
outstanding at July 28, 2024, January 28, 2024 and July 30, 2023,
respectively
1,278
1,284
1,283
Additional paid-in capital
538,172
587,960
550,866
Retained earnings
1,728,063
1,555,595
1,084,772
Accumulated other comprehensive loss
(16,848
)
(15,552
)
(14,540
)
Treasury stock, at cost
(435
)
(1,426
)
(1,426
)
Total stockholders' equity
2,250,230
2,127,861
1,620,955
Total liabilities and stockholders'
equity
$
5,211,672
$
5,273,548
$
4,571,811
Retail Store Data
(unaudited)
Beginning of quarter
End of quarter
As of
April 28, 2024
Openings
Closings
July 28, 2024
July 30, 2023
Pottery Barn
184
3
(2
)
185
190
Williams Sonoma
156
2
—
158
164
West Elm
121
1
—
122
123
Pottery Barn Kids
45
—
—
45
46
Rejuvenation
11
—
—
11
9
Total
517
6
(2
)
521
532
Condensed Consolidated
Statements of Cash Flows (unaudited)
For the Twenty-six Weeks
Ended
(In thousands)
July 28, 2024
July 30, 2023
Cash flows from operating
activities:
Net earnings
$
491,411
$
358,038
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization
113,264
110,843
Loss on disposal/impairment of assets
2,963
14,185
Non-cash lease expense
129,608
126,981
Deferred income taxes
(5,931
)
(3,841
)
Tax benefit related to stock-based
awards
10,139
12,334
Stock-based compensation expense
44,846
44,159
Other
(1,578
)
(1,647
)
Changes in:
Accounts receivable
10,393
(1,502
)
Merchandise inventories
(1,415
)
154,712
Prepaid expenses and other assets
(66,647
)
(6,615
)
Accounts payable
(26,617
)
87,840
Accrued expenses and other liabilities
(54,924
)
(67,955
)
Gift card and other deferred revenue
2,800
(43,699
)
Operating lease liabilities
(131,848
)
(135,206
)
Income taxes payable
(43,181
)
66,358
Net cash provided by operating
activities
473,283
714,985
Cash flows from investing
activities:
Purchases of property and equipment
(70,946
)
(92,880
)
Other
(13
)
211
Net cash used in investing
activities
(70,959
)
(92,669
)
Cash flows from financing
activities:
Repurchases of common stock
(173,603
)
(310,000
)
Payment of dividends
(135,768
)
(116,643
)
Tax withholdings related to stock-based
awards
(88,851
)
(49,950
)
Net cash used in financing
activities
(398,222
)
(476,593
)
Effect of exchange rates on cash and cash
equivalents
(850
)
1,368
Net increase in cash and cash
equivalents
3,252
147,091
Cash and cash equivalents at beginning of
period
1,262,007
367,344
Cash and cash equivalents at end of
period
$
1,265,259
$
514,435
Exhibit 1
2nd Quarter GAAP to Non-GAAP
Reconciliation
(unaudited)
For the Thirteen Weeks
Ended
For the Twenty-six Weeks
Ended
July 28, 2024
July 30, 2023
July 28, 2024
July 30, 2023
(In thousands, except per share data)
$
% of revenues
$
% of revenues
$
% of
revenues
$
% of revenues
Occupancy costs
$
197,243
11.0
%
$
203,259
10.9
%
$
393,398
11.4
%
$
405,871
11.2
%
Exit Costs1
—
—
—
(239
)
Non-GAAP occupancy costs
$
197,243
11.0
%
$
203,259
10.9
%
$
393,398
11.4
%
$
405,632
11.2
%
Gross profit
$
826,326
46.2
%
$
757,567
40.7
%
$
1,628,841
47.2
%
$
1,432,626
39.6
%
Exit Costs1
—
—
—
2,141
Non-GAAP gross profit
$
826,326
46.2
%
$
757,567
40.7
%
$
1,628,841
47.2
%
$
1,434,767
39.7
%
Selling, general and administrative
expenses
$
536,410
30.0
%
$
486,019
26.1
%
$
1,015,097
29.4
%
$
961,601
26.6
%
Exit Costs1
—
—
—
(15,790
)
Reduction-in-force Initiatives2
—
—
—
(8,316
)
Non-GAAP selling, general and
administrative expenses
$
536,410
30.0
%
$
486,019
26.1
%
$
1,015,097
29.4
%
$
937,495
25.9
%
Operating income
$
289,916
16.2
%
$
271,548
14.6
%
$
613,744
17.8
%
$
471,025
13.0
%
Exit Costs1
—
—
—
17,931
Reduction-in-force Initiatives2
—
—
—
8,316
Non-GAAP operating income
$
289,916
16.2
%
$
271,548
14.6
%
$
613,744
17.8
%
$
497,272
13.7
%
$
Tax rate
$
Tax rate
$
Tax rate
$
Tax rate
Income taxes
$
79,379
26.0
%
$
73,376
26.7
%
$
153,594
23.8
%
$
121,820
25.4
%
Exit Costs1
—
—
—
4,690
Reduction-in-force Initiatives2
—
—
—
2,174
Non-GAAP income taxes
$
79,379
26.0
%
$
73,376
26.7
%
$
153,594
23.8
%
$
128,684
25.4
%
Diluted EPS
$
1.74
$
1.56
$
3.78
$
2.73
Exit Costs1
—
—
—
0.10
Reduction-in-force Initiatives2
—
—
—
0.05
Non-GAAP diluted EPS3
$
1.74
$
1.56
$
3.78
$
2.88
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240822101499/en/
Jeff Howie EVP, Chief Financial Officer – (415) 402 4324 Jeremy
Brooks SVP, Chief Accounting Officer & Head of Investor
Relations – (415) 733 2371
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