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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230823775068/en/
Jeff Howie EVP, Chief Financial Officer – (415) 402 4324 Jeremy
Brooks SVP, Chief Accounting Officer & Head of Investor
Relations – (415) 733 2371
Williams Sonoma (NYSE:WSM)
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