Williams-Sonoma, Inc. announces first quarter 2023 results

Q1 comparable brand revenue decline of 6.0%

GAAP operating margin of 11.4%; non-GAAP operating margin of 12.9%

GAAP diluted EPS of $2.35; non-GAAP diluted EPS of $2.64

Reiterates full year outlook

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the first quarter ended April 30, 2023 versus the first quarter ended May 1, 2022.

“Despite a challenging macro backdrop, we delivered another solid quarter of earnings. With our focus on compelling product, customer service, and profitability, we achieved our financial expectations,” said Laura Alber, President and Chief Executive Officer.

Alber concluded, “We have a culture of innovation and an experienced team who knows how to increase operational efficiencies, control costs, deliver world-class customer service, and drive new growth opportunities. We are confident that we will continue to deliver on our commitment to our customers, our employees, and our shareholders.”

FIRST QUARTER 2023 HIGHLIGHTS

  • Comparable brand revenue declined 6.0% with a 2-year comp growth of 3.5% and a 4-year comp growth of 46.5%.
  • Delivered a gross margin of 38.5%, or 38.6% on a non-GAAP basis, deleveraging 520bps on a non-GAAP basis, primarily driven by higher inbound and outbound shipping and freight costs with occupancy deleverage of 170bps. Occupancy costs increased 8.7% to $203 million, or increased 8.6% to $202 million on a non-GAAP basis.
  • SG&A as a percentage of revenues was 27.1%, or 25.7% on a non-GAAP basis, leveraging 100bps on a non-GAAP basis driven by advertising leverage with employment rate flat.
  • Delivered operating income of $199 million, with an operating margin of 11.4%, on a GAAP basis; or $226 million, with an operating margin of 12.9%, on a non-GAAP basis.
  • Delivered GAAP diluted EPS of $2.35 per share, or $2.64 per share on a non-GAAP basis.
  • Maintained strong liquidity position of $297 million in cash at the end of the quarter, with no borrowings outstanding, and $343 million in operating cash flow enabling the company to deliver strong returns to stockholders of $358 million through stock repurchases of $300 million and dividends of $58 million.
  • Recorded a non-recurring charge of $26.2 million for (i) exit costs associated with our West Coast manufacturing facility of $9.3 million, (ii) exit costs associated with Aperture of $8.6 million, and (iii) company-wide reduction-in-force actions of $8.3 million, right-sizing our teams domestically and internationally, primarily focused on corporate non-customer facing positions. Combined, we expect these changes will result in a pre-tax, annualized savings of $40 million.

OUTLOOK

  • We are reiterating our fiscal 2023 and long-term guidance.
  • In fiscal 2023, we expect net revenue growth in the range of -3% to +3% with an operating margin between 14% to 15%.
  • In the long-term, we 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, May 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 fiscal year 2023 outlook and long-term financial targets, and statements regarding our growth strategies and reduction-in-force initiatives and anticipated cost savings.

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 April 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

 

April 30, 2023

 

May 1, 2022

(In thousands, except per share amounts)

$

 

% of

Revenues

 

$

 

% of

Revenues

Net revenues

$

1,755,451

 

 

100.0

%

 

$

1,891,227

 

 

100.0

%

Cost of goods sold

 

1,080,392

 

 

61.5

 

 

 

1,062,679

 

 

56.2

 

Gross profit

 

675,059

 

 

38.5

 

 

 

828,548

 

 

43.8

 

Selling, general and administrative expenses

 

475,582

 

 

27.1

 

 

 

505,067

 

 

26.7

 

Operating income

 

199,477

 

 

11.4

 

 

 

323,481

 

 

17.1

 

Interest income, net

 

(5,498

)

 

(0.3

)

 

 

(163

)

 

 

Earnings before income taxes

 

204,975

 

 

11.7

 

 

 

323,644

 

 

17.1

 

Income taxes

 

48,444

 

 

2.8

 

 

 

69,531

 

 

3.7

 

Net earnings

$

156,531

 

 

8.9

%

 

$

254,113

 

 

13.4

%

Earnings per share (EPS):

 

 

 

 

 

 

 

Basic

$

2.38

 

 

 

 

$

3.59

 

 

 

Diluted

$

2.35

 

 

 

 

$

3.50

 

 

 

Shares used in calculation of EPS:

 

 

 

 

 

 

 

Basic

 

65,849

 

 

 

 

 

70,851

 

 

 

Diluted

 

66,696

 

 

 

 

 

72,652

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

Comparable Brand Revenue

Growth (Decline)

 

 

(In millions, except percentages)

Q1 23

 

Q1 22

 

Q1 23

 

Q1 22

 

 

Pottery Barn

$

768

 

$

775

 

(0.4

) %

 

14.6

%

 

 

West Elm

 

452

 

 

536

 

(15.8

)

 

12.8

 

 

 

Williams Sonoma

 

239

 

 

252

 

(4.4

)

 

(2.2

)

 

 

Pottery Barn Kids and Teen

 

216

 

 

227

 

(3.3

)

 

(3.1

)

 

 

Other2

 

80

 

 

101

 

N/A

 

 

N/A

 

 

 

Total

$

1,755

 

$

1,891

 

(6.0

) %

 

9.5

%

 

 

  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)

 

April 30,

2023

 

January 29,

2023

 

May 1, 2022

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

297,291

 

 

$

367,344

 

 

$

324,835

 

Accounts receivable, net

 

 

109,203

 

 

 

115,685

 

 

 

122,946

 

Merchandise inventories, net

 

 

1,401,616

 

 

 

1,456,123

 

 

 

1,396,135

 

Prepaid expenses

 

 

62,723

 

 

 

64,961

 

 

 

60,997

 

Other current assets

 

 

27,993

 

 

 

31,967

 

 

 

23,939

 

Total current assets

 

 

1,898,826

 

 

 

2,036,080

 

 

 

1,928,852

 

Property and equipment, net

 

 

1,050,026

 

 

 

1,065,381

 

 

 

942,460

 

Operating lease right-of-use assets

 

 

1,258,599

 

 

 

1,286,452

 

 

 

1,102,056

 

Deferred income taxes, net

 

 

70,758

 

 

 

81,389

 

 

 

48,737

 

Goodwill

 

 

77,330

 

 

 

77,307

 

 

 

85,298

 

Other long-term assets, net

 

 

115,498

 

 

 

116,407

 

 

 

103,310

 

Total assets

 

$

4,471,037

 

 

$

4,663,016

 

 

$

4,210,713

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

629,561

 

 

$

508,321

 

 

$

642,619

 

Accrued expenses

 

 

205,175

 

 

 

247,594

 

 

 

183,729

 

Gift card and other deferred revenue

 

 

452,505

 

 

 

479,229

 

 

 

490,821

 

Income taxes payable

 

 

87,680

 

 

 

61,204

 

 

 

126,270

 

Operating lease liabilities

 

 

229,751

 

 

 

231,965

 

 

 

211,614

 

Other current liabilities

 

 

97,144

 

 

 

108,138

 

 

 

88,587

 

Total current liabilities

 

 

1,701,816

 

 

 

1,636,451

 

 

 

1,743,640

 

Long-term operating lease liabilities

 

 

1,186,231

 

 

 

1,211,693

 

 

 

1,038,249

 

Other long-term liabilities

 

 

116,165

 

 

 

113,821

 

 

 

119,080

 

Total liabilities

 

 

3,004,212

 

 

 

2,961,965

 

 

 

2,900,969

 

Stockholders' equity

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Common stock: $0.01 par value; 253,125 shares authorized; 64,222, 66,226, and 69,219 shares issued and outstanding at April 30, 2023, January 29, 2023 and May 1, 2022, respectively

 

 

643

 

 

 

663

 

 

 

693

 

Additional paid-in capital

 

 

531,940

 

 

 

573,117

 

 

 

532,205

 

Retained earnings

 

 

951,926

 

 

 

1,141,819

 

 

 

789,852

 

Accumulated other comprehensive loss

 

 

(16,258

)

 

 

(13,809

)

 

 

(12,267

)

Treasury stock, at cost

 

 

(1,426

)

 

 

(739

)

 

 

(739

)

Total stockholders' equity

 

 

1,466,825

 

 

 

1,701,051

 

 

 

1,309,744

 

Total liabilities and stockholders' equity

 

$

4,471,037

 

 

$

4,663,016

 

 

$

4,210,713

 

 

Retail Store Data

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of quarter

 

 

 

 

 

End of quarter

 

As of

 

 

 

 

January 29, 2023

 

Openings

 

Closings

 

April 30, 2023

 

May 1, 2022

 

 

Pottery Barn

 

188

 

 

 

 

188

 

188

 

 

Williams Sonoma

 

165

 

2

 

(2

)

 

165

 

175

 

 

West Elm

 

122

 

1

 

 

 

123

 

121

 

 

Pottery Barn Kids

 

46

 

 

 

 

46

 

52

 

 

Rejuvenation

 

9

 

 

 

 

9

 

9

 

 

Total

 

530

 

3

 

(2

)

 

531

 

545

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

   

 

 

For the Thirteen Weeks Ended

(In thousands)

 

April 30, 2023

 

May 1, 2022

Cash flows from operating activities:

 

 

 

 

Net earnings

 

$

156,531

 

 

$

254,113

 

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

 

 

 

 

Depreciation and amortization

 

 

55,602

 

 

 

50,251

 

Loss on disposal/impairment of assets

 

 

10,374

 

 

 

159

 

Non-cash lease expense

 

 

64,173

 

 

 

54,338

 

Deferred income taxes

 

 

(1,656

)

 

 

(2,725

)

Tax benefit related to stock-based awards

 

 

11,802

 

 

 

10,522

 

Stock-based compensation expense

 

 

23,446

 

 

 

28,542

 

Other

 

 

(822

)

 

 

(801

)

Changes in:

 

 

 

 

Accounts receivable

 

 

6,256

 

 

 

8,741

 

Merchandise inventories

 

 

52,819

 

 

 

(149,470

)

Prepaid expenses and other assets

 

 

6,668

 

 

 

13,517

 

Accounts payable

 

 

118,525

 

 

 

25,559

 

Accrued expenses and other liabilities

 

 

(92,858

)

 

 

(139,883

)

Gift card and other deferred revenue

 

 

(26,315

)

 

 

42,924

 

Operating lease liabilities

 

 

(68,497

)

 

 

(58,025

)

Income taxes payable

 

 

26,478

 

 

 

46,757

 

Net cash provided by operating activities

 

 

342,526

 

 

 

184,519

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(50,029

)

 

 

(71,186

)

Other

 

 

148

 

 

 

86

 

Net cash used in investing activities

 

 

(49,881

)

 

 

(71,100

)

Cash flows from financing activities:

 

 

 

 

Repurchases of common stock

 

 

(300,000

)

 

 

(501,075

)

Payment of dividends

 

 

(58,079

)

 

 

(58,150

)

Tax withholdings related to stock-based awards

 

 

(4,348

)

 

 

(78,508

)

Net cash used in financing activities

 

 

(362,427

)

 

 

(637,733

)

Effect of exchange rates on cash and cash equivalents

 

 

(271

)

 

 

(1,189

)

Net decrease in cash and cash equivalents

 

 

(70,053

)

 

 

(525,503

)

Cash and cash equivalents at beginning of period

 

 

367,344

 

 

 

850,338

 

Cash and cash equivalents at end of period

 

$

297,291

 

 

$

324,835

 

Exhibit 1

 

1st Quarter GAAP to Non-GAAP Reconciliation

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Thirteen Weeks Ended

 

 

 

 

April 30, 2023

 

May 1, 2022

 

 

(In thousands, except per share data)

 

$

 

% of

revenues

 

$

 

% of

revenues

 

 

Occupancy costs

 

$

202,612

 

 

11.5

%

 

$

186,406

 

9.9

%

 

 

Exit Costs1

 

 

(239

)

 

 

 

 

 

 

 

 

Non-GAAP occupancy costs

 

$

202,373

 

 

11.5

%

 

$

186,406

 

9.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

675,059

 

 

38.5

%

 

$

828,548

 

43.8

%

 

 

Exit Costs1

 

 

2,141

 

 

 

 

 

 

 

 

 

Non-GAAP gross profit

 

$

677,200

 

 

38.6

%

 

$

828,548

 

43.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

475,582

 

 

27.1

%

 

$

505,067

 

26.7

%

 

 

Exit Costs1

 

 

(15,790

)

 

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

(8,316

)

 

 

 

 

 

 

 

 

Non-GAAP selling, general and administrative expenses

 

$

451,476

 

 

25.7

%

 

$

505,067

 

26.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

199,477

 

 

11.4

%

 

$

323,481

 

17.1

%

 

 

Exit Costs1

 

 

17,931

 

 

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

8,316

 

 

 

 

 

 

 

 

 

Non-GAAP operating income

 

$

225,724

 

 

12.9

%

 

$

323,481

 

17.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Tax rate

 

$

 

Tax rate

 

 

Income taxes

 

$

48,444

 

 

23.6

%

 

$

69,531

 

21.5

%

 

 

Exit Costs1

 

 

4,690

 

 

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

2,174

 

 

 

 

 

 

 

 

 

Non-GAAP income taxes

 

$

55,308

 

 

23.9

%

 

$

69,531

 

21.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

$

2.35

 

 

 

 

$

3.50

 

 

 

 

Exit Costs1

 

 

0.20

 

 

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

0.09

 

 

 

 

 

 

 

 

 

Non-GAAP diluted EPS3

 

$

2.64

 

 

 

 

$

3.50

 

 

 

 

  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.

Contacts

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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