Q3 comparable brand revenue -14.6%
Record Q3 operating margin of 17.0%; diluted EPS of $3.66
Raises full year operating margin outlook
Williams-Sonoma, Inc. (NYSE: WSM) today announced operating
results for the third quarter ended October 29, 2023 versus the
third quarter ended October 30, 2022.
“We are proud to deliver another quarter of strong earnings,
significantly exceeding expectations, despite a challenging
macroeconomic backdrop for our industry. We beat profitability
estimates with a record third quarter operating margin of 17.0%
with earnings per share of $3.66. These results were achieved in an
environment filled with on-going consumer hesitancy on high-ticket
discretionary furniture spend and elevated levels of promotional
activity,” said Laura Alber, President and Chief Executive
Officer.
Alber concluded, “The strength of our operating model produced
strong earnings again this quarter, driven by our full-price
selling, supply chain efficiencies, and best-in-class customer
service. Our early seasonal reads are strong and we are optimistic
about the holiday season.”
THIRD QUARTER 2023 HIGHLIGHTS
- Comparable brand revenue -14.6% with a 2-year comp -6.5% and a
4-year comp +34.8%.
- Gross margin of 44.4% +290bps to LY with selling margin +450bps
due to lower shipping and freight costs, and occupancy deleverage
of 160bps. Occupancy costs of $200 million, -1.0% to LY.
- SG&A rate of 27.4% +140bps to LY driven by employment and
general expense deleverage. SG&A of $507 million, -11.1% to
LY.
- Operating income of $315 million with an operating margin of
17.0%.
- Diluted EPS of $3.66 per share.
- Merchandise inventories -17.2% to the third quarter LY to $1.4
billion.
- Cash at quarter-end of $699 million with no borrowings
outstanding.
- Operating cash flow of $290 million funding dividends and stock
repurchases.
OUTLOOK
- We are updating our fiscal 2023 guidance. We now expect net
revenue growth in the range of -10% to -12% with an operating
margin between 16% to 16.5%. Our lower sales outlook is offset by
our expected increased operating margin, producing higher implied
EPS guidance.
- 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,
November 16, 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 any
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 war 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 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 October 29, 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 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 ESG efforts, please visit:
https://sustainability.williams-sonomainc.com/
WSM-IR
Condensed Consolidated
Statements of Earnings (unaudited)
For the Thirteen Weeks
Ended
For the Thirty-nine Weeks
Ended
October 29, 2023
October 30, 2022
October 29, 2023
October 30, 2022
(In thousands, except per share
amounts)
$
% of Revenues
$
% of Revenues
$
% of Revenues
$
% of Revenues
Net revenues
$
1,853,650
100
%
$
2,192,574
100.0
%
$
5,471,715
100.0
%
$
6,221,338
100.0
%
Cost of goods sold
1,031,290
55.6
1,282,048
58.5
3,216,729
58.8
3,553,455
57.1
Gross profit
822,360
44.4
910,526
41.5
2,254,986
41.2
2,667,883
42.9
Selling, general and administrative
expenses
507,283
27.4
570,893
26.0
1,468,884
26.8
1,639,248
26.3
Operating income
315,077
17.0
339,633
15.5
786,102
14.4
1,028,635
16.5
Interest income, net
7,182
0.4
370
—
16,015
0.3
877
—
Earnings before income taxes
322,259
17.4
340,003
15.5
802,117
14.7
1,029,512
16.5
Income taxes
84,974
4.6
88,280
4.0
206,794
3.8
256,601
4.1
Net earnings
$
237,285
12.8
%
$
251,723
11.5
%
$
595,323
10.9
%
$
772,911
12.4
%
Earnings per share (EPS):
Basic
$
3.70
$
3.77
$
9.20
$
11.27
Diluted
$
3.66
$
3.72
$
9.12
$
11.08
Shares used in calculation of
EPS:
Basic
64,142
66,704
64,718
68,578
Diluted
64,774
67,617
65,298
69,782
3rd Quarter Net Revenues and
Comparable Brand Revenue Growth (Decline)1
Net Revenues
Comparable Brand Revenue
Growth (Decline)
(In millions, except percentages)
Q3 23
Q3 22
Q3 23
Q3 22
Pottery Barn
$
778
$
935
(16.6
)%
19.6
%
West Elm
466
600
(22.4
)
4.2
Williams Sonoma
252
262
(1.9
)
(1.5
)
Pottery Barn Kids and Teen
277
299
(6.9
)
(4.8
)
Other2
81
97
N/A
N/A
Total
$
1,854
$
2,193
(14.6
)%
8.1
%
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)
October 29, 2023
January 29, 2023
October 30, 2022
Assets
Current assets
Cash and cash equivalents
$
698,807
$
367,344
$
113,058
Accounts receivable, net
124,238
115,685
125,842
Merchandise inventories, net
1,396,864
1,456,123
1,687,895
Prepaid expenses
100,045
64,961
104,208
Other current assets
27,381
31,967
29,729
Total current assets
2,347,335
2,036,080
2,060,732
Property and equipment, net
1,026,819
1,065,381
1,009,088
Operating lease right-of-use assets
1,235,425
1,286,452
1,277,064
Deferred income taxes, net
76,272
81,389
54,247
Goodwill
77,279
77,307
85,245
Other long-term assets, net
120,639
116,407
107,631
Total assets
$
4,883,769
$
4,663,016
$
4,594,007
Liabilities and stockholders'
equity
Current liabilities
Accounts payable
$
675,505
$
508,321
$
720,856
Accrued expenses
203,958
247,594
275,381
Gift card and other deferred revenue
528,403
479,229
488,771
Income taxes payable
53,139
61,204
45,879
Operating lease liabilities
231,236
231,965
220,012
Other current liabilities
96,745
108,138
103,821
Total current liabilities
1,788,986
1,636,451
1,854,720
Long-term operating lease liabilities
1,163,631
1,211,693
1,208,074
Other long-term liabilities
117,918
113,821
118,279
Total liabilities
3,070,535
2,961,965
3,181,073
Stockholders' equity
Preferred stock: $0.01 par value; 7,500
shares authorized, none issued
—
—
—
Common stock: $0.01 par value; 253,125
shares authorized; 64,135, 66,226, and 66,556 shares issued and
outstanding at October 29, 2023, January 29, 2023 and October 30,
2022, respectively
642
663
666
Additional paid-in capital
572,406
573,117
553,698
Retained earnings
1,260,216
1,141,819
877,157
Accumulated other comprehensive loss
(18,604
)
(13,809
)
(17,848
)
Treasury stock, at cost
(1,426
)
(739
)
(739
)
Total stockholders' equity
1,813,234
1,701,051
1,412,934
Total liabilities and stockholders'
equity
$
4,883,769
$
4,663,016
$
4,594,007
Retail Store Data
(unaudited)
Beginning of quarter
End of quarter
As of
July 30, 2023
Openings
Closings
October 29, 2023
October 30, 2022
Pottery Barn
190
2
(1
)
191
189
Williams Sonoma
164
1
(2
)
163
175
West Elm
123
—
—
123
122
Pottery Barn Kids
46
—
—
46
52
Rejuvenation
9
1
—
10
9
Total
532
4
(3
)
533
547
Condensed Consolidated
Statements of Cash Flows (unaudited)
For the Thirty-nine Weeks
Ended
(In thousands)
October 29, 2023
October 30, 2022
Cash flows from operating
activities:
Net earnings
$
595,323
$
772,911
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization
166,027
157,410
Loss on disposal/impairment of assets
19,143
5,738
Non-cash lease expense
186,764
169,602
Deferred income taxes
(7,993
)
(10,494
)
Tax benefit related to stock-based
awards
12,455
11,172
Stock-based compensation expense
66,435
67,797
Other
(2,411
)
(2,170
)
Changes in:
Accounts receivable
(8,928
)
5,288
Merchandise inventories
56,770
(443,812
)
Prepaid expenses and other assets
(35,857
)
(39,737
)
Accounts payable
164,958
98,103
Accrued expenses and other liabilities
(48,978
)
(34,157
)
Gift card and other deferred revenue
49,878
42,005
Operating lease liabilities
(200,168
)
(177,855
)
Income taxes payable
(8,005
)
(33,276
)
Net cash provided by operating
activities
1,005,413
588,525
Cash flows from investing
activities:
Purchases of property and equipment
(134,830
)
(234,378
)
Other
402
100
Net cash used in investing
activities
(134,428
)
(234,278
)
Cash flows from financing
activities:
Repurchases of common stock
(313,001
)
(840,955
)
Payment of dividends
(174,571
)
(165,254
)
Tax withholdings related to stock-based
awards
(51,108
)
(80,431
)
Net cash used in financing
activities
(538,680
)
(1,086,640
)
Effect of exchange rates on cash and cash
equivalents
(842
)
(4,887
)
Net increase (decrease) in cash and cash
equivalents
331,463
(737,280
)
Cash and cash equivalents at beginning of
period
367,344
850,338
Cash and cash equivalents at end of
period
$
698,807
$
113,058
Exhibit 1
3rd Quarter GAAP to Non-GAAP
Reconciliation (unaudited)
For the Thirteen Weeks
Ended
For the Thirty-nine Weeks
Ended
October 29, 2023
October 30, 2022
October 29, 2023
October 30, 2022
(In thousands, except per share data)
$
% of revenues
$
% of revenues
$
% of revenues
$
% of revenues
Occupancy costs
$
200,399
10.8
%
$
202,340
9.2
%
$
606,270
11.1
%
$
581,710
9.4
%
Exit Costs1
—
—
(239
)
—
Non-GAAP occupancy costs
$
200,399
10.8
%
$
202,340
9.2
%
$
606,031
11.1
%
$
581,710
9.4
%
Gross profit
$
822,360
44.4
%
$
910,526
41.5
%
$
2,254,986
41.2
%
$
2,667,883
42.9
%
Exit Costs1
—
—
2,141
—
Non-GAAP gross profit
$
822,360
44.4
%
$
910,526
41.5
%
$
2,257,127
41.3
%
$
2,667,883
42.9
%
Selling, general and administrative
expenses
$
507,283
27.4
%
$
570,893
26.0
%
$
1,468,884
26.8
%
$
1,639,248
26.3
%
Exit Costs1
—
—
(15,790
)
—
Reduction-in-force Initiatives2
—
—
(8,316
)
—
Non-GAAP selling, general and
administrative expenses
$
507,283
27.4
%
$
570,893
26.0
%
$
1,444,778
26.4
%
$
1,639,248
26.3
%
Operating income
$
315,077
17.0
%
$
339,633
15.5
%
$
786,102
14.4
%
$
1,028,635
16.5
%
Exit Costs1
—
—
17,931
—
Reduction-in-force Initiatives2
—
—
8,316
—
Non-GAAP operating income
$
315,077
17.0
%
$
339,633
15.5
%
$
812,349
14.8
%
$
1,028,635
16.5
%
$
Tax rate
$
Tax rate
$
Tax rate
$
Tax rate
Income taxes
$
84,974
26.4
%
$
88,280
26.0
%
$
206,794
25.8
%
$
256,601
24.9
%
Exit Costs1
—
—
4,690
—
Reduction-in-force Initiatives2
—
—
2,174
—
Non-GAAP income taxes
$
84,974
26.4
%
$
88,280
26.0
%
$
213,658
25.8
%
$
256,601
24.9
%
Diluted EPS
$
3.66
$
3.72
$
9.12
$
11.08
Exit Costs1
—
—
0.20
—
Reduction-in-force Initiatives2
—
—
0.09
—
Non-GAAP diluted EPS3
$
3.66
$
3.72
$
9.41
$
11.08
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/20231116369623/en/
Jeff Howie EVP, Chief Financial Officer – (415) 402 4324 -or-
Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor
Relations – (415) 733 2371
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