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.

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Williams-Sonoma, Inc. announces second quarter 2023 results