Williams-Sonoma, Inc. (NYSE: WSM), the world’s largest digital-first, design-led and sustainable home retailer, today announced operating results for the third fiscal quarter ended October 31, 2021 (“Q3 21”) versus the third fiscal quarter ended November 1, 2020 (“Q3 20”).
“We are extremely proud to deliver yet another quarter of outperformance with comps of 16.9%, building to an accelerated two-year stack of 41.3%, and operating margin expansion of 60 basis points. These results are a function of both (i) the advantages of our distinctive positioning in the market and (ii) our successful execution against our long-term growth strategies. Furthermore, our performance demonstrates that we can continue to take share in a fractured market, and deliver high-quality, sustainable earnings. As a result, we are raising our full-year outlook to reflect revenue growth of 22% to 23% and operating margins of 16.9% to 17.1%” said Laura Alber, President and Chief Executive Officer.
Alber concluded, “As we enter the fourth quarter, we are seeing strong sales and margins continuing. We are thrilled with our customers' response to our holiday and gifting assortments, and we are ready to drive an outstanding finish to the year. With our strong results to date, our winning positioning in the industry, and our outperforming growth strategies, we are more confident than ever in the long-term strength of our business.”
THIRD QUARTER 2021
- Revenues grow 16.0%, with strong growth across all brands, including ecommerce accelerating to 67% of total company revenues
- Comparable brand revenue growth of 16.9%, including West Elm at 22.5%, Pottery Barn at 15.9%, Pottery Barn Kids and Teen at 16.9%, and Williams Sonoma accelerating to 7.6% on top of a 30.4% last year
- Accelerating comparable brand revenue growth on a two-year basis at 41.3%
- GAAP and non-GAAP gross margin of 43.7%, expanding 370bps and driven by higher year-over-year merchandise margins as well as occupancy leverage of approximately 90bps; occupancy costs were $183 million
- GAAP operating margin of 16.1%; non-GAAP operating margin of 16.3%, leveraging approximately 60bps over last year
- GAAP diluted EPS of $3.29; non-GAAP diluted EPS of $3.32, increasing 30% over last year
- Maintaining strong liquidity position of $657 million in cash and over $788 million in operating cash flow, enabling the company to repurchase an additional $201 million in shares in the third quarter and over $650 million year-to-date and to pay over $135 million in dividends.
OUTLOOK
Fiscal Year 2021
Given the strength of our business year-to-date and the macro trends that we believe will continue to benefit our business for the long-term, we are raising our fiscal year 2021 outlook to 22% to 23% net revenue growth and non-GAAP operating margin between 16.9% to 17.1%.
Long-Term
For the long-term, we are planning for annual net revenue growth of mid-to-high single digits with non-GAAP operating margin at least at fiscal year end 2021 levels. Our continued strong results, combined with our three key differentiators of in-house design, digital-first channel strategy and values, and the macro trends that should benefit our business over the long-term, give us confidence in these future growth projections and our accelerated path to $10 billion in net revenues by 2024.
CONFERENCE CALL AND WEBCAST INFORMATION
Williams-Sonoma, Inc. will host a live conference call today, November 18, 2021, at 2:00 P.M. (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, 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 may include expenses related to the impact of inventory write-offs, the acquisition of Outward, Inc., asset impairment charges, and income tax benefit associated with non-recurring tax adjustments. 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 2021 outlook and long-term financial targets, and statements regarding our growth strategies and macro trends.
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 the coronavirus on our global supply chain, retail store operations and customer demand; 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; successful catalog management, including timing, sizing and merchandising; 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 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 impact of inflation on consumer spending; 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 31, 2021 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 31, 2021. 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, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and retail stores. These brands are also part of The Key Rewards, our free-to-join loyalty 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 the 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) | ||||||||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||||||||||||||
October 31, 2021 | November 1, 2020 | October 31, 2021 | November 1, 2020 | |||||||||||||||||||||||||
In thousands, except per share amounts | $ | % of Revenues | $ | % of Revenues | $ | % of Revenues | $ | % of Revenues | ||||||||||||||||||||
Net revenues | $ | 2,047,539 | 100 | % | $ | 1,764,536 | 100 | % | $ | 5,744,907 | 100 | % | $ | 4,490,516 | 100 | % | ||||||||||||
Cost of goods sold | 1,152,054 | 56.3 | 1,058,953 | 60.0 | 3,238,181 | 56.4 | 2,819,471 | 62.8 | ||||||||||||||||||||
Gross profit | 895,485 | 43.7 | 705,583 | 40.0 | 2,506,726 | 43.6 | 1,671,045 | 37.2 | ||||||||||||||||||||
Selling, general and administrative expenses | 565,218 | 27.6 | 430,979 | 24.4 | 1,578,182 | 27.5 | 1,162,435 | 25.9 | ||||||||||||||||||||
Operating income | 330,267 | 16.1 | 274,604 | 15.6 | 928,544 | 16.2 | 508,610 | 11.3 | ||||||||||||||||||||
Interest (income) expense, net | 121 | — | 5,344 | 0.3 | 1,954 | — | 13,967 | 0.3 | ||||||||||||||||||||
Earnings before income taxes | 330,146 | 16.1 | 269,260 | 15.3 | 926,590 | 16.1 | 494,643 | 11.0 | ||||||||||||||||||||
Income taxes | 80,622 | 3.9 | 67,488 | 3.8 | 203,194 | 3.5 | 122,884 | 2.7 | ||||||||||||||||||||
Net earnings | $ | 249,524 | 12.2 | % | $ | 201,772 | 11.4 | % | $ | 723,396 | 12.6 | % | $ | 371,759 | 8.3 | % | ||||||||||||
Earnings per share (EPS): | ||||||||||||||||||||||||||||
Basic | $ | 3.37 | $ | 2.60 | $ | 9.66 | $ | 4.80 | ||||||||||||||||||||
Diluted | $ | 3.29 | $ | 2.54 | $ | 9.40 | $ | 4.71 | ||||||||||||||||||||
Shares used in calculation of EPS: | ||||||||||||||||||||||||||||
Basic | 74,010 | 77,487 | 74,865 | 77,511 | ||||||||||||||||||||||||
Diluted | 75,943 | 79,332 | 76,975 | 79,012 | ||||||||||||||||||||||||
3rd Quarter Net Revenues and Comparable Brand Revenue Growth by Concept* | ||||||||||||||||
Net Revenues
| Comparable Brand Revenue
| |||||||||||||||
Q3 21 | Q3 20 | Q3 21 | Q3 20 | |||||||||||||
Pottery Barn | $ | 789 | $ | 684 | 15.9 | % | 24.1 | % | ||||||||
West Elm | 580 | 475 | 22.5 | 21.8 | ||||||||||||
Williams Sonoma | 272 | 260 | 7.6 | 30.4 | ||||||||||||
Pottery Barn Kids and Teen | 316 | 278 | 16.9 | 23.8 | ||||||||||||
Other** | 91 | 68 | N/A | N/A | ||||||||||||
Total | $ | 2,048 | $ | 1,765 | 16.9 | % | 24.4 | % | ||||||||
* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue, which is calculated on a 13-week to 13-week basis for Q3 2021 and Q3 2020. Comparable stores that were temporarily closed due to COVID-19 were not excluded from the comparable stores calculation. ** Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham. | ||||||||||||||||
Condensed Consolidated Balance Sheets (unaudited) | ||||||||||||
In thousands, except per share amounts | October 31, 2021 | January 31, 2021 | November 1, 2020 | |||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 656,898 | $ | 1,200,337 | $ | 773,170 | ||||||
Accounts receivable, net | 139,511 | 143,728 | 129,782 | |||||||||
Merchandise inventories, net | 1,272,028 | 1,006,299 | 1,125,475 | |||||||||
Prepaid expenses | 85,433 | 93,822 | 84,974 | |||||||||
Other current assets | 22,852 | 22,894 | 23,556 | |||||||||
Total current assets | 2,176,722 | 2,467,080 | 2,136,957 | |||||||||
Property and equipment, net | 892,226 | 873,894 | 869,092 | |||||||||
Operating lease right-of-use assets | 1,159,315 | 1,086,009 | 1,091,649 | |||||||||
Deferred income taxes, net | 61,768 | 61,854 | 42,185 | |||||||||
Goodwill | 85,392 | 85,446 | 85,402 | |||||||||
Other long-term assets, net | 101,901 | 87,141 | 85,394 | |||||||||
Total assets | $ | 4,477,324 | $ | 4,661,424 | $ | 4,310,679 | ||||||
Liabilities and stockholders' equity | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 638,371 | $ | 542,992 | $ | 562,294 | ||||||
Accrued expenses | 273,722 | 267,592 | 194,985 | |||||||||
Gift card and other deferred revenue | 431,446 | 373,164 | 349,671 | |||||||||
Income taxes payable | 38,320 | 69,476 | 36,037 | |||||||||
Current debt | — | 299,350 | — | |||||||||
Operating lease liabilities | 218,348 | 209,754 | 217,448 | |||||||||
Other current liabilities | 91,418 | 85,672 | 99,691 | |||||||||
Total current liabilities | 1,691,625 | 1,848,000 | 1,460,126 | |||||||||
Deferred lease incentives | 17,268 | 20,612 | 21,858 | |||||||||
Long-term debt | — | — | 299,173 | |||||||||
Long-term operating lease liabilities | 1,095,290 | 1,025,057 | 1,027,142 | |||||||||
Other long-term liabilities | 129,771 | 116,570 | 100,478 | |||||||||
Total liabilities | 2,933,954 | 3,010,239 | 2,908,777 | |||||||||
Stockholders' equity | ||||||||||||
Preferred stock: $0.01 par value; 7,500 shares authorized, none issued | — | — | — | |||||||||
Common stock: $0.01 par value; 253,125 shares authorized; 73,326, 76,340, and 76,697 shares issued and outstanding at October 31, 2021, January 31, 2021 and November 1, 2020, respectively | 734 | 764 | 768 | |||||||||
Additional paid-in capital | 585,449 | 638,375 | 623,379 | |||||||||
Retained earnings | 963,840 | 1,019,762 | 792,196 | |||||||||
Accumulated other comprehensive loss | (5,942 | ) | (7,117 | ) | (13,843 | ) | ||||||
Treasury stock, at cost | (711 | ) | (599 | ) | (598 | ) | ||||||
Total stockholders' equity | 1,543,370 | 1,651,185 | 1,401,902 | |||||||||
Total liabilities and stockholders' equity | $ | 4,477,324 | $ | 4,661,424 | $ | 4,310,679 | ||||||
Retail Store Data
| |||||||||||||||||
August 1, 2021 | Openings | Closings | October 31, 2021 | November 1, 2020 | |||||||||||||
Williams Sonoma | 196 | — | (2 | ) | 194 | 210 | |||||||||||
Pottery Barn | 195 | — | — | 195 | 201 | ||||||||||||
West Elm | 123 | 1 | (3 | ) | 121 | 122 | |||||||||||
Pottery Barn Kids | 57 | — | — | 57 | 71 | ||||||||||||
Rejuvenation | 10 | — | — | 10 | 10 | ||||||||||||
Total | 581 | 1 | (5 | ) | 577 | 614 | |||||||||||
Condensed Consolidated Statements of Cash Flows (unaudited) | ||||||||
Thirty-nine Weeks Ended | ||||||||
In thousands | October 31, 2021 | November 1, 2020 | ||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 723,396 | $ | 371,759 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 145,897 | 140,340 | ||||||
Loss on disposal/impairment of assets | 887 | 26,220 | ||||||
Amortization of deferred lease incentives | (3,345 | ) | (4,538 | ) | ||||
Non-cash lease expense | 159,757 | 162,767 | ||||||
Deferred income taxes | (11,440 | ) | (6,969 | ) | ||||
Tax benefit related to stock-based awards | 10,838 | 13,143 | ||||||
Stock-based compensation expense | 70,566 | 54,671 | ||||||
Other | 4 | (9 | ) | |||||
Changes in: | ||||||||
Accounts receivable | 4,941 | (18,017 | ) | |||||
Merchandise inventories | (264,094 | ) | (22,990 | ) | ||||
Prepaid expenses and other assets | (10,078 | ) | (4,807 | ) | ||||
Accounts payable | 74,181 | 54,279 | ||||||
Accrued expenses and other liabilities | 24,400 | 58,539 | ||||||
Gift card and other deferred revenue | 58,189 | 59,953 | ||||||
Operating lease liabilities | (164,569 | ) | (171,245 | ) | ||||
Income taxes payable | (31,191 | ) | 13,532 | |||||
Net cash provided by operating activities | 788,339 | 726,628 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (141,010 | ) | (124,885 | ) | ||||
Other | 97 | 506 | ||||||
Net cash used in investing activities | (140,913 | ) | (124,379 | ) | ||||
Cash flows from financing activities: | ||||||||
Repurchases of common stock | (652,699 | ) | (109,048 | ) | ||||
Repayment of long-term debt | (300,000 | ) | — | |||||
Payment of dividends | (135,201 | ) | (116,761 | ) | ||||
Tax withholdings related to stock-based awards | (102,482 | ) | (30,555 | ) | ||||
Debt issuance costs | (777 | ) | (3,645 | ) | ||||
Borrowings under revolving line of credit | — | 487,823 | ||||||
Repayments under the revolving line of credit | — | (487,823 | ) | |||||
Net cash used in financing activities | (1,191,159 | ) | (260,009 | ) | ||||
Effect of exchange rates on cash and cash equivalents | 294 | (1,232 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (543,439 | ) | 341,008 | |||||
Cash and cash equivalents at beginning of period | 1,200,337 | 432,162 | ||||||
Cash and cash equivalents at end of period | $ | 656,898 | $ | 773,170 | ||||
Exhibit 1 | ||||||||||||||||||||||||||||||
3rd Quarter GAAP to Non-GAAP Reconciliation
| ||||||||||||||||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||||||||||||||||
October 31, 2021 | November 1, 2020 | October 31, 2021 | November 1, 2020 | |||||||||||||||||||||||||||
$ | % of revenues | $ | % of revenues | $ | % of revenues | $ | % of revenues | |||||||||||||||||||||||
Gross profit | $ | 895,485 | 43.7 | % | $ | 705,583 | 40.0 | % | $ | 2,506,726 | 43.6 | % | $ | 1,671,045 | 37.2 | % | ||||||||||||||
Inventory write-off 1 | — | — | — | 11,378 | ||||||||||||||||||||||||||
Non-GAAP gross profit | $ | 895,485 | 43.7 | % | $ | 705,583 | 40.0 | % | $ | 2,506,726 | 43.6 | % | $ | 1,682,423 | 37.5 | % | ||||||||||||||
Selling, general and administrative expenses | $ | 565,218 | 27.6 | % | $ | 430,979 | 24.4 | % | $ | 1,578,182 | 27.5 | % | $ | 1,162,435 | 25.9 | % | ||||||||||||||
Outward-related2 | (2,752 | ) | (2,219 | ) | (8,348 | ) | (8,918 | ) | ||||||||||||||||||||||
Asset impairment 3 | — | — | — | (21,975 | ) | |||||||||||||||||||||||||
Non-GAAP selling, general and administrative expenses | $ | 562,466 | 27.5 | % | $ | 428,760 | 24.3 | % | $ | 1,569,834 | 27.3 | % | $ | 1,131,542 | 25.2 | % | ||||||||||||||
Operating income | $ | 330,267 | 16.1 | % | $ | 274,604 | 15.6 | % | $ | 928,544 | 16.2 | % | $ | 508,610 | 11.3 | % | ||||||||||||||
Outward-related2 | 2,752 | 2,219 | 8,348 | 8,918 | ||||||||||||||||||||||||||
Inventory write-off 1 | — | — | — | 11,378 | ||||||||||||||||||||||||||
Asset impairment 3 | — | — | — | 21,975 | ||||||||||||||||||||||||||
Non-GAAP operating income | $ | 333,019 | 16.3 | % | $ | 276,823 | 15.7 | % | $ | 936,892 | 16.3 | % | $ | 550,881 | 12.3 | % | ||||||||||||||
$ | Tax rate | $ | Tax rate | $ | Tax rate | $ | Tax rate | |||||||||||||||||||||||
Income taxes | $ | 80,622 | 24.4 | % | $ | 67,488 | 25.1 | % | $ | 203,194 | 21.9 | % | $ | 122,884 | 24.8 | % | ||||||||||||||
Outward-related2 | 473 | 473 | 1,446 | 1,665 | ||||||||||||||||||||||||||
Inventory write-off 1 | — | — | — | 2,940 | ||||||||||||||||||||||||||
Asset impairment3 | — | — | — | 5,324 | ||||||||||||||||||||||||||
Deferred tax liability adjustment4 | — | 647 | — | 647 | ||||||||||||||||||||||||||
Non-GAAP income taxes | $ | 81,095 | 24.4 | % | $ | 68,608 | 25.3 | % | $ | 204,640 | 21.9 | % | $ | 133,460 | 24.9 | % | ||||||||||||||
Diluted EPS | $ | 3.29 | $ | 2.54 | $ | 9.40 | $ | 4.71 | ||||||||||||||||||||||
Outward-related2 | 0.03 | 0.02 | 0.09 | 0.09 | ||||||||||||||||||||||||||
Inventory write-off1 | — | — | — | 0.11 | ||||||||||||||||||||||||||
Asset impairment3 | — | — | — | 0.21 | ||||||||||||||||||||||||||
Deferred tax liability adjustment4 | — | (0.01 | ) | — | (0.01 | ) | ||||||||||||||||||||||||
Non-GAAP diluted EPS* | $ | 3.32 | $ | 2.56 | $ | 9.49 | $ | 5.11 | ||||||||||||||||||||||
∗ 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 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.
Notes to Exhibit 1:
- During year-to-date 2020, we incurred approximately $11.4 million of inventory write-offs for inventory with minor damage that we could not liquidate through our outlets due to store closures resulting from COVID-19.
- During Q3 2021 and year-to-date 2021, we incurred approximately $2.8 million and $8.3 million, respectively, associated with acquisition-related compensation expense and the amortization of acquired intangibles for Outward, Inc. During Q3 2020 and year-to-date 2020, we incurred approximately $2.2 million and $8.9 million, respectively, associated with acquisition-related compensation expense and the amortization of acquired intangibles for Outward, Inc.
- During year-to-date 2020, we incurred approximately $22.0 million of expense associated with store asset impairments due to the impact that COVID-19 had on our retail stores.
- During Q3 2020 and year-to-date 2020, we recorded an approximate $0.6 million tax benefit resulting from a non-recurring adjustment to a deferred tax liability.
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