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

SAN FRANCISCO--(BUSINESS WIRE)-- 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	%
	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. 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
	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. During Q1 2023, we incurred costs related to reduction-in-force initiatives of $8.3 million primarily in our corporate functions. 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/20230523005459/en/

Jeff Howie EVP, Chief Financial Officer – (415) 402 4324

Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor Relations – (415) 733 2371

Source: Williams-Sonoma, Inc.