Williams-Sonoma, Inc. announces record third quarter results

Rhea-AI Summary

Williams-Sonoma (NYSE: WSM) reported a 16.0% increase in Q3 revenues, with comparable brand revenue growth at 16.9%, reflecting an impressive 41.3% two-year stack. The company achieved a GAAP operating margin of 16.1% and a Non-GAAP operating margin of 16.3%, a 60 basis point increase. Q3 diluted EPS rose to $3.29 GAAP and $3.32 Non-GAAP, marking a 30% year-over-year growth. The fiscal year 2021 outlook has been raised to 22%-23% revenue growth and operating margins of 16.9%-17.1%. Strong liquidity of $657 million supports share buybacks and dividends.

Positive

• Q3 revenues increased by 16.0%, indicating strong demand.
• GAAP diluted EPS rose to $3.29 and Non-GAAP diluted EPS to $3.32, both up 30%.
• Operating margins improved, with Non-GAAP margin at 16.3%, up 60bps year-over-year.
• The company raised its full-year revenue growth outlook to 22%-23%.

Negative

• None.

Q3 revenues grow 16.0% with comparable brand revenue growth of 16.9%, accelerating 2YR comp of 41.3%

Q3 GAAP operating margin of 16.1%; Q3 Non-GAAP operating margin expansion of 60bps to 16.3%

Q3 GAAP diluted EPS of $3.29; Q3 Non-GAAP diluted EPS of $3.32, increasing 30%

Raises full-year 2021 outlook

SAN FRANCISCO--(BUSINESS WIRE)-- 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 (Millions)								Comparable Brand Revenue Growth
			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 (unaudited)
			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 (unaudited)
	(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:

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.
2. 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.
3. 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.
4. 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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211118006182/en/

Julie Whalen EVP, Chief Financial Officer – (415) 616 8524

-or-

Investor Relations – (415) 616 8571

Source: Williams-Sonoma, Inc.

FAQ

What were Williams-Sonoma's Q3 2021 revenue figures?

Williams-Sonoma reported a 16.0% increase in revenues for Q3 2021.

How much did the diluted EPS grow for Williams-Sonoma in Q3 2021?

The diluted EPS for Q3 2021 increased by 30% to $3.29 GAAP and $3.32 Non-GAAP.

What is the outlook for Williams-Sonoma's revenue growth for fiscal year 2021?

Williams-Sonoma raised its full-year revenue growth outlook to between 22% and 23%.

What is Williams-Sonoma's operating margin for Q3 2021?

Williams-Sonoma reported a GAAP operating margin of 16.1% and a Non-GAAP operating margin of 16.3%.

How has Williams-Sonoma performed in terms of comparable brand revenue growth in Q3 2021?

The comparable brand revenue growth for Q3 2021 was 16.9%.