WSM
$49.78
Williams-Sonoma
($.51)
(1.01%)
Earnings Details
2nd Quarter July 2016
Wednesday, August 24, 2016 4:15:03 PM
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Summary

Williams-Sonoma Misses

Williams-Sonoma (WSM) reported 2nd Quarter July 2016 earnings of $0.58 per share on revenue of $1.2 billion. The consensus earnings estimate was $0.58 per share on revenue of $1.2 billion. The Earnings Whisper number was $0.60 per share. Revenue grew 2.8% on a year-over-year basis.

The company said it expects third quarter earnings of $0.75 to $0.80 per share on revenue of $1.235 billion to $1.285 billion. The current consensus earnings estimate is $0.80 per share on revenue of $1.29 billion for the quarter ending October 31, 2016. The company also said it now expects fiscal year earnings of $3.35 to $3.55 per share on revenue of $5.075 billion to $5.225 billion. The company's previous guidance was earnings of $3.50 to $3.65 per share on revenue of $5.15 billion to $5.25 billion and the current consensus earnings estimate is $3.56 per share on revenue of $5.22 billion for the year ending January 31, 2017.

Williams-Sonoma Inc is a multi-channel specialty retailer of home furnishings in the United States and Canada.

Results
Reported Earnings
$0.58
Earnings Whisper
$0.60
Consensus Estimate
$0.58
Reported Revenue
$1.16 Bil
Revenue Estimate
$1.17 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Williams-Sonoma, Inc. announces second quarter 2016 resultsNet revenues grow 2.8% with EPS of $0.58Merchandise inventories down 6.6%

Williams-Sonoma, Inc. (WSM) today announced operating results for the second fiscal quarter ended July 31, 2016 ("Q2 16") versus the second fiscal quarter ended August 2, 2015 ("Q2 15").

2nd QUARTER 2016 RESULTS

-
Q2 16 net revenues grew 2.8% to $1.159 billion versus $1.127 billion
in Q2 15 with comparable brand revenue growth of 0.6%.
-
Q2 16 operating margin was 7.2% versus 7.4% in Q2 15.
-
Q2 16 diluted earnings per share ("EPS") was $0.58 versus $0.58 in
Q2 15.
-
Cash returned to stockholders totaled $69 million, comprising $36
million in stock repurchases and $33 million in dividends.

Laura Alber, President and Chief Executive Officer, commented, "Our second quarter results reflect the strength of our portfolio of brands, our balanced multi-channel model, our successful growth initiatives and a relentless focus on operational improvements. We saw substantial improvements across all of our supply chain and inventory initiatives which helped elevate our customer service levels, reduce costs and drive down merchandise inventories."

Ms. Alber concluded, "Despite the progress that we have made against our strategic initiatives, the overall retail environment has softened and we are being impacted by a more cautious consumer. As a result, we have revised our outlook for the remainder of the year to reflect this change in trend. We remain focused on what we can control to drive growth and continuous improvements in our operations, including strengthening and growing our brands, further differentiating our product offering, innovating our marketing and digital strategies and enhancing the retail experience."

Net revenues increased to $1.159 billion in Q2 16 from $1.127 billion in Q2 15.

Comparable brand revenue growth in Q2 16 increased 0.6% on top of 6.3% in Q2 15 as shown in the table below:

2nd Quarter Comparable Brand Revenue
Growth by Concept*
Q2 16
Q2 15
Pottery Barn
(4.8 %)
6.4 %
Williams-Sonoma
0.0 %
(0.3 %)
West Elm
15.8 %
15.7 %
Pottery Barn Kids
0.1 %
3.3 %
PBteen
(5.2 %)
3.9 %
Total
0.6 %
6.3 %
* See the Company’s 10-K and 10-Q filings for the definition of
comparable brand revenue.

E-commerce net revenues in Q2 16 increased 5.2% to $600 million from $570 million in Q2 15. E-commerce net revenues generated 51.7% of total company net revenues in Q2 16 and 50.6% of total company net revenues in Q2 15.

Retail net revenues in Q2 16 increased 0.4% to $559 million from $557 million in Q2 15.

Operating margin in Q2 16 was 7.2% compared to 7.4% in Q2 15.

-
Gross margin was 35.4% in Q2 16 versus 36.1% in Q2 15.
-
Selling, general and administrative ("SG&A") expenses were $327
million, or 28.2% of net revenues in Q2 16, versus $323 million, or
28.7% of net revenues in Q2 15.

EPS in Q2 16 was $0.58 versus $0.58 in Q2 15 (which included an approximate $0.03 benefit from a reduced tax rate).

Merchandise inventories at the end of Q2 16 decreased 6.6% to $963 million from $1.031 billion at the end of Q2 15.

STOCK REPURCHASE PROGRAM

During Q2 16, we repurchased 665,517 shares of common stock at an average cost of $53.38 per share and a total cost of approximately $36 million. As of July 31, 2016, there was approximately $486 million remaining under our current stock repurchase program.

FISCAL YEAR 2016 FINANCIAL GUIDANCE

3rd Quarter 2016 Guidance Financial Highlights
Total Net Revenues (millions)
$1,235 - $1,285
Comparable Brand Revenue Growth
0% - 4%
Diluted EPS
$0.75 - $0.80
Fiscal Year 2016 Guidance Financial Highlights
Total Net Revenues (millions)
$5,075 - $5,225
Comparable Brand Revenue Growth
1% - 4%
Non-GAAP Operating Margin*
9.4% - 9.8%
Non-GAAP Diluted EPS**
$3.35 - $3.55
Income Tax Rate
37.0% - 38.0%
Capital Spending (millions)
$200 - $220
Depreciation and Amortization (millions)
$170 - $180
*
Excludes severance-related reorganization charges of
approximately $13 million, or
0.2% to 0.3% of operating
margin during Q1 2016. Including these charges, GAAP
operating
margin guidance would be 9.1% to 9.6%.
** Excludes severance-related reorganization charges of
approximately $13 million, or
$0.09 per diluted share
during Q1 2016.
Store Opening and Closing Guidance by Retail Concept*
FY 2015 ACT
FY 2016 GUID
Total
New
Close
End
Williams-Sonoma
239
5
(10)
234
Pottery Barn
197
5
(2)
200
Pottery Barn Kids
89
2
(4)
87
West Elm
87
13
(2)
98
Rejuvenation
6
1
-
7
Total
618
27
(18)
626
* Included in the FY 15 store count are 19 stores in Australia and
one store in the UK.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 24, 2016, 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 operating margin and diluted EPS. We have reconciled these measures with the most directly comparable GAAP financial measures in this release and in Exhibit 1. These non-GAAP financial measures exclude the impact of unusual business events which occurred in Q1 16. 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 FY 16 guidance 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 measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

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 statements relating to: our growth and strategic initiatives; consumer trends; our growth drivers and operational improvements; our future financial guidance, including Q3 16 and FY 2016 guidance; our stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q2 16; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; 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; 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, 2016 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. 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 a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies - Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham - are marketed through e-commerce websites, direct mail catalogs and 626 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines and stores and e-commerce websites in Mexico.

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended July 31, 2016 and August 2, 2015
(Dollars and shares in thousands, except per share amounts)
2nd Quarter
2016
2015
% of
% of
$
Revenues
$
Revenues
E-commerce net revenues
$
599,683
51.7 %
$
569,913
50.6 %
Retail net revenues
559,346
48.3
557,115
49.4
Net revenues
1,159,029
100.0
1,127,028
100.0
Cost of goods sold
748,490
64.6
720,403
63.9
Gross profit
410,539
35.4
406,625
36.1
Selling, general and administrative expenses
327,263
28.2
323,282
28.7
Operating income
83,276
7.2
83,343
7.4
Interest (income) expense, net
167
-
275
-
Earnings before income taxes
83,109
7.2
83,068
7.4
Income taxes
31,324
2.7
29,400
2.6
Net earnings
$
51,785
4.5 %
$
53,668
4.8 %
Earnings per share (EPS):
Basic
$0.58
$0.59
Diluted
$0.58
$0.58
Shares used in calculation of EPS:
Basic
89,039
91,243
Diluted
89,736
92,564
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Twenty-six weeks ended July 31, 2016 and August 2, 2015
(Dollars and shares in thousands, except per share amounts)
Year-to-Date
2016
2015
% of
% of
$
Revenues
$
Revenues
E-commerce net revenues
$ 1,175,917
52.1 %
$ 1,102,486
51.1 %
Retail net revenues
1,080,929
47.9
1,055,218
48.9
Net revenues
2,256,846
100.0
2,157,704
100.0
Cost of goods sold
1,453,790
64.4
1,372,238
63.6
Gross profit
803,056
35.6
785,466
36.4
Selling, general and administrative expenses
656,255
29.1
630,195
29.2
Operating income
146,801
6.5
155,271
7.2
Interest (income) expense, net
99
-
283
-
Earnings before income taxes
146,702
6.5
154,988
7.2
Income taxes
55,320
2.5
56,530
2.6
Net earnings
$
91,382
4.0 %
$
98,458
4.6 %
Earnings per share (EPS):
Basic
$1.02
$1.08
Diluted
$1.01
$1.06
Shares used in calculation of EPS:
Basic
89,169
91,475
Diluted
90,098
92,969
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
Jul. 31, 2016
Jan. 31, 2016
Aug. 2, 2015
Assets
Current assets
Cash and cash equivalents
$
111,122
$
193,647
$
119,776
Accounts receivable, net
98,053
79,304
81,753
Merchandise inventories, net
962,943
978,138
1,031,472
Prepaid catalog expenses
27,097
28,919
38,088
Prepaid expenses
68,300
44,654
56,119
Deferred income taxes, net
-
-
130,687
Other assets
11,589
11,438
12,808
Total current assets
1,279,104
1,336,100
1,470,703
Property and equipment, net
908,562
886,813
875,002
Non-current deferred income taxes, net
134,721
141,784
-
Other assets, net
51,177
52,730
50,266
Total assets
$ 2,373,564
$ 2,417,427
$ 2,395,971
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
391,597
$
447,412
$
416,276
Accrued salaries, benefits and other
103,040
127,122
103,695
Customer deposits
283,779
296,827
288,654
Borrowings under revolving line of credit
125,000
-
150,000
Income taxes payable
1,670
67,052
14,678
Other liabilities
53,331
58,014
50,237
Total current liabilities
958,417
996,427
1,023,540
Deferred rent and lease incentives
193,819
173,061
179,103
Non-current deferred income taxes
-
-
1,213
Other long-term obligations
66,516
49,713
50,739
Total liabilities
1,218,752
1,219,201
1,254,595
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized;
none issued
-
-
-
Common stock: $.01 par value; 253,125 shares authorized;
88,738, 89,563 and 90,860 shares issued and outstanding
at July 31, 2016, January 31, 2016 and August 2, 2015,
respectively
888
896
909
Additional paid-in capital
542,711
541,307
532,835
Retained earnings
622,608
668,545
615,193
Accumulated other comprehensive loss
(9,860 )
(10,616 )
(5,625 )
Treasury stock, at cost
(1,535 )
(1,906 )
(1,936 )
Total stockholders’ equity
1,154,812
1,198,226
1,141,376
Total liabilities and stockholders’ equity
$ 2,373,564
$ 2,417,427
$ 2,395,971
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Twenty-six weeks ended July 31, 2016 and August 2, 2015
(Dollars in thousands)
Year-to-Date
2016
2015
Cash flows from operating activities
Net earnings
$ 91,382
$ 98,458
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization
83,369
83,233
Loss on disposal/impairment of assets
1,520
2,074
Amortization of deferred lease incentives
(12,550 )
(12,075 )
Deferred income taxes
(10,472 )
(8,533 )
Tax benefit related to stock-based awards
21,864
25,917
Excess tax benefit related to stock-based awards
(4,727 )
(11,807 )
Stock-based compensation expense
27,476
24,913
Other
(866 )
69
Changes in:
Accounts receivable
(19,021 )
(14,854 )
Merchandise inventories
18,221
(144,934 )
Prepaid catalog expenses
1,822
(4,146 )
Prepaid expenses and other assets
(22,724 )
(19,708 )
Accounts payable
(71,614 )
15,625
Accrued salaries, benefits and other current and long-term
(12,867 )
(30,835 )
liabilities
Customer deposits
(13,500 )
27,243
Deferred rent and lease incentives
21,534
24,034
Income taxes payable
(65,399 )
(17,869 )
Net cash provided by operating activities
33,448
36,805
Cash flows from investing activities:
Purchases of property and equipment
(77,877 )
(86,849 )
Other
363
278
Net cash used in investing activities
(77,514 )
(86,571 )
Cash flows from financing activities:
Borrowings under revolving line of credit
125,000
150,000
Repurchase of common stock
(76,166 )
(125,000 )
Payment of dividends
(67,571 )
(64,044 )
Tax withholdings related to stock-based awards
(24,635 )
(27,175 )
Excess tax benefit related to stock-based awards
4,727
11,807
Proceeds related to stock-based awards
1,532
2,647
Repayment of long-term obligations
-
(1,968 )
Other
(47 )
-
Net cash used in financing activities
(37,160 )
(53,733 )
Effect of exchange rates on cash and cash equivalents
(1,299 )
348
Net decrease in cash and cash equivalents
(82,525 )
(103,151 )
Cash and cash equivalents at beginning of period
193,647
222,927
Cash and cash equivalents at end of period
$ 111,122
$ 119,776
Exhibit 1
2nd Quarter Operating Margin By
Segment*
($ in thousands)
E-commerce
Retail
Unallocated
Total
Q2 16
Q2 15
Q2 16
Q2 15
Q2 16
Q2 15
Q2 16
Q2 15
Net Revenues
$ 599,683
$ 569,913
$ 559,346
$ 557,115
$
-
$
-
$ 1,159,029
$ 1,127,028
Operating Income/(Expense)
132,733
122,461
33,217
40,503
(82,674)
(79,621)
83,276
83,343
Operating Margin
22.1%
21.5%
5.9%
7.3%
(7.1%)
(7.1%)
7.2%
7.4%
*
See the Company’s 10-K and 10-Q filings for additional
information on segment reporting and the definition of
Operating
Income/(Expense) and Operating Margin.
Reconciliation of Quarterly and Fiscal Year GAAP to Non-GAAP
Diluted Earnings Per Share**
(Totals rounded to the nearest cent per diluted share)
Q1 16
Q2 16
Q3 16
FY 16
ACT
ACT
GUID
GUID
2016 GAAP Diluted EPS
$0.44
$0.58
$0.75 - $0.80
$3.26 - $3.46
Impact of Unusual Business Events (1)
$0.09
-
-
$0.09
2016 Non-GAAP Diluted EPS Excluding Unusual Business Events (2)
$0.53
$0.58
$0.75 - $0.80
$3.35 - $3.55
=============================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
Q1 15
Q2 15
Q3 15
FY 15
ACT
ACT
ACT
ACT
2015 GAAP Diluted EPS
$0.48
$0.58
$0.77
$3.37
=============================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
** Due to the differences between the quarterly and year-to-date
weighted average share count calculations and
rounding to
the nearest cent per diluted share, totals may not equal the sum
of the line items and fiscal year
diluted EPS may not
equal the sum of the quarters.
Store Statistics
Avg. Leased Square Footage
Store Count
Per Store
May 1, 2016
Openings
Closings
Jul. 31, 2016
Aug. 2, 2015
Jul. 31, 2016
Aug. 2, 2015
Williams-Sonoma
241
1
(1 )
241
241
6,600
6,600
Pottery Barn
200
1
-
201
199
13,800
13,700
Pottery Barn Kids
90
-
(1 )
89
89
7,500
7,500
West Elm
87
2
-
89
78
13,300
13,400
Rejuvenation
6
-
-
6
5
9,000
10,000
Total
624
4
(2 )
626
612
10,000
9,900
May 1, 2016
Jul. 31, 2016
Aug. 2, 2015
Total store selling square footage
3,867,000
3,894,000
3,771,000
Total store leased square footage
6,218,000
6,262,000
6,088,000
Notes:
(1)
Impact of Unusual Business Events - During Q1 16, we incurred
severance-related reorganization charges due to the reduction of
headcount primarily in our corporate functions of approximately
$13 million, or $0.09 per diluted share. These charges were
recorded as SG&A expense within the unallocated segment.
(2)
SEC Regulation G - Non-GAAP Information - This table includes
non-GAAP diluted EPS. We believe that this non-GAAP financial
measure provides meaningful supplemental information for investors
regarding the performance of our business and facilitates a
meaningful evaluation of our FY 16 guidance on a comparable basis
with prior periods. Our management uses this non-GAAP financial
measure in order to have comparable financial results to analyze
changes in our underlying business from quarter to quarter. This
non-GAAP financial measure 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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SOURCE: Williams-Sonoma, Inc.

WILLIAMS-SONOMA, INC.
Julie P. Whalen, 415-616-8524
EVP, Chief Financial Officer
-or-
Beth Potillo-Miller, 415-616-8643
SVP, Finance & Corporate Treasurer
Investor Relations