WSM
$67.19
Williams-Sonoma
($.18)
(.27%)
Earnings Details
2nd Quarter July 2019
Wednesday, August 28, 2019 4:15:00 PM
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Summary

Williams-Sonoma Reports In-line

Williams-Sonoma (WSM) reported 2nd Quarter July 2019 earnings of $0.87 per share on revenue of $1.4 billion. The consensus earnings estimate was $0.83 per share on revenue of $1.3 billion. The Earnings Whisper number was $0.87 per share. Revenue grew 7.5% on a year-over-year basis.

The company said it expects fiscal year earnings of $4.60 to $4.80 per share on revenue of $5.74 billion to $5.90 billion. The company's previous guidance was earnings of $4.55 to $4.75 per share on revenue of $5.67 billion to $5.84 billion and the current consensus earnings estimate is $4.67 per share on revenue of $5.76 billion for the year ending January 31, 2020.

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

Results
Reported Earnings
$0.87
Earnings Whisper
$0.87
Consensus Estimate
$0.83
Reported Revenue
$1.37 Bil
Revenue Estimate
$1.31 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Williams-Sonoma, Inc. reports strong results for the second quarter of 2019

Comparable brand revenue growth accelerates to 6.5%
GAAP operating margin of 6.3%; Non-GAAP operating margin expansion of 10bps to 6.9%
GAAP diluted EPS of $0.79; Non-GAAP diluted EPS of $0.87, a 13% increase over Q2 18
Raises fiscal year 2019 topline and EPS guidance

SAN FRANCISCO--(BUSINESS WIRE)--Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the second fiscal quarter ended August 4, 2019 (“Q2 19”) versus the second fiscal quarter ended July 29, 2018 (“Q2 18”).

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20190828005586/en/

Laura Alber, President and Chief Executive Officer, commented, “We continue to deliver very strong results. In the second quarter, comp revenue growth accelerated to 6.5%, while operating margin expanded and EPS grew double digits. The growth strategy that we outlined at the beginning of the year is driving results and giving us the competitive advantage to continue to outperform. West Elm, our biggest growth opportunity, continues to accelerate, the Pottery Barn brands have returned to strength, and our cross-brand initiatives such as The Key and Business-to-Business are becoming more impactful levers of growth. We are also improving the customer experience through innovation and experimentation, and we are seeing the results of this work fuel brand level performance across our portfolio. In addition, our data-driven performance marketing is producing outsized returns on our digital media investments."

Alber continued, “Our performance year-to-date demonstrates that our initiatives are successfully driving consistent profitable growth across the business and we are confident that we will build on our market share gains in the second half and longer-term. As a result, we are raising our full-year guidance for net revenues, comp revenue growth and EPS.”

SECOND QUARTER 2019

  • Net revenue growth of 7.5% to $1.371 billion
  • Comparable brand revenue growth of 6.5%, primarily driven by an acceleration in comparable growth for West Elm and Pottery Barn to 17.5% and 4.2%, respectively
  • GAAP operating margin of 6.3%; non-GAAP operating margin expansion of 10bps to 6.9%
  • GAAP diluted EPS of $0.79; non-GAAP diluted EPS $0.87, a 13% increase compared to Q2 18

GUIDANCE

  • Raises fiscal year 2019 net revenues, comparable brand revenue growth and EPS guidance
  • Reiterates long-term financial targets

Fiscal Year 2019*

  • Total Net Revenues: $5.740 billion - $5.900 billion
  • Comparable Brand Revenue Growth: 3% - 6%
  • Non-GAAP Operating Margin: In-line with FY 18
  • Non-GAAP Diluted EPS: $4.60 - $4.80
  • Non-GAAP Income Tax Rate: 23% - 24%
  • Depreciation and Amortization: $185 million - $195 million
  • Net 25 store closures for a total store count of 600 by the end of FY 19
  • Capital Spending: $200 million - $220 million
  • Return to Shareholders: quarterly cash dividend of $0.48 per share and continued share buybacks under our multi-year share repurchase authorization of approximately $640 million

     

Long-Term Financial Targets*

  • Total Net Revenues growth of mid to high single digits
  • Non-GAAP Operating Income growth in-line with revenue growth, driving Operating Margin stability
  • Above-industry average ROIC

*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.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 28, 2019, 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 include expenses related to the operations of Outward, Inc. and employment-related expense. 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 statements relating to: our ability to capture significant opportunities in the home furnishings industry; increase our market share; our ability to continue to improve performance; our focus on operational excellence; our ability to improve customers’ experience; our optimism about the future; our ability to maximize growth and maintain high profitability; our FY 2019 and long-term financial guidance; our stock repurchase program and dividend expectations; 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: 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; the impact of current and potential future tariffs and our ability to mitigate impacts; 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 February 3, 2019 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 distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, Pottery Barn Teen, 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 and South Korea, as well as e-commerce websites in certain locations. In 2017, we acquired Outward, Inc., a 3-D imaging and augmented reality platform for the home furnishings and décor industry.

 

Condensed Consolidated Statements of Earnings (unaudited)

 

 

Thirteen Weeks Ended

Twenty-six Weeks Ended

 

August 4, 2019

July 29, 2018

August 4, 2019

July 29, 2018

In thousands, except per share amounts

$

% of
Revenues

$

% of
Revenues

$

% of
Revenues

$

% of
Revenues

Net revenues

 

1,370,814

100%

 

1,275,174

100%

2,611,946

100%

 

2,478,174

100%

Cost of goods sold

 

886,953

64.7%

 

811,232

63.6%

1,683,754

64.5%

 

1,582,068

63.8%

Gross profit

 

483,861

35.3%

 

463,942

36.4%

928,192

35.5%

 

896,106

36.2%

Selling, general and administrative expenses

 

397,696

29.0%

 

389,776

30.6%

767,895

29.4%

 

755,390

30.5%

Operating income

 

86,165

6.3%

 

74,166

5.8%

160,297

6.1%

 

140,716

5.7%

Interest expense, net

 

2,669

0.2%

 

1,584

0.1%

4,922

0.2%

 

2,785

0.1%

Earnings before income taxes

 

83,496

6.1%

 

72,582

5.7%

155,375

5.9%

 

137,931

5.6%

Income taxes

 

20,848

1.5%

 

20,869

1.6%

40,071

1.5%

 

41,050

1.7%

Net earnings

$

62,648

4.6%

$

51,713

4.1%

$115,304

4.4%

$

96,881

3.9%

Earnings per share (EPS):

 

 

 

 

 

 

 

Basic

$

0.80

 

$

0.63

 

$1.47

 

$

1.17

 

Diluted

$

0.79

 

$

0.62

 

$1.45

 

$

1.16

 

Shares used in calculation of EPS:

 

 

 

 

 

 

Basic

 

78,488

 

 

82,342

 

78,586

 

 

82,867

 

Diluted

 

79,470

 

 

83,167

 

79,633

 

 

83,519

 

 
 

2nd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline) by Concept*

 

Net Revenues
(Millions)

Comparable Brand Revenue Growth
(Decline)

 

Q2 19

Q2 18

Q2 19

Q2 18

Pottery Barn

$525

$506

4.2%

2.0%

West Elm

$358

$301

17.5%

9.5%

Williams Sonoma

$191

$195

(1.1%)

1.6%

Pottery Barn Kids and Teen

$228

$214

3.7%

5.7%

Other

$69

$59

N/A

N/A

Total

$1,371

$1,275

6.5%

4.6%

 

*See the Company’s 10-K filing for the definition of comparable brand revenue, which is calculated on a 13-week to 13-week basis for Q2 2019.

 

Condensed Consolidated Balance Sheets (unaudited)

 

In thousands, except per share amounts

August 4,
2019

February 3,
2019

July 29,
2018

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

120,467

 

$

338,954

 

$

174,580

 

Accounts receivable, net

 

111,114

 

 

107,102

 

 

106,322

 

Merchandise inventories, net

 

1,187,728

 

 

1,124,992

 

 

1,099,888

 

Prepaid expenses

 

117,017

 

 

101,356

 

 

74,811

 

Other current assets

 

21,693

 

 

21,939

 

 

21,891

 

Total current assets

 

1,558,019

 

 

1,694,343

 

 

1,477,492

 

Property and equipment, net

 

913,059

 

 

929,635

 

 

919,689

 

Operating lease right-of-use assets

 

1,208,528

 

Deferred income taxes, net

 

38,803

 

 

44,055

 

 

60,960

 

Goodwill

 

85,348

 

 

85,382

 

 

85,673

 

Other long-term assets, net

 

65,924

 

 

59,429

 

 

64,163

 

Total assets

$

3,869,681

 

$

2,812,844

 

$

2,607,977

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities

 

 

 

Accounts payable

$

404,337

 

$

526,702

 

$

466,903

 

Accrued expenses

 

127,137

 

 

163,559

 

 

112,381

 

Gift card and other deferred revenue

 

283,108

 

 

290,445

 

 

263,546

 

Borrowings under revolving line of credit

 

60,000

 

Income taxes payable

 

13,065

 

 

21,461

 

 

35,529

 

Operating lease liabilities

 

222,978

 

Other current liabilities

 

76,254

 

 

72,645

 

 

69,589

 

Total current liabilities

 

1,186,879

 

 

1,074,812

 

 

947,948

 

Deferred rent and lease incentives

 

28,618

 

 

201,374

 

 

207,190

 

Long-term debt

 

299,719

 

 

299,620

 

 

299,521

 

Long-term operating lease liabilities

 

1,148,031

 

Other long-term liabilities

 

84,831

 

 

81,324

 

 

72,330

 

Total liabilities

 

2,748,078

 

 

1,657,130

 

 

1,526,989

 

Stockholders’ equity

 

 

 

Preferred stock: $.01 par value; 7,500 shares authorized; none issued

Common stock: $.01 par value; 253,125 shares authorized; 78,203, 78,813 and 80,988 shares issued and outstanding at August 4, 2019, February 3, 2019 and July 29, 2018, respectively

 

783

 

 

789

 

 

810

 

Additional paid-in capital

 

584,828

 

 

581,900

 

 

561,810

 

Retained earnings

 

552,454

 

 

584,333

 

 

528,368

 

Accumulated other comprehensive loss

 

(15,488

)

 

(11,073

)

 

(9,742

)

Treasury stock, at cost

 

(974

)

 

(235

)

 

(258

)

Total stockholders’ equity

 

1,121,603

 

 

1,155,714

 

 

1,080,988

 

Total liabilities and stockholders’ equity

$

3,869,681

 

$

2,812,844

 

$

2,607,977

 

 
 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

Twenty-six
Weeks Ended

In thousands

August 4,
2019

July 29,
2018

Cash flows from operating activities:

 

 

Net earnings

$

115,304

 

$

96,881

 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

 

 

Depreciation and amortization

 

93,744

 

 

93,809

 

(Gain) loss on disposal/impairment of assets

 

(6

)

 

4,466

 

Amortization of deferred lease incentives

 

(4,228

)

 

(13,210

)

Non-cash lease expense

 

105,437

 

Deferred income taxes

 

(8,428

)

 

(4,415

)

Tax benefit related to stock-based awards

 

14,110

 

 

9,711

 

Stock-based compensation expense

 

35,401

 

 

26,526

 

Other

 

92

 

 

166

 

Changes in:

 

 

Accounts receivable

 

(4,430

)

 

(13,567

)

Merchandise inventories

 

(63,576

)

 

(45,159

)

Prepaid expenses and other assets

 

(24,506

)

 

(29,217

)

Accounts payable

 

(127,511

)

 

(1,735

)

Accrued expenses and other liabilities

 

(30,677

)

 

(12,209

)

Gift card and other deferred revenue

 

(7,173

)

 

11,927

 

Deferred rent and lease incentives

 

18,861

 

Operating lease liabilities

 

(111,782

)

Income taxes payable

 

(8,407

)

 

(22,712

)

Net cash (used in) provided by operating activities

 

(26,636

)

 

120,123

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(77,189

)

 

(80,021

)

Other

 

470

 

 

513

 

Net cash used in investing activities

 

(76,719

)

 

(79,508

)

Cash flows from financing activities:

 

 

Payment of dividends

 

(75,453

)

 

(70,331

)

Repurchases of common stock

 

(72,131

)

 

(174,818

)

Borrowings under revolving line of credit

 

60,000

 

Tax withholdings related to stock-based awards

 

(25,887

)

 

(12,335

)

Net cash used in financing activities

 

(113,471

)

 

(257,484

)

Effect of exchange rates on cash and cash equivalents

 

(1,661

)

 

1,313

 

Net decrease in cash and cash equivalents

 

(218,487

)

 

(215,556

)

Cash and cash equivalents at beginning of period

 

338,954

 

 

390,136

 

Cash and cash equivalents at end of period

$

120,467

 

$

174,580

 

 

Retail Store Data (unaudited)

May 5, 2019

Openings

Closings

August 4, 2019

July 29, 2018

Williams Sonoma

219

(1)

218

226

Pottery Barn

205

2

(2)

205

205

West Elm

113

(1)

112

109

Pottery Barn Kids

78

78

84

Rejuvenation

10

10

8

Total

625

2

(4)

623

632

 
Exhibit 1
GAAP to Non-GAAP Reconciliation (unaudited)
(Dollars in thousands, except per share data)
 
Thirteen Weeks EndedThirteen Weeks EndedTwenty-six Weeks EndedTwenty-six Weeks Ended
August 4, 2019July 29, 2018August 4, 2019July 29, 2018

$

% of
revenues

$

% of
revenues

$

% of
revenues

$

% of
revenues
Gross profit

$

483,861

 

35.3

%

$

463,942

 

36.4

%

$

928,192

 

35.5

%

$

896,106

 

36.2

%

Outward-related1

 

879

 

 

269

 

 

1,414

 

 

851

 

Employment-related expense2

 

 

 

30

 

Impairment and early termination charges3

 

719

 

 

719

 

Non-GAAP gross profit

$

484,740

 

35.4

%

$

464,930

 

36.5

%

$

929,636

 

35.6

%

$

897,676

 

36.2

%

 
Selling, general and administrative expenses

$

397,696

 

29.0

%

$

389,776

 

30.6

%

$

767,895

 

29.4

%

$

755,390

 

30.5

%

Outward-related1

 

(6,351

)

 

(4,720

)

 

(12,228

)

 

(11,064

)

Employment-related expense2

 

(623

)

 

(1,874

)

 

(7,119

)

 

(3,576

)

Impairment and early termination charges3

 

(4,578

)

 

(4,578

)

Non-GAAP selling, general and administrative expenses

$

390,722

 

28.5

%

$

378,604

 

29.7

%

$

748,548

 

28.7

%

$

736,172

 

29.7

%

$

% of
revenues

$

% of
revenues

$

% of
revenues

$

% of
revenues
Operating income

$

86,165

 

6.3

%

$

74,166

 

5.8

%

$

160,297

 

6.1

%

$

140,716

 

5.7

%

Outward-related1

 

7,230

 

 

4,989

 

 

13,642

 

 

11,915

 

Employment-related expense2

 

623

 

 

1,874

 

 

7,149

 

 

3,576

 

Impairment and early termination charges3

 

5,297

 

 

5,297

 

Non-GAAP operating income

$

94,018

 

6.9

%

$

86,326

 

6.8

%

$

181,088

 

6.9

%

$

161,504

 

6.5

%

$

Tax rate

$

Tax rate

$

Tax rate

$

Tax rate
Income taxes

$

20,848

 

25.0

%

$

20,869

 

28.8

%

$

40,071

 

25.8

%

$

41,050

 

29.8

%

Outward-related1

 

1,536

 

$

1,055

 

 

2,964

 

 

2,522

 

Employment-related expense2

 

(493

)

 

468

 

 

(782

)

 

870

 

Impairment and early termination charges3

 

1,289

 

 

1,289

 

Tax legislation4

 

(2,888

)

 

(6,186

)

Impact of equity accounting rules5

 

(1,146

)

Non-GAAP income taxes

$

21,891

 

24.0

%

$

20,793

 

24.5

%

$

42,253

 

24.0

%

$

38,399

 

24.2

%

$

$

$

$

Diluted EPS

$

0.79

 

$

0.62

 

$

1.45

 

$

1.16

 

Outward-related1

 

0.07

 

 

0.05

 

 

0.13

 

 

0.11

 

Employment-related expense2

 

0.01

 

 

0.02

 

 

0.10

 

 

0.03

 

Impairment and early termination charges3

 

0.05

 

 

0.05

 

Tax legislation4

 

 

 

0.03

 

 

 

 

0.07

 

Impact of equity accounting rules5

 

 

 

 

 

0.01

 

Non-GAAP Diluted EPS*

$

0.87

 

$

0.77

 

$

1.68

 

$

1.44

 

* 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 Q2 and year-to-date 2019, we incurred approximately $7.2 million and $13.6 million, respectively, of expense, which includes acquisition-related compensation expense and amortization of intangible assets, as well as the operations of Outward, Inc., of which $6.4 million and $12.2 million, respectively, were recorded within selling, general and administrative expenses. During Q2 and year-to-date 2018, we incurred approximately $5.0 million and $11.9 million, respectively, of expense, of which $4.7 million and $11.1 million, respectively, were recorded within selling, general and administrative expenses.
  2. During Q2 and year-to-date 2019, we incurred approximately $0.6 million and $7.1 million, respectively, of employment-related expense, recorded within selling, general and administrative expenses. In Q1 19, the expense was primarily associated with severance-related reorganization expenses. During Q2 and year-to-date 2018, we incurred approximately $1.9 million and $3.6 million, respectively, of employment-related expense, recorded within selling, general and administrative expenses.
  3. During Q2 18, we incurred approximately $5.3 million of expense, primarily associated with impairment and early lease termination charges.
  4. During Q2 and year-to-date 2018, we recorded income tax expense of approximately $2.9 million and $6.2 million, respectively, associated with tax legislation changes.
  5. During Q1 18, we recorded income tax expense of approximately $1.1 million associated with the adoption of accounting rules related to stock-based compensation.

 

Julie Whalen EVP, Chief Financial Officer – (415) 616 8524
Elise Wang VP, Investor Relations – (415) 616 8571

Source: Williams-Sonoma, Inc.