WSM
$46.78
Williams-Sonoma
$.17
.36%
Earnings Details
2nd Quarter July 2017
Wednesday, August 23, 2017 4:15:03 PM
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Summary

Williams-Sonoma Reports In-line

Williams-Sonoma (WSM) reported 2nd Quarter July 2017 earnings of $0.61 per share on revenue of $1.2 billion. The consensus earnings estimate was $0.59 per share on revenue of $1.2 billion. The Earnings Whisper number was $0.61 per share. Revenue grew 3.7% on a year-over-year basis.

The company said it expects third quarter earnings of $0.80 to $0.87 per share on revenue of $1.27 billion to $1.31 billion. The current consensus earnings estimate is $0.82 per share on revenue of $1.28 billion for the quarter ending October 31, 2017. The company also said it continues to expect fiscal year earnings of $3.45 to $3.65 per share on revenue of $5.165 billion to $5.265 billion. The current consensus earnings estimate is $3.56 per share on revenue of $5.23 billion for the year ending January 31, 2018.

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

Results
Reported Earnings
$0.61
Earnings Whisper
$0.61
Consensus Estimate
$0.59
Reported Revenue
$1.20 Bil
Revenue Estimate
$1.20 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Williams-Sonoma, Inc. announces second quarter 2017 results

Williams-Sonoma, Inc. (WSM) today announced operating results for the second fiscal quarter ended July 30, 2017 ("Q2 17") versus the second fiscal quarter ended July 31, 2016 ("Q2 16").

2nd QUARTER 2017 RESULTS

-
Q2 17 net revenues grew 3.7% to $1.202 billion versus $1.159 billion
in Q2 16 with comparable brand revenue growth of 2.8%.
-
Q2 17 operating margin was 6.8% versus 7.2% in Q2 16.
-
Q2 17 diluted earnings per share ("EPS") was $0.61 versus $0.58 in
Q2 16.
-
Cash returned to stockholders totaled $89 million, comprising $55
million in stock repurchases and $34 million in dividends.

Laura Alber, President and Chief Executive Officer, commented: "Our second quarter results with accelerated revenue and comp growth of 3.7% and 2.8%, respectively, demonstrate that the investments and actions we have undertaken to deliver value, quality and excellent customer service are driving improved top-line performance. These results reflect the strength of our brands and our competitive advantages, as well as our relentless focus on our initiatives to drive innovation and operational excellence. And, we are aggressively building upon these initiatives to further differentiate ourselves and to drive profitable growth."

Net revenues increased to $1.202 billion in Q2 17 from $1.159 billion in Q2 16.

Comparable brand revenue in Q2 17 increased 2.8% on top of 0.6% in Q2 16 as shown in the table below:

2nd Quarter Comparable Brand Revenue
Growth by Concept*
Q2 17
Q2 16
Pottery Barn
1.2 %
(4.8 %)
Williams Sonoma
1.9 %
0.0 %
West Elm
10.1 %
15.8 %
Pottery Barn Kids
(3.9 %)
0.1 %
PBteen
0.2 %
(5.2 %)
Total
2.8 %
0.6 %
* See the Company’s 10-K and 10-Q filings for the definition of
comparable brand revenue.

E-commerce net revenues in Q2 17 increased 5.2% to $631 million from $600 million in Q2 16. E-commerce net revenues generated 52.5% of total company net revenues in Q2 17 and 51.7% of total company net revenues in Q2 16.

Retail net revenues in Q2 17 increased 2.1% to $571 million from $559 million in Q2 16.

Operating margin in Q2 17 was 6.8% compared to 7.2% in Q2 16:

-
Gross margin was 35.2% in Q2 17 versus 35.4% in Q2 16.
-
Selling, general and administrative ("SG&A") expenses were $341
million, or 28.4% of net revenues in Q2 17, versus $327 million, or
28.2% of net revenues, in Q2 16.

The effective income tax rate in Q2 17 was 34.8% versus 37.7% in Q2 16. The year-over-year tax rate improvement was driven by the overall mix and level of earnings, as well as the incremental benefits we are seeing from improved profitability across our international operations, which are taxed at a lower tax rate.

EPS in Q2 17 was $0.61 versus $0.58 in Q2 16.

Merchandise inventories at the end of Q2 17 increased 11.4% to $1.073 billion from $963 million at the end of Q2 16. A large portion of this inventory growth, however, was associated with inventory that is in-transit and not yet received at our distribution centers. The biggest drivers of inventory growth are associated with our higher growth brands, particularly West Elm. There was also higher growth in PBteen, where sales had previously been most impacted by lower in-stock inventory levels.

STOCK REPURCHASE PROGRAM

During Q2 17, we repurchased 1,160,381 shares of common stock at an average cost of $47.41 per share and a total cost of approximately $55 million. As of July 30, 2017, there was approximately $317 million remaining under our current stock repurchase authorization.

FISCAL YEAR 2017 FINANCIAL GUIDANCE

3rd Quarter 2017 Financial Guidance
Total Net Revenues (millions)
$1,270 - $1,310
Comparable Brand Revenue Growth
2% - 5%
Diluted EPS
$0.80 - $0.87
Fiscal Year 2017 Financial Guidance
Total Net Revenues (millions)
$5,165 - $5,265
Comparable Brand Revenue Growth
1% - 3%
Non-GAAP Operating Margin*
9.4% - 9.6%
Non-GAAP Diluted EPS*
$3.45 - $3.65
Income Tax Rate
36.5% - 37.5%
Capital Spending (millions)
$200 - $220
Depreciation and Amortization (millions)
$185 - $195
* Excludes certain items affecting comparability. See Notes 1 and
2 in Exhibit 1. Including
these items, GAAP operating margin guidance would be 9.3% to 9.5%.
See Exhibit 1 for a
reconciliation of GAAP to non-GAAP EPS.
Store Opening and Closing Guidance by Retail Concept*
FY 2016 ACT
FY 2017 GUID
Total
New
Close
End
Williams Sonoma
234
4
(7)
231
Pottery Barn
201
8
(6)
203
West Elm
98
11
(3)
106
Pottery Barn Kids
89
-
(4)
85
Rejuvenation
7
1
-
8
Total
629
24
(20)
633
*
Included in the FY 16 store count are 19 stores in Australia
and one store in the UK.
FY 17 guidance includes one additional UK store.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 23, 2017, 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. These non-GAAP financial measures exclude the impact of severance-related charges in Q1 16, Q3 16 and Q1 17, a one-time favorable tax adjustment associated with intercompany transactions in Q4 16, and tax expense related to the adoption of new accounting rules related to stock-based compensation in Q1 17. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. 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 actual results and Q3 17 and FY 17 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 investments and initiatives; our future financial guidance, including Q3 17 and FY 17 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 17; 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 29, 2017 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 retail 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, the Philippines and South Korea, and stores and e-commerce websites in Mexico.

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended July 30, 2017 and July 31, 2016
(Dollars and shares in thousands, except per share amounts)
2nd Quarter
2017
2016
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$
630,793
52.5 %
$
599,683
51.7 %
Retail net revenues
570,813
47.5
559,346
48.3
Net revenues
1,201,606
100.0
1,159,029
100.0
Cost of goods sold
778,895
64.8
748,490
64.6
Gross profit
422,711
35.2
410,539
35.4
Selling, general and administrative expenses
341,127
28.4
327,263
28.2
Operating income
81,584
6.8
83,276
7.2
Interest expense, net
483
-
167
-
Earnings before income taxes
81,101
6.7
83,109
7.2
Income taxes
28,184
2.3
31,324
2.7
Net earnings
$
52,917
4.4 %
$
51,785
4.5 %
Earnings per share (EPS):
Basic
$0.61
$0.58
Diluted
$0.61
$0.58
Shares used in calculation of EPS:
Basic
86,429
89,039
Diluted
86,848
89,736
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Twenty-six weeks ended July 30, 2017 and July 31, 2016
(Dollars and shares in thousands, except per share amounts)
Year-to-Date
2017
2016
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$ 1,211,303
52.4 %
$ 1,175,917
52.1 %
Retail net revenues
1,101,810
47.6
1,080,929
47.9
Net revenues
2,313,113
100.0
2,256,846
100.0
Cost of goods sold
1,494,642
64.6
1,453,790
64.4
Gross profit
818,471
35.4
803,056
35.6
Selling, general and administrative expenses
674,413
29.2
656,255
29.1
Operating income
144,058
6.2
146,801
6.5
Interest expense, net
380
-
99
-
Earnings before income taxes
143,678
6.2
146,702
6.5
Income taxes
51,206
2.2
55,320
2.5
Net earnings
$
92,472
4.0 %
$
91,382
4.0 %
Earnings per share (EPS):
Basic
$1.07
$1.02
Diluted
$1.06
$1.01
Shares used in calculation of EPS:
Basic
86,696
89,169
Diluted
87,238
90,098
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
Jul. 30, 2017
Jan. 29, 2017
Jul. 31, 2016
Assets
Current assets
Cash and cash equivalents
$
103,109
$
213,713
$
111,122
Accounts receivable, net
78,735
88,803
98,053
Merchandise inventories, net
1,072,976
977,505
962,943
Prepaid catalog expenses
23,830
23,625
27,097
Prepaid expenses
73,662
52,882
68,300
Other assets
12,066
10,652
11,589
Total current assets
1,364,378
1,367,180
1,279,104
Property and equipment, net
929,331
923,283
908,562
Deferred income taxes, net
130,212
135,238
134,721
Other assets, net
55,939
51,178
51,177
Total assets
$ 2,479,860
$ 2,476,879
$ 2,373,564
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
429,700
$
453,710
$
391,597
Accrued salaries, benefits and other liabilities
100,550
130,187
103,040
Customer deposits
287,698
294,276
283,779
Borrowings under revolving line of credit
115,000
-
125,000
Income taxes payable
35,582
23,245
1,670
Other liabilities
51,540
59,838
53,331
Total current liabilities
1,020,070
961,256
958,417
Deferred rent and lease incentives
196,982
196,188
193,819
Other long-term obligations
74,284
71,215
66,516
Total liabilities
1,291,336
1,228,659
1,218,752
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized;
-
-
-
none
issued
Common stock: $.01 par value; 253,125 shares authorized;
858
873
888
85,754,
87,325 and 88,738 shares issued and outstanding
at July 30,
2017, January 29, 2017 and July 31, 2016,
respectively
Additional paid-in capital
556,702
556,928
542,711
Retained earnings
640,368
701,702
622,608
Accumulated other comprehensive loss
(8,599 )
(9,903 )
(9,860 )
Treasury stock, at cost
(805 )
(1,380 )
(1,535 )
Total stockholders’ equity
1,188,524
1,248,220
1,154,812
Total liabilities and stockholders’ equity
$ 2,479,860
$ 2,476,879
$ 2,373,564
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Twenty-six weeks ended July 30, 2017 and July 31, 2016
(Dollars in thousands)
Year-to-Date
2017
2016
Cash flows from operating activities
Net earnings
$
92,472
$
91,382
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization
90,048
83,369
Loss on disposal/impairment of assets
845
1,520
Amortization of deferred lease incentives
(12,680 )
(12,550 )
Deferred income taxes
(8,937 )
(10,472 )
Tax benefit related to stock-based awards
14,511
21,864
Excess tax benefit related to stock-based awards
-
(4,727 )
Stock-based compensation expense
22,829
27,476
Other
102
(866 )
Changes in:
Accounts receivable
10,658
(19,021 )
Merchandise inventories
(92,711 )
18,221
Prepaid catalog expenses
(205 )
1,822
Prepaid expenses and other assets
(26,918 )
(22,724 )
Accounts payable
(37,092 )
(71,614 )
Accrued salaries, benefits and other liabilities
(36,036 )
(12,867 )
Customer deposits
(6,795 )
(13,500 )
Deferred rent and lease incentives
12,635
21,534
Income taxes payable
12,409
(65,399 )
Net cash provided by operating activities
35,135
33,448
Cash flows from investing activities:
Purchases of property and equipment
(82,727 )
(77,877 )
Other
44
363
Net cash used in investing activities
(82,683 )
(77,514 )
Cash flows from financing activities:
Borrowings under revolving line of credit
115,000
125,000
Repurchases of common stock
(93,361 )
(76,166 )
Payment of dividends
(68,197 )
(67,571 )
Tax withholdings related to stock-based awards
(14,117 )
(24,635 )
Excess tax benefit related to stock-based awards
-
4,727
Proceeds related to stock-based awards
-
1,532
Other
-
(47 )
Net cash used in financing activities
(60,675 )
(37,160 )
Effect of exchange rates on cash and cash equivalents
(2,381 )
(1,299 )
Net decrease in cash and cash equivalents
(110,604 )
(82,525 )
Cash and cash equivalents at beginning of period
213,713
193,647
Cash and cash equivalents at end of period
$
103,109
$
111,122
Exhibit 1
(Unaudited)
2nd Quarter Operating Margin by
Segment*
($ in thousands)
E-commerce
Retail
Unallocated
Total
Q2 17
Q2 16
Q2 17
Q2 16
Q2 17
Q2 16
Q2 17
Q2 16
Net Revenues
$ 630,793
$ 599,683
$ 570,813
$ 559,346
$
-
$
-
$ 1,201,606
$ 1,159,029
Operating Income/(Expense)
135,139
132,733
34,592
33,217
(88,147 )
(82,674 )
81,584
83,276
Operating Margin
21.4 %
22.1 %
6.1 %
5.9 %
(7.3 %)
(7.1 %)
6.8 %
7.2 %
* 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 17
Q2 17
Q3 17
FY 17
ACT
ACT
GUID
GUID
2017 GAAP Diluted EPS
$0.45
$0.61
$0.80 - $0.87
$3.39 - $3.59
Impact of Severance-related Charges(1)
$0.04
-
-
$0.04
Unfavorable Tax Impact from the Adoption of New Accounting Rules (2)
$0.02
-
-
$0.02
2017 Non-GAAP Diluted EPS (5)
$0.51
$0.61
$0.80 - $0.87
$3.45 - $3.65
==================================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
Q1 16
Q2 16
Q3 16
FY 16
ACT
ACT
ACT
ACT
2016 GAAP Diluted EPS
$0.44
$0.58
$0.78
$3.41
Impact of Severance-related Charges(3)
$0.09
-
$0.01
$0.10
One-time Favorable Tax Adjustment(4)
-
-
-
($0.08)
2016 Non-GAAP Diluted EPS (5)
$0.53
$0.58
$0.79
$3.43
==================================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================

** 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
Apr. 30, 2017
Openings
Closings
Jul. 30, 2017
Jul. 31, 2016
Jul. 30, 2017
Jul. 31, 2016
Williams Sonoma
233
1
-
234
241
6,600
6,600
Pottery Barn
199
6
(1)
204
201
13,800
13,800
West Elm
99
2
-
101
89
13,200
13,300
Pottery Barn Kids
89
-
(1)
88
89
7,400
7,500
Rejuvenation
8
-
-
8
6
8,800
9,000
Total
628
9
(2)
635
626
10,100
10,000
Apr. 30, 2017
Jul. 30, 2017
Jul. 31, 2016
Total store selling square footage
3,942,000
3,998,000
3,894,000
Total store leased square footage
6,341,000
6,428,000
6,262,000

Notes:

(1)
During Q1 17 we incurred severance-related charges associated with
the previously announced departure of the former President of the
Pottery Barn brands, as well as other severance-related charges, of
approximately $6 million, or $0.04 per diluted share. These charges
were recorded as SG&A expense within the unallocated segment.
(2)
During Q1 17 we incurred tax expense of approximately $1 million, or
$0.02 per diluted share, associated with the adoption of new
accounting rules related to stock-based compensation.
(3)
During Q1 16 and Q3 16 we incurred severance-related reorganization
charges due to headcount reduction primarily in our corporate
functions totaling approximately $13 million, or $0.09 per diluted
share, and $1 million, or $0.01 per diluted share, respectively.
These charges were recorded as SG&A expense within the unallocated
segment.
(4)
During Q4 16 we incurred a benefit of approximately $8 million, or
$0.08 per diluted share, related to a one-time tax adjustment
associated with intercompany transactions.
(5)
SEC Regulation G - Non-GAAP Information - These tables include
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 actual results and Q3 17 and FY 17
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