WSM
$54.41
Williams-Sonoma
($.37)
(.68%)
Earnings Details
3rd Quarter October 2016
Thursday, November 17, 2016 4:15:02 PM
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Summary

Williams-Sonoma Reports In-line

Williams-Sonoma (WSM) reported 3rd Quarter October 2016 earnings of $0.79 per share on revenue of $1.2 billion. The consensus earnings estimate was $0.77 per share on revenue of $1.3 billion. The Earnings Whisper number was $0.79 per share. Revenue grew 1.1% on a year-over-year basis.

The company said it expects fourth quarter earnings of $1.45 to $1.55 per share on revenue of $1.57 billion to $1.65 billion. The current consensus earnings estimate is $1.59 per share on revenue of $1.63 billion for the quarter 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
$0.79
Earnings Whisper
$0.79
Consensus Estimate
$0.77
Reported Revenue
$1.25 Bil
Revenue Estimate
$1.26 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Williams-Sonoma, Inc. announces third quarter 2016 resultsNet revenues grow 1.1% with GAAP EPS of $0.78 and non-GAAP EPS of $0.79Gross margin improves to 36.8% and merchandise inventories decrease 3.5%

Williams-Sonoma, Inc. (WSM) today announced operating results for the third fiscal quarter ended October 30, 2016 ("Q3 16") versus the third fiscal quarter ended November 1, 2015 ("Q3 15").

3rd QUARTER 2016 RESULTS

-
Q3 16 net revenues grew 1.1% to $1.245 billion versus $1.232 billion
in Q3 15 with comparable brand revenue decreasing 0.4%.
-
Q3 16 operating margin was 8.8% versus 9.0% in Q3 15. Excluding
unusual business events due to severance-related reorganization
charges (see Note 1 in Exhibit 1), non-GAAP operating margin was
8.9% in Q3 16. See Exhibit 1 for a reconciliation of GAAP to
non-GAAP operating margin.
-
Q3 16 diluted earnings per share ("EPS") was $0.78 versus $0.77 in
Q3 15. Excluding unusual business events due to severance-related
reorganization charges of approximately $0.01 per diluted share,
non-GAAP EPS was $0.79 in Q3 16. See Exhibit 1 for a reconciliation
of GAAP to non-GAAP EPS.
-
Cash returned to stockholders totaled $72 million, comprising $39
million in stock repurchases and $33 million in dividends.

Laura Alber, President and Chief Executive Officer, commented: "Our third quarter performance demonstrates our competitive strengths - our differentiated portfolio of brands and profitable multi-channel business model - as well as the ongoing success of our strategic initiatives that we have seen this year. We saw continued double-digit growth in West Elm, our newer businesses Rejuvenation and Mark and Graham, and our international company-owned businesses. We also made additional progress across our supply chain and continued to reduce inventory, which resulted in better gross margins, allowing us to meet our earnings commitment at the high end of our guidance range, despite a more difficult retail environment."

Alber continued: "Although the current environment is less certain, we remain focused on what we can control, and we are confident that the ongoing progress on our strategic initiatives will improve service for our customers and will drive long-term sustainable profitable growth for our shareholders."

Net revenues increased to $1.245 billion in Q3 16 from $1.232 billion in Q3 15.

Comparable brand revenue in Q3 16 decreased 0.4% compared to 4.5% growth in Q3 15 as shown in the table below:

3rd Quarter Comparable Brand Revenue
Growth by Concept*
Q3 16
Q3 15
Pottery Barn
(4.6%)
2.0%
Williams-Sonoma
0.1%
1.2%
West Elm
12.0%
15.7%
Pottery Barn Kids
(1.0%)
4.7%
PBteen
(10.9%)
(0.9%)
Total
(0.4%)
4.5%
* See the Company’s 10-K and 10-Q filings for the definition of
comparable brand revenue.

E-commerce net revenues in Q3 16 increased 3.3% to $649 million from $628 million in Q3 15. E-commerce net revenues generated 52.1% of total company net revenues in Q3 16 and 51.0% of total company net revenues in Q3 15.

Retail net revenues in Q3 16 decreased 1.2% to $597 million from $604 million in Q3 15.

Operating margin in Q3 16 was 8.8% compared to 9.0% in Q3 15. Excluding unusual business events, non-GAAP operating margin was 8.9% in Q3 16:

-
Gross margin was 36.8% in Q3 16 versus 36.6% in Q3 15.
-
Selling, general and administrative ("SG&A") expenses were $348
million, or 28.0% of net revenues in Q3 16, versus $341 million, or
27.6% of net revenues in Q3 15. Excluding unusual business events
due to severance-related reorganization charges of approximately
$1.2 million, non-GAAP SG&A expenses were $347 million, or 27.9% of
net revenues, in Q3 16.

EPS in Q3 16 was $0.78 versus $0.77 in Q3 15. Excluding unusual business events, non-GAAP EPS was $0.79 in Q3 16.

Merchandise inventories at the end of Q3 16 decreased 3.5% to $1.064 billion from $1.102 billion at the end of Q3 15.

STOCK REPURCHASE PROGRAM

During Q3 16, we repurchased 771,327 shares of common stock at an average cost of $50.56 per share and a total cost of approximately $39 million. As of October 30, 2016, there was approximately $447 million remaining under our current stock repurchase program.

FISCAL YEAR 2016 FINANCIAL GUIDANCE

4th Quarter 2016 Guidance Financial Highlights
Total Net Revenues (millions)
$1,570 - $1,650
Comparable Brand Revenue Growth/(Decrease)
(1%) - 4%
Diluted EPS
$1.45 - $1.55
Fiscal Year 2016 Guidance Financial Highlights
Total Net Revenues (millions)
$5,070 - $5,150
Comparable Brand Revenue Growth
1% - 2%
Non-GAAP Operating Margin*
9.4% - 9.6%
Non-GAAP Diluted EPS**
$3.35 - $3.45
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 $14 million, or
0.3% of operating margin during Q1 2016 and Q3 2016. Including
these charges,
GAAP operating margin guidance would be 9.1% to 9.3%.
** Excludes severance-related reorganization charges of
approximately $14 million, or
$0.10 per diluted share during Q1 2016 and Q3 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
26
(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, November 17, 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 SG&A, operating income, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of severance-related reorganization charges in Q1 16 and Q3 16. 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 quarterly actual results and 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: the progress on our strategic initiatives; our growth drivers; our future financial guidance, including Q4 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 Q3 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 635 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 October 30, 2016 and November 1, 2015
(Dollars and shares in thousands, except per share amounts)
3rd Quarter
2016
2015
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$
648,743
52.1 %
$
628,191
51.0 %
Retail net revenues
596,642
47.9
603,891
49.0
Net revenues
1,245,385
100.0
1,232,082
100.0
Cost of goods sold
787,162
63.2
780,894
63.4
Gross profit
458,223
36.8
451,188
36.6
Selling, general and administrative expenses
348,244
28.0
340,505
27.6
Operating income
109,979
8.8
110,683
9.0
Interest (income) expense, net
488
-
342
-
Earnings before income taxes
109,491
8.8
110,341
9.0
Income taxes
40,113
3.2
39,859
3.2
Net earnings
$
69,378
5.6 %
$
70,482
5.7 %
Earnings per share (EPS):
Basic
$0.78
$0.78
Diluted
$0.78
$0.77
Shares used in calculation of EPS:
Basic
88,382
90,437
Diluted
89,144
91,801
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirty-nine weeks ended October 30, 2016 and November 1, 2015
(Dollars and shares in thousands, except per share amounts)
Year-to-Date
2016
2015
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$ 1,824,660
52.1 %
$ 1,730,677
51.1 %
Retail net revenues
1,677,571
47.9
1,659,109
48.9
Net revenues
3,502,231
100.0
3,389,786
100.0
Cost of goods sold
2,240,952
64.0
2,153,132
63.5
Gross profit
1,261,279
36.0
1,236,654
36.5
Selling, general and administrative expenses
1,004,499
28.7
970,700
28.6
Operating income
256,780
7.3
265,954
7.8
Interest (income) expense, net
587
-
625
-
Earnings before income taxes
256,193
7.3
265,329
7.8
Income taxes
95,433
2.7
96,389
2.8
Net earnings
$
160,760
4.6 %
$
168,940
5.0 %
Earnings per share (EPS):
Basic
$1.81
$1.85
Diluted
$1.79
$1.82
Shares used in calculation of EPS:
Basic
88,906
91,129
Diluted
89,764
92,576
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
Oct. 30, 2016
Jan. 31, 2016
Nov. 1, 2015
Assets
Current assets
Cash and cash equivalents
$
75,381
$
193,647
$
72,264
Accounts receivable, net
96,386
79,304
88,535
Merchandise inventories, net
1,063,747
978,138
1,102,349
Prepaid catalog expenses
25,329
28,919
35,762
Prepaid expenses
74,195
44,654
59,276
Deferred income taxes, net
-
-
130,684
Other assets
12,176
11,438
12,966
Total current assets
1,347,214
1,336,100
1,501,836
Property and equipment, net
918,020
886,813
883,459
Non-current deferred income taxes, net
136,558
141,784
2,560
Other assets, net
51,540
52,730
47,821
Total assets
$ 2,453,332
$ 2,417,427
$ 2,435,676
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
450,144
$
447,412
$
395,033
Accrued salaries, benefits and other
111,445
127,122
115,720
Customer deposits
289,737
296,827
293,317
Borrowings under revolving line of credit
125,000
-
200,000
Income taxes payable
1,122
67,052
35,317
Other liabilities
53,423
58,014
55,152
Total current liabilities
1,030,871
996,427
1,094,539
Deferred rent and lease incentives
192,948
173,061
174,059
Other long-term obligations
70,031
49,713
50,545
Total liabilities
1,293,850
1,219,201
1,319,143
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized;
-
-
-
none
issued
Common stock: $.01 par value; 253,125 shares authorized;
881
896
901
88,014,
89,563 and 90,010 shares issued and outstanding
at October
30, 2016, January 31, 2016 and November 1,
2015,
respectively
Additional paid-in capital
547,513
541,307
538,737
Retained earnings
623,243
668,545
585,928
Accumulated other comprehensive loss
(10,772 )
(10,616 )
(7,127 )
Treasury stock, at cost
(1,383 )
(1,906 )
(1,906 )
Total stockholders’ equity
1,159,482
1,198,226
1,116,533
Total liabilities and stockholders’ equity
$ 2,453,332
$ 2,417,427
$ 2,435,676
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Thirty-nine weeks ended October 30, 2016 and November 1, 2015
(Dollars in thousands)
Year-to-Date
2016
2015
Cash flows from operating activities
Net earnings
$
160,760
$
168,940
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization
127,745
125,093
Loss on disposal/impairment of assets
1,852
3,558
Amortization of deferred lease incentives
(18,789 )
(18,326 )
Deferred income taxes
(14,461 )
(13,526 )
Tax benefit related to stock-based awards
23,571
29,603
Excess tax benefit related to stock-based awards
(4,817 )
(14,283 )
Stock-based compensation expense
37,975
36,182
Other
(647 )
91
Changes in:
Accounts receivable
(17,400 )
(21,875 )
Merchandise inventories
(82,410 )
(216,294 )
Prepaid catalog expenses
3,591
(1,820 )
Prepaid expenses and other assets
(29,205 )
(20,909 )
Accounts payable
(17,403 )
(10,179 )
Accrued salaries, benefits and other current and long-term
(507 )
(13,494 )
liabilities
Customer deposits
(7,445 )
32,016
Deferred rent and lease incentives
25,969
25,561
Income taxes payable
(65,915 )
2,707
Net cash provided by operating activities
122,464
93,045
Cash flows from investing activities:
Purchases of property and equipment
(127,169 )
(136,069 )
Other
370
535
Net cash used in investing activities
(126,799 )
(135,534 )
Cash flows from financing activities:
Borrowings under revolving line of credit
125,000
200,000
Repurchase of common stock
(115,167 )
(196,497 )
Payment of dividends
(100,854 )
(96,020 )
Tax withholdings related to stock-based awards
(26,518 )
(31,019 )
Excess tax benefit related to stock-based awards
4,817
14,283
Net proceeds related to stock-based awards
1,532
2,647
Repayment of long-term obligations
-
(1,968 )
Other
(48 )
-
Net cash used in financing activities
(111,238 )
(108,574 )
Effect of exchange rates on cash and cash equivalents
(2,693 )
400
Net decrease in cash and cash equivalents
(118,266 )
(150,663 )
Cash and cash equivalents at beginning of period
193,647
222,927
Cash and cash equivalents at end of period
$
75,381
$
72,264
Exhibit 1
3rd Quarter Operating Margin By
Segment*
($ in thousands)
E-commerce
Retail
Unallocated
Total
Q3 16
Q3 15
Q3 16
Q3 15
Q3 16
Q3 15
Q3 16
Q3 15
Net Revenues
$
648,743
$
628,191
$
596,642
$
603,891
$
-
$
-
$
1,245,385
$
1,232,082
GAAP Operating Income/(Expense)
150,164
137,828
47,080
49,213
(87,265 )
(76,358 )
109,979
110,683
GAAP Operating Margin
23.1 %
21.9 %
7.9 %
8.1 %
(7.0 %)
(6.2 %)
8.8 %
9.0 %
Unusual Business Events (1)
-
-
-
-
1,185
-
1,185
-
Non-GAAP Operating Income/
$
$
(Expense) Excluding Unusual
$
150,164
$
137,828
$
47,080
$
49,213
(86,080 )
(76,358 )
$
111,164
$
110,683
Business
Events (2)
Non-GAAP Operating Margin (2)
23.1 %
21.9 %
7.9 %
8.1 %
(6.9 %)
(6.2 %)
8.9 %
9.0 %
* 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
Q4 16
FY 16
ACT
ACT
ACT
GUID
GUID
2016 GAAP Diluted EPS
$0.44
$0.58
$0.78
$1.45 - $1.55
$3.25 - $3.35
Impact of Unusual Business Events (1)
$0.09
-
$0.01
-
$0.10
2016 Non-GAAP Diluted EPS Excluding Unusual Business Events (2)
$0.53
$0.58
$0.79
$1.45 - $1.55
$3.35 - $3.45
=============================================================== ==================== ==================== ==================== ==================== ==================== ==================== ============================================================================================================================================================================================================= ==================== ==================== ==================== ==================== ============================================================================================================================================================================================================= ==================== ==================== ==================== ==================== ============================================================================================================================================================================================================= ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
Q1 15
Q2 15
Q3 15
Q4 15
FY 15
ACT
ACT
ACT
ACT
ACT
2015 GAAP Diluted EPS
$0.48
$0.58
$0.77
$1.55
$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
Store Count
Avg. Leased Square Footage
Per Store
Jul. 31, 2016
Openings
Closings
Oct. 30, 2016
Nov. 1, 2015
Oct. 30, 2016
Nov. 1, 2015
Williams-Sonoma
241
1
(1)
241
243
6,600
6,600
Pottery Barn
201
1
-
202
200
13,800
13,700
Pottery Barn Kids
89
-
-
89
90
7,500
7,500
West Elm
89
10
(2)
97
84
13,300
13,400
Rejuvenation
6
-
-
6
6
9,300
9,000
Total
626
12
(3)
635
623
10,000
9,900
Jul. 31, 2016
Oct. 30, 2016
Nov. 1, 2015
Total store selling square footage
3,894,000
3,966,000
3,839,000
Total store leased square footage
6,262,000
6,381,000
6,188,000
Notes:
(1)
Impact of Unusual Business Events - During Q1 16 and Q3 16, we
incurred severance-related reorganization charges due to headcount
reduction primarily in our corporate functions totaling
approximately $14 million, or $0.10 per diluted share. These charges
were recorded as SG&A expense within the unallocated segment.
(2)
SEC Regulation G - Non-GAAP Information - These tables include
non-GAAP operating income, operating margin 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 and 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
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.

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SOURCE: Williams-Sonoma, Inc.

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