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Williams-Sonoma, Inc. announces third quarter 2023 results

Q3 comparable brand revenue -14.6%

Record Q3 operating margin of 17.0%; diluted EPS of $3.66

Raises full year operating margin outlook

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third quarter ended October 29, 2023 versus the third quarter ended October 30, 2022.

“We are proud to deliver another quarter of strong earnings, significantly exceeding expectations, despite a challenging macroeconomic backdrop for our industry. We beat profitability estimates with a record third quarter operating margin of 17.0% with earnings per share of $3.66. These results were achieved in an environment filled with on-going consumer hesitancy on high-ticket discretionary furniture spend and elevated levels of promotional activity,” said Laura Alber, President and Chief Executive Officer.

Alber concluded, “The strength of our operating model produced strong earnings again this quarter, driven by our full-price selling, supply chain efficiencies, and best-in-class customer service. Our early seasonal reads are strong and we are optimistic about the holiday season.”

THIRD QUARTER 2023 HIGHLIGHTS

  • Comparable brand revenue -14.6% with a 2-year comp -6.5% and a 4-year comp +34.8%.
  • Gross margin of 44.4% +290bps to LY with selling margin +450bps due to lower shipping and freight costs, and occupancy deleverage of 160bps. Occupancy costs of $200 million, -1.0% to LY.
  • SG&A rate of 27.4% +140bps to LY driven by employment and general expense deleverage. SG&A of $507 million, -11.1% to LY.
  • Operating income of $315 million with an operating margin of 17.0%.
  • Diluted EPS of $3.66 per share.
  • Merchandise inventories -17.2% to the third quarter LY to $1.4 billion.
  • Cash at quarter-end of $699 million with no borrowings outstanding.
  • Operating cash flow of $290 million funding dividends and stock repurchases.

OUTLOOK

  • We are updating our fiscal 2023 guidance. We now expect net revenue growth in the range of -10% to -12% with an operating margin between 16% to 16.5%. Our lower sales outlook is offset by our expected increased operating margin, producing higher implied EPS guidance.
  • Over the long-term, we continue to expect mid-to-high single-digit annual net revenue growth with operating margin above 15%.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 16, 2023, at 7:00 A.M. (PT). The call 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 any 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 exit costs associated with the closure of our West Coast manufacturing facility and the exiting of Aperture, a division of our Outward, Inc. subsidiary, as well as costs related to reduction-in-force initiatives. 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 updated fiscal year 2023 outlook and long-term financial targets, and statements regarding our industry trends and business strategies.

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 inflation and measures to control inflation, including raising interest rates, on consumer spending; the continuing impact of the war in Ukraine and the Middle East, and shortages of various raw materials on our global supply chain, retail store operations and customer demand; labor and material shortages; the outcome of our growth initiatives; 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; 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, supply chain, product, transportation 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 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 29, 2023 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 29, 2023. 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, Mark and Graham and GreenRow — are marketed through e-commerce websites, direct-mail catalogs and retail stores. These brands are also part of The Key Rewards, our loyalty and credit card 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 our industry with our values-based culture and commitment to achieving our sustainability goals. 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)

 

 

For the Thirteen Weeks Ended

 

For the Thirty-nine Weeks Ended

 

October 29, 2023

 

October 30, 2022

 

October 29, 2023

 

October 30, 2022

(In thousands, except per share amounts)

$

 

% of

Revenues

 

$

 

% of

Revenues

 

$

 

% of

Revenues

 

$

 

% of

Revenues

Net revenues

$

1,853,650

 

100

%

 

$

2,192,574

 

100.0

%

 

$

5,471,715

 

100.0

%

 

$

6,221,338

 

100.0

%

Cost of goods sold

 

1,031,290

 

55.6

 

 

 

1,282,048

 

58.5

 

 

 

3,216,729

 

58.8

 

 

 

3,553,455

 

57.1

 

Gross profit

 

822,360

 

44.4

 

 

 

910,526

 

41.5

 

 

 

2,254,986

 

41.2

 

 

 

2,667,883

 

42.9

 

Selling, general and

administrative expenses

 

507,283

 

27.4

 

 

 

570,893

 

26.0

 

 

 

1,468,884

 

26.8

 

 

 

1,639,248

 

26.3

 

Operating income

 

315,077

 

17.0

 

 

 

339,633

 

15.5

 

 

 

786,102

 

14.4

 

 

 

1,028,635

 

16.5

 

Interest income, net

 

7,182

 

0.4

 

 

 

370

 

 

 

 

16,015

 

0.3

 

 

 

877

 

 

Earnings before income taxes

 

322,259

 

17.4

 

 

 

340,003

 

15.5

 

 

 

802,117

 

14.7

 

 

 

1,029,512

 

16.5

 

Income taxes

 

84,974

 

4.6

 

 

 

88,280

 

4.0

 

 

 

206,794

 

3.8

 

 

 

256,601

 

4.1

 

Net earnings

$

237,285

 

12.8

%

 

$

251,723

 

11.5

%

 

$

595,323

 

10.9

%

 

$

772,911

 

12.4

%

Earnings per share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

3.70

 

 

 

$

3.77

 

 

 

$

9.20

 

 

 

$

11.27

 

 

Diluted

$

3.66

 

 

 

$

3.72

 

 

 

$

9.12

 

 

 

$

11.08

 

 

Shares used in calculation of

EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

64,142

 

 

 

 

66,704

 

 

 

 

64,718

 

 

 

 

68,578

 

 

Diluted

 

64,774

 

 

 

 

67,617

 

 

 

 

65,298

 

 

 

 

69,782

 

 

 

3rd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline)1

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

Comparable Brand Revenue

Growth (Decline)

 

 

(In millions, except percentages)

Q3 23

 

Q3 22

 

Q3 23

 

Q3 22

 

 

Pottery Barn

$

778

 

$

935

 

(16.6

)%

 

19.6

%

 

 

West Elm

 

466

 

 

600

 

(22.4

)

 

4.2

 

 

 

Williams Sonoma

 

252

 

 

262

 

(1.9

)

 

(1.5

)

 

 

Pottery Barn Kids and Teen

 

277

 

 

299

 

(6.9

)

 

(4.8

)

 

 

Other2

 

81

 

 

97

 

N/A

 

 

N/A

 

 

 

Total

$

1,854

 

$

2,193

 

(14.6

)%

 

8.1

%

 

 

1 See the Company’s 10-K and 10-Q for the definition of comparable brand revenue, which is calculated on a 13-week basis, and includes business-to-business revenues.

 

 

2 Primarily consists of net revenues from Rejuvenation, our international franchise operations, Mark and Graham and GreenRow.

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

 

 

As of

(In thousands, except per share amounts)

October 29, 2023

 

January 29, 2023

 

October 30, 2022

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

698,807

 

 

$

367,344

 

 

$

113,058

 

Accounts receivable, net

 

124,238

 

 

 

115,685

 

 

 

125,842

 

Merchandise inventories, net

 

1,396,864

 

 

 

1,456,123

 

 

 

1,687,895

 

Prepaid expenses

 

100,045

 

 

 

64,961

 

 

 

104,208

 

Other current assets

 

27,381

 

 

 

31,967

 

 

 

29,729

 

Total current assets

 

2,347,335

 

 

 

2,036,080

 

 

 

2,060,732

 

Property and equipment, net

 

1,026,819

 

 

 

1,065,381

 

 

 

1,009,088

 

Operating lease right-of-use assets

 

1,235,425

 

 

 

1,286,452

 

 

 

1,277,064

 

Deferred income taxes, net

 

76,272

 

 

 

81,389

 

 

 

54,247

 

Goodwill

 

77,279

 

 

 

77,307

 

 

 

85,245

 

Other long-term assets, net

 

120,639

 

 

 

116,407

 

 

 

107,631

 

Total assets

$

4,883,769

 

 

$

4,663,016

 

 

$

4,594,007

 

Liabilities and stockholders' equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

675,505

 

 

$

508,321

 

 

$

720,856

 

Accrued expenses

 

203,958

 

 

 

247,594

 

 

 

275,381

 

Gift card and other deferred revenue

 

528,403

 

 

 

479,229

 

 

 

488,771

 

Income taxes payable

 

53,139

 

 

 

61,204

 

 

 

45,879

 

Operating lease liabilities

 

231,236

 

 

 

231,965

 

 

 

220,012

 

Other current liabilities

 

96,745

 

 

 

108,138

 

 

 

103,821

 

Total current liabilities

 

1,788,986

 

 

 

1,636,451

 

 

 

1,854,720

 

Long-term operating lease liabilities

 

1,163,631

 

 

 

1,211,693

 

 

 

1,208,074

 

Other long-term liabilities

 

117,918

 

 

 

113,821

 

 

 

118,279

 

Total liabilities

 

3,070,535

 

 

 

2,961,965

 

 

 

3,181,073

 

Stockholders' equity

 

 

 

 

 

Preferred stock: $0.01 par value; 7,500 shares authorized, none issued

 

 

 

 

 

 

 

 

Common stock: $0.01 par value; 253,125 shares authorized; 64,135, 66,226, and 66,556

shares issued and outstanding at October 29, 2023, January 29, 2023 and October 30,

2022, respectively

 

642

 

 

 

663

 

 

 

666

 

Additional paid-in capital

 

572,406

 

 

 

573,117

 

 

 

553,698

 

Retained earnings

 

1,260,216

 

 

 

1,141,819

 

 

 

877,157

 

Accumulated other comprehensive loss

 

(18,604

)

 

 

(13,809

)

 

 

(17,848

)

Treasury stock, at cost

 

(1,426

)

 

 

(739

)

 

 

(739

)

Total stockholders' equity

 

1,813,234

 

 

 

1,701,051

 

 

 

1,412,934

 

Total liabilities and stockholders' equity

$

4,883,769

 

 

$

4,663,016

 

 

$

4,594,007

 

 

Retail Store Data

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of quarter

 

 

End of quarter

 

As of

 

 

 

July 30, 2023

Openings

Closings

October 29, 2023

 

October 30, 2022

 

 

Pottery Barn

190

2

(1

)

191

 

189

 

 

Williams Sonoma

164

1

(2

)

163

 

175

 

 

West Elm

123

 

123

 

122

 

 

Pottery Barn Kids

46

 

46

 

52

 

 

Rejuvenation

9

1

 

10

 

9

 

 

Total

532

4

(3

)

533

 

547

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

For the Thirty-nine Weeks Ended

(In thousands)

October 29,

2023

 

October 30,

2022

Cash flows from operating activities:

 

 

 

Net earnings

$

595,323

 

 

$

772,911

 

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

 

 

 

Depreciation and amortization

 

166,027

 

 

 

157,410

 

Loss on disposal/impairment of assets

 

19,143

 

 

 

5,738

 

Non-cash lease expense

 

186,764

 

 

 

169,602

 

Deferred income taxes

 

(7,993

)

 

 

(10,494

)

Tax benefit related to stock-based awards

 

12,455

 

 

 

11,172

 

Stock-based compensation expense

 

66,435

 

 

 

67,797

 

Other

 

(2,411

)

 

 

(2,170

)

Changes in:

 

 

 

Accounts receivable

 

(8,928

)

 

 

5,288

 

Merchandise inventories

 

56,770

 

 

 

(443,812

)

Prepaid expenses and other assets

 

(35,857

)

 

 

(39,737

)

Accounts payable

 

164,958

 

 

 

98,103

 

Accrued expenses and other liabilities

 

(48,978

)

 

 

(34,157

)

Gift card and other deferred revenue

 

49,878

 

 

 

42,005

 

Operating lease liabilities

 

(200,168

)

 

 

(177,855

)

Income taxes payable

 

(8,005

)

 

 

(33,276

)

Net cash provided by operating activities

 

1,005,413

 

 

 

588,525

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(134,830

)

 

 

(234,378

)

Other

 

402

 

 

 

100

 

Net cash used in investing activities

 

(134,428

)

 

 

(234,278

)

Cash flows from financing activities:

 

 

 

Repurchases of common stock

 

(313,001

)

 

 

(840,955

)

Payment of dividends

 

(174,571

)

 

 

(165,254

)

Tax withholdings related to stock-based awards

 

(51,108

)

 

 

(80,431

)

Net cash used in financing activities

 

(538,680

)

 

 

(1,086,640

)

Effect of exchange rates on cash and cash equivalents

 

(842

)

 

 

(4,887

)

Net increase (decrease) in cash and cash equivalents

 

331,463

 

 

 

(737,280

)

Cash and cash equivalents at beginning of period

 

367,344

 

 

 

850,338

 

Cash and cash equivalents at end of period

$

698,807

 

 

$

113,058

 

Exhibit 1

 

3rd Quarter GAAP to Non-GAAP Reconciliation

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Thirteen Weeks Ended

 

For the Thirty-nine Weeks Ended

 

 

 

October 29, 2023

 

October 30, 2022

 

October 29, 2023

 

October 30, 2022

 

 

(In thousands, except per share data)

$

% of

revenues

 

$

% of

revenues

 

$

% of

revenues

 

$

% of

revenues

 

 

Occupancy costs

$

200,399

10.8

%

 

$

202,340

9.2

%

 

$

606,270

 

11.1

%

 

$

581,710

9.4

%

 

 

Exit Costs1

 

 

 

 

 

 

 

(239

)

 

 

 

 

 

 

Non-GAAP occupancy costs

$

200,399

10.8

%

 

$

202,340

9.2

%

 

$

606,031

 

11.1

%

 

$

581,710

9.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

$

822,360

44.4

%

 

$

910,526

41.5

%

 

$

2,254,986

 

41.2

%

 

$

2,667,883

42.9

%

 

 

Exit Costs1

 

 

 

 

 

 

 

2,141

 

 

 

 

 

 

 

Non-GAAP gross profit

$

822,360

44.4

%

 

$

910,526

41.5

%

 

$

2,257,127

 

41.3

%

 

$

2,667,883

42.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

$

507,283

27.4

%

 

$

570,893

26.0

%

 

$

1,468,884

 

26.8

%

 

$

1,639,248

26.3

%

 

 

Exit Costs1

 

 

 

 

 

 

 

(15,790

)

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

 

 

(8,316

)

 

 

 

 

 

 

Non-GAAP selling, general and

administrative expenses

$

507,283

27.4

%

 

$

570,893

26.0

%

 

$

1,444,778

 

26.4

%

 

$

1,639,248

26.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

$

315,077

17.0

%

 

$

339,633

15.5

%

 

$

786,102

 

14.4

%

 

$

1,028,635

16.5

%

 

 

Exit Costs1

 

 

 

 

 

 

 

17,931

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

 

 

8,316

 

 

 

 

 

 

 

Non-GAAP operating income

$

315,077

17.0

%

 

$

339,633

15.5

%

 

$

812,349

 

14.8

%

 

$

1,028,635

16.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

Tax rate

 

$

Tax rate

 

$

Tax rate

 

$

Tax rate

 

 

Income taxes

$

84,974

26.4

%

 

$

88,280

26.0

%

 

$

206,794

 

25.8

%

 

$

256,601

24.9

%

 

 

Exit Costs1

 

 

 

 

 

 

 

4,690

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

 

 

2,174

 

 

 

 

 

 

 

Non-GAAP income taxes

$

84,974

26.4

%

 

$

88,280

26.0

%

 

$

213,658

 

25.8

%

 

$

256,601

24.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

$

3.66

 

 

$

3.72

 

 

$

9.12

 

 

 

$

11.08

 

 

 

Exit Costs1

 

 

 

 

 

 

 

0.20

 

 

 

 

 

 

 

Reduction-in-force Initiatives2

 

 

 

 

 

 

 

0.09

 

 

 

 

 

 

 

Non-GAAP diluted EPS3

$

3.66

 

 

$

3.72

 

 

$

9.41

 

 

 

$

11.08

 

 

 

1 During Q1 2023, we incurred exit costs of $17.9 million, including $9.3 million associated with the closure of our West Coast manufacturing facility and $8.6 million associated with the exiting of Aperture, a division of our Outward, Inc. subsidiary.

 

 

2 During Q1 2023, we incurred costs related to reduction-in-force initiatives of $8.3 million primarily in our corporate functions.

 

 

3 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 occupancy costs, 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.

Contacts

Jeff Howie EVP, Chief Financial Officer – (415) 402 4324

-or-

Jeremy Brooks SVP, Chief Accounting Officer & Head of Investor Relations – (415) 733 2371

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