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

SAN FRANCISCO--(BUSINESS WIRE)--

Revenues grew 6.3% with comparable brand revenue growth of 5.5%
GAAP diluted EPS of $0.94; Non-GAAP diluted EPS of $1.02, a 7.4% increase over Q3 18
Raises low end of 2019 full-year guidance

Williams-Sonoma, Inc. (WSM) today announced operating results for the third fiscal quarter ended November 3, 2019 (“Q3 19”) versus the third fiscal quarter ended October 28, 2018 (“Q3 18”).

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191121005842/en/

Laura Alber, President and Chief Executive Officer, commented, “Q3 marks another quarter of strong performance. Comparable revenues accelerated to 5.5%, non-GAAP operating margins held flat to last year despite increased tariff headwinds and non-GAAP EPS grew 7.4%. Our results and continued success relative to the industry reflect that our strong value proposition of high quality, design-led, sustainable products is resonating with our customers. In a fragmented home furnishings industry, it is hard to overstate how important it has been for us to continually evolve to stay ahead of the pack and remain at the forefront of driving profitable growth. Importantly, our digital-first model is a key component of our success.”

Alber continued, “Our year-to-date performance gives us the confidence that we can carry this momentum forward in the holiday season and beyond. As a result, we are raising the low end of our full-year 2019 guidance and reiterating our long term financial targets.”

THIRD QUARTER 2019

  • Net revenue growth of 6.3% to $1.442 billion
  • Comparable brand revenue growth of 5.5%, primarily driven by West Elm at 14.1% and Pottery Barn at 3.4%
  • GAAP operating margin of 7.1%; non-GAAP operating margin of 7.6%, in-line with Q3 18
  • GAAP diluted EPS of $0.94; non-GAAP diluted EPS of $1.02, a 7.4% increase compared to Q3 18

GUIDANCE

  • Raises low end of fiscal year 2019 guidance
  • Reiterates long-term financial targets

Fiscal Year 2019*

  • Total Net Revenues: $5.770 billion - $5.900 billion
  • Comparable Brand Revenue Growth: 3.5% - 6%
  • Non-GAAP Operating Margin: In-line with FY 18
  • Non-GAAP Diluted EPS: $4.65 - $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 601 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 $600 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. Guidance assumptions include the financial impact from all China tariffs.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 21, 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.

WSM-IR

Condensed Consolidated Statements of Earnings (unaudited)

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

November 3, 2019

 

October 28, 2018

 

November 3, 2019

 

October 28, 2018

In thousands, except per share amounts

$

% of
Revenues

 

$

% of
Revenues

 

$

% of
Revenues

 

$

% of
Revenues

Net revenues

$

1,442,472

100

%

 

$

1,356,983

100

%

 

$

4,054,418

100

%

 

$

3,835,157

100

%

Cost of goods sold

 

924,300

64.1

 

 

 

861,999

63.5

 

 

 

2,608,054

64.3

 

 

 

2,444,067

63.7

 

Gross profit

 

518,172

35.9

 

 

 

494,984

36.5

 

 

 

1,446,364

35.7

 

 

 

1,391,090

36.3

 

Selling, general and administrative expenses

 

416,281

28.9

 

 

 

400,600

29.5

 

 

 

1,184,176

29.2

 

 

 

1,155,990

30.1

 

Operating income

 

101,891

7.1

 

 

 

94,384

7.0

 

 

 

262,188

6.5

 

 

 

235,100

6.1

 

Interest expense, net

 

2,564

0.2

 

 

 

2,288

0.2

 

 

 

7,486

0.2

 

 

 

5,073

0.1

 

Earnings before income taxes

 

99,327

6.9

 

 

 

92,096

6.8

 

 

 

254,702

6.3

 

 

 

230,027

6.0

 

Income taxes

 

24,614

1.7

 

 

 

10,631

0.8

 

 

 

64,685

1.6

 

 

 

51,681

1.3

 

Net earnings

$

74,713

5.2

%

 

$

81,465

6.0

%

 

$

190,017

4.7

%

 

$

178,346

4.7

%

Earnings per share (EPS):

 

 

 

 

 

 

 

 

 

 

Basic

$

0.96

 

 

$

1.01

 

 

$

2.43

 

 

$

2.17

 

Diluted

$

0.94

 

 

$

1.00

 

 

$

2.39

 

 

$

2.15

 

Shares used in calculation of EPS:

 

 

 

 

 

 

 

 

 

Basic

 

77,897

 

 

 

80,475

 

 

 

78,356

 

 

 

82,070

 

Diluted

 

79,191

 

 

 

81,641

 

 

 

79,465

 

 

 

82,951

 

3rd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline) by Concept*

 

Net Revenues
(Millions)

Comparable Brand Revenue Growth
(Decline)

 

Q3 19

Q3 18

Q3 19

Q3 18

Pottery Barn

$

557

$

533

3.4

%

1.4

%

West Elm

 

390

 

339

14.1

%

8.3

%

Williams Sonoma

 

205

 

204

(2.1

%)

2.1

%

Pottery Barn Kids and Teen

 

228

 

227

4.0

%

0.0

%

Other

 

62

 

54

N/A

 

N/A

 

Total

$

1,442

$

1,357

5.5

%

3.1

%

*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 Q3 2019.

Condensed Consolidated Balance Sheets (unaudited)

 

In thousands, except per share amounts

November 3,
2019

February 3,
2019

October 28,
2018

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

155,025

 

$

338,954

 

$

164,414

 

Accounts receivable, net

 

110,131

 

 

107,102

 

 

113,582

 

Merchandise inventories, net

 

1,258,541

 

 

1,124,992

 

 

1,197,554

 

Prepaid expenses

 

115,288

 

 

101,356

 

 

94,071

 

Other current assets

 

20,260

 

 

21,939

 

 

21,805

 

Total current assets

 

1,659,245

 

 

1,694,343

 

 

1,591,426

 

Property and equipment, net

 

915,740

 

 

929,635

 

 

931,361

 

Operating lease right-of-use assets

 

1,194,061

 

 

 

Deferred income taxes, net

 

41,763

 

 

44,055

 

 

45,999

 

Goodwill

 

85,355

 

 

85,382

 

 

85,649

 

Other long-term assets, net

 

67,660

 

 

59,429

 

 

64,324

 

Total assets

$

3,963,824

 

$

2,812,844

 

$

2,718,759

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities

 

 

 

Accounts payable

$

444,279

 

$

526,702

 

$

487,733

 

Accrued expenses

 

140,789

 

 

163,559

 

 

132,398

 

Gift card and other deferred revenue

 

296,157

 

 

290,445

 

 

275,567

 

Borrowings under revolving line of credit

 

100,000

 

 

 

60,000

 

Income taxes payable

 

13,182

 

 

21,461

 

 

9,903

 

Operating lease liabilities

 

225,530

 

 

 

Other current liabilities

 

68,973

 

 

72,645

 

 

71,119

 

Total current liabilities

 

1,288,910

 

 

1,074,812

 

 

1,036,720

 

Deferred rent and lease incentives

 

29,388

 

 

201,374

 

 

205,143

 

Long-term debt

 

299,769

 

 

299,620

 

 

299,571

 

Long-term operating lease liabilities

 

1,127,403

 

 

 

Other long-term liabilities

 

86,461

 

 

81,324

 

 

85,388

 

Total liabilities

 

2,831,931

 

 

1,657,130

 

 

1,626,822

 

Stockholders’ equity

 

 

 

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

 

 

 

Common stock: $.01 par value; 253,125 shares authorized; 77,612, 78,813 and 80,282 shares issued and outstanding at November 3, 2019, February 3, 2019 and October 28, 2018, respectively

 

777

 

 

789

 

 

803

 

Additional paid-in capital

 

594,991

 

 

581,900

 

 

570,924

 

Retained earnings

 

550,774

 

 

584,333

 

 

532,172

 

Accumulated other comprehensive loss

 

(13,708

)

 

(11,073

)

 

(11,757

)

Treasury stock, at cost

 

(941

)

 

(235

)

 

(205

)

Total stockholders’ equity

 

1,131,893

 

 

1,155,714

 

 

1,091,937

 

Total liabilities and stockholders’ equity

$

3,963,824

 

$

2,812,844

 

$

2,718,759

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

Thirty-nine
Weeks Ended

In thousands

November 3,
2019

October 28,
2018

Cash flows from operating activities:

 

 

Net earnings

$

190,017

 

$

178,346

 

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

 

 

Depreciation and amortization

 

140,495

 

 

141,167

 

Loss on disposal/impairment of assets

 

682

 

 

5,290

 

Amortization of deferred lease incentives

 

(5,985

)

 

(19,728

)

Non-cash lease expense

 

160,138

 

 

Deferred income taxes

 

(10,937

)

 

12,170

 

Tax benefit related to stock-based awards

 

13,648

 

 

10,361

 

Stock-based compensation expense

 

49,516

 

 

40,953

 

Other

 

14

 

 

(389

)

Changes in:

 

 

Accounts receivable

 

(2,842

)

 

(21,851

)

Merchandise inventories

 

(133,637

)

 

(143,723

)

Prepaid expenses and other assets

 

(24,157

)

 

(50,171

)

Accounts payable

 

(92,101

)

 

8,689

 

Accrued expenses and other liabilities

 

(24,148

)

 

19,002

 

Gift card and other deferred revenue

 

5,848

 

 

24,048

 

Deferred rent and lease incentives

 

 

23,695

 

Operating lease liabilities

 

(168,308

)

 

Income taxes payable

 

(8,293

)

 

(48,358

)

Net cash provided by operating activities

 

89,950

 

 

179,501

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(121,154

)

 

(128,326

)

Other

 

470

 

 

1,804

 

Net cash used in investing activities

 

(120,684

)

 

(126,522

)

Cash flows from financing activities:

 

 

Payment of dividends

 

(113,159

)

 

(105,654

)

Repurchases of common stock

 

(112,714

)

 

(220,221

)

Borrowings under revolving line of credit

 

100,000

 

 

60,000

 

Tax withholdings related to stock-based awards

 

(26,623

)

 

(13,906

)

Net cash used in financing activities

 

(152,496

)

 

(279,781

)

Effect of exchange rates on cash and cash equivalents

 

(699

)

 

1,080

 

Net decrease in cash and cash equivalents

 

(183,929

)

 

(225,722

)

Cash and cash equivalents at beginning of period

 

338,954

 

 

390,136

 

Cash and cash equivalents at end of period

$

155,025

 

$

164,414

 

Retail Store Data (unaudited)

 

August 4, 2019

Openings

Closings

November 3, 2019

October 28, 2018

Williams Sonoma

218

-

-

218

226

Pottery Barn

205

-

-

205

205

West Elm

112

2

-

114

112

Pottery Barn Kids

78

1

-

79

82

Rejuvenation

10

-

-

10

8

Total

623

3

-

626

633

Exhibit 1
GAAP to Non-GAAP Reconciliation (unaudited)
(Dollars in thousands, except per share data)
 
Thirteen Weeks Ended Thirteen Weeks Ended Thirty-nine Weeks Ended Thirty-nine Weeks Ended
November 3, 2019 October 28, 2018 November 3, 2019 October 28, 2018

$

% of revenues

$

% of revenues

$

% of revenues

$

% of revenues
Gross profit

$

518,172

 

35.9

%

$

494,984

 

36.5

%

$

1,446,364

 

35.7

%

$

1,391,090

 

36.3

%

Outward-related1

 

726

 

 

(124

)

 

2,140

 

 

727

 

Employment-related expense2

 

-

 

 

-

 

 

30

 

 

-

 

Impairment and early termination charges3

 

-

 

 

190

 

 

-

 

 

909

 

Non-GAAP gross profit

$

518,898

 

36.0

%

$

495,050

 

36.5

%

$

1,448,534

 

35.7

%

$

1,392,726

 

36.3

%

 
Selling, general and administrative expenses

$

416,281

 

28.9

%

$

400,600

 

29.5

%

$

1,184,176

 

29.2

%

$

1,155,990

 

30.1

%

Outward-related1

 

(6,636

)

 

(6,128

)

 

(18,864

)

 

(17,192

)

Employment-related expense2

 

(623

)

 

(1,869

)

 

(7,742

)

 

(5,445

)

Impairment and early termination charges3

 

-

 

 

(937

)

 

-

 

 

(5,515

)

Non-GAAP selling, general and administrative expenses

$

409,022

 

28.4

%

$

391,666

 

28.9

%

$

1,157,570

 

28.6

%

$

1,127,838

 

29.4

%

 
Operating income

$

101,891

 

7.1

%

$

94,384

 

7.0

%

$

262,188

 

6.5

%

$

235,100

 

6.1

%

Outward-related1

 

7,362

 

 

6,004

 

 

21,004

 

 

17,919

 

Employment-related expense2

 

623

 

 

1,869

 

 

7,772

 

 

5,445

 

Impairment and early termination charges3

 

-

 

 

1,127

 

 

-

 

 

6,424

 

Non-GAAP operating income

$

109,876

 

7.6

%

$

103,384

 

7.6

%

$

290,964

 

7.2

%

$

264,888

 

6.9

%

Tax rate Tax rate Tax rate Tax rate
Income taxes

$

24,614

 

24.8

%

$

10,631

 

11.5

%

$

64,685

 

25.4

%

$

51,681

 

22.5

%

Outward-related1

 

1,511

 

 

1,300

 

 

4,475

 

 

3,822

 

Employment-related expense2

 

480

 

 

479

 

 

(302

)

 

1,349

 

Impairment and early termination charges3

 

-

 

 

303

 

 

-

 

 

1,592

 

Tax legislation4

 

(98

)

 

10,564

 

 

(98

)

 

4,378

 

Impact of equity accounting rules5

 

-

 

 

-

 

 

-

 

 

(1,146

)

Non-GAAP income taxes

$

26,507

 

24.7

%

$

23,277

 

23.0

%

$

68,760

 

24.3

%

$

61,676

 

23.7

%

 
Diluted EPS

$

0.94

 

$

1.00

 

$

2.39

 

$

2.15

 

Outward-related1

 

0.07

 

 

0.06

 

 

0.21

 

 

0.17

 

Employment-related expense2

 

-

 

 

0.02

 

 

0.10

 

 

0.05

 

Impairment and early termination charges3

 

-

 

 

0.01

 

 

-

 

 

0.06

 

Tax legislation4

 

-

 

 

(0.13

)

 

-

 

 

(0.05

)

Impact of equity accounting rules5

 

-

 

 

-

 

 

-

 

 

0.01

 

Non-GAAP Diluted EPS*

$

1.02

 

$

0.95

 

$

2.70

 

$

2.39

 

* 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 Q3 and year-to-date 2019, we incurred approximately $7.4 million and $21.0 million, respectively, of expense, which includes acquisition-related compensation expense and amortization of intangible assets, as well as the operations of Outward, Inc. During Q3 and year-to-date 2018, we incurred approximately $6.0 million and $17.9 million, respectively, of expense.
  2. During Q3 and year-to-date 2019, we incurred approximately $0.6 million and $7.8 million, respectively, of employment-related expense. During Q3 and year-to-date 2018, we incurred approximately $1.9 million and $5.4 million, respectively, of employment-related expense.
  3. During Q3 and year-to-date 2018, we incurred approximately $1.1 million and $6.4 million, respectively, of expense, primarily associated with impairment and early lease termination charges.
  4. During Q3 and year-to-date 2019, we recorded income tax expense of approximately $0.1 million, which is associated with tax legislation changes. During Q3 and year-to-date 2018, we recorded a net income tax benefit of approximately $10.6 million and $4.4 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.

 

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