WILLIAMS SONOMA INC - FORM 8-K - EX-99.1

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8-K - 8-K - WILLIAMS SONOMA INC	d204196d8k.htm

Exhibit 99.1

WILLIAMS-SONOMA, INC.

3250 Van Ness Avenue

San Francisco, CA 94109


						CONTACT:
						Julie P. Whalen
						EVP, Chief Financial Officer
						(415) 616-8524

						Beth Potillo-Miller
						SVP, Finance & Corporate Treasurer
						Investor Relations
						(415) 616-8643

PRESS RELEASE

Williams-Sonoma, Inc. announces second quarter 2016 results

Net revenues grow 2.8% with EPS of $0.58

Merchandise inventories down 6.6%

San Francisco, CA, August 24, 2016 – Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the second fiscal quarter ended July 31, 2016 (“Q2 16”) versus the second fiscal quarter ended August 2, 2015 (“Q2 15”).

2^nd QUARTER 2016 RESULTS

•

Q2 16 net revenues grew 2.8% to $1.159 billion versus $1.127 billion in Q2 15 with comparable brand revenue growth of 0.6%.

•

Q2 16 operating margin was 7.2% versus 7.4% in Q2 15.

•

Q2 16 diluted earnings per share (“EPS”) was $0.58 versus $0.58 in Q2 15.

•

Cash returned to stockholders totaled $69 million, comprising $36 million in stock repurchases and $33 million in dividends.

Laura Alber, President and Chief Executive Officer, commented “Our second quarter results reflect the strength of our portfolio of brands, our balanced multi-channel model, our successful growth initiatives and a relentless focus on operational improvements. We saw substantial improvements across all of our supply chain and inventory initiatives which helped elevate our customer service levels, reduce costs and drive down merchandise inventories.”

Ms. Alber concluded, “Despite the progress that we have made against our strategic initiatives, the overall retail environment has softened and we are being impacted by a more cautious consumer. As a result, we have revised our outlook for the remainder of the year to reflect this change in trend. We remain focused on what we can control to drive growth and continuous improvements in our operations, including strengthening and growing our brands, further differentiating our product offering, innovating our marketing and digital strategies and enhancing the retail experience.”

Net revenues increased to $1.159 billion in Q2 16 from $1.127 billion in Q2 15.

Comparable brand revenue growth in Q2 16 increased 0.6% on top of 6.3% in Q2 15 as shown in the table below:


2^nd Quarter Comparable Brand Revenue Growth by Concept*
	Q2 16		Q2 15
Pottery Barn		(4.8%)		6.4%
Williams-Sonoma		0.0%		(0.3%)
West Elm		15.8%		15.7%
Pottery Barn Kids		0.1%		3.3%
PBteen		(5.2%)		3.9%
Total		0.6%		6.3%
* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue.

E-commerce net revenues in Q2 16 increased 5.2% to $600 million from $570 million in Q2 15. E-commerce net revenues generated 51.7% of total company net revenues in Q2 16 and 50.6% of total company net revenues in Q2 15.

Retail net revenues in Q2 16 increased 0.4% to $559 million from $557 million in Q2 15.

Operating margin in Q2 16 was 7.2% compared to 7.4% in Q2 15.

•

Gross margin was 35.4% in Q2 16 versus 36.1% in Q2 15.

•

Selling, general and administrative (“SG&A”) expenses were $327 million, or 28.2% of net revenues in Q2 16, versus $323 million, or 28.7% of net revenues in Q2 15.

EPS in Q2 16 was $0.58 versus $0.58 in Q2 15 (which included an approximate $0.03 benefit from a reduced tax rate).

Merchandise inventories at the end of Q2 16 decreased 6.6% to $963 million from $1.031 billion at the end of Q2 15.

STOCK REPURCHASE PROGRAM

During Q2 16, we repurchased 665,517 shares of common stock at an average cost of $53.38 per share and a total cost of approximately $36 million. As of July 31, 2016, there was approximately $486 million remaining under our current stock repurchase program.

FISCAL YEAR 2016 FINANCIAL GUIDANCE



		3^rd Quarter 2016 Guidance Financial Highlights
		Total Net Revenues (millions)		$1,235 – $1,285
		Comparable Brand Revenue Growth		0% – 4%
		Diluted EPS		$0.75 – $0.80


		Fiscal Year 2016 Guidance Financial Highlights
		Total Net Revenues (millions)		$5,075 – $5,225
		Comparable Brand Revenue Growth		1% – 4%
		Non-GAAP Operating Margin*		9.4% – 9.8%
		Non-GAAP Diluted EPS**		$3.35 – $3.55
		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 $13 million, or 0.2% to 0.3% of operating margin during Q1 2016. Including these charges, GAAP operating margin guidance would be 9.1% to 9.6%. ** Excludes severance-related reorganization charges of approximately $13 million, or $0.09 per diluted share during Q1 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			27		(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, August 24, 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 operating margin and diluted EPS. We have reconciled these measures with the most directly comparable GAAP financial measures in this release and in Exhibit 1. These non-GAAP financial measures exclude the impact of unusual business events which occurred in Q1 16. 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 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: our growth and strategic initiatives; consumer trends; our growth drivers and operational improvements; our future financial guidance, including Q3 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 Q2 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 626 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 July 31, 2016 and August 2, 2015

(Dollars and shares in thousands, except per share amounts)


	2^nd Quarter
	2016					2015
	$		% of Revenues			$		% of Revenues
E-commerce net revenues	$	599,683		51.7	%	$	569,913		50.6	%
Retail net revenues		559,346		48.3			557,115		49.4

Net revenues		1,159,029		100.0			1,127,028		100.0
Cost of goods sold		748,490		64.6			720,403		63.9

Gross profit		410,539		35.4			406,625		36.1
Selling, general and administrative expenses		327,263		28.2			323,282		28.7

Operating income		83,276		7.2			83,343		7.4
Interest (income) expense, net		167		—			275		—

Earnings before income taxes		83,109		7.2			83,068		7.4
Income taxes		31,324		2.7			29,400		2.6

Net earnings	$	51,785		4.5	%	$	53,668		4.8	%


Earnings per share (EPS):
Basic	$	0.58				$	0.59
Diluted	$	0.58				$	0.58
Shares used in calculation of EPS:
Basic		89,039					91,243
Diluted		89,736					92,564

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Earnings (unaudited)

Twenty-six weeks ended July 31, 2016 and August 2, 2015

(Dollars and shares in thousands, except per share amounts)


	Year-to-Date
	2016					2015
	$		% of Revenues			$		% of Revenues
E-commerce net revenues	$	1,175,917		52.1	%	$	1,102,486		51.1	%
Retail net revenues		1,080,929		47.9			1,055,218		48.9

Net revenues		2,256,846		100.0			2,157,704		100.0
Cost of goods sold		1,453,790		64.4			1,372,238		63.6

Gross profit		803,056		35.6			785,466		36.4
Selling, general and administrative expenses		656,255		29.1			630,195		29.2

Operating income		146,801		6.5			155,271		7.2
Interest (income) expense, net		99		—			283		—

Earnings before income taxes		146,702		6.5			154,988		7.2
Income taxes		55,320		2.5			56,530		2.6

Net earnings	$	91,382		4.0	%	$	98,458		4.6	%


Earnings per share (EPS):
Basic	$	1.02				$	1.08
Diluted	$	1.01				$	1.06
Shares used in calculation of EPS:
Basic		89,169					91,475
Diluted		90,098					92,969

Williams-Sonoma, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(Dollars and shares in thousands, except per share amounts)


	Jul. 31, 2016			Jan. 31, 2016			Aug. 2, 2015
Assets
Current assets
Cash and cash equivalents	$	111,122		$	193,647		$	119,776
Accounts receivable, net		98,053			79,304			81,753
Merchandise inventories, net		962,943			978,138			1,031,472
Prepaid catalog expenses		27,097			28,919			38,088
Prepaid expenses		68,300			44,654			56,119
Deferred income taxes, net		-			-			130,687
Other assets		11,589			11,438			12,808

Total current assets		1,279,104			1,336,100			1,470,703

Property and equipment, net		908,562			886,813			875,002
Non-current deferred income taxes, net		134,721			141,784			-
Other assets, net		51,177			52,730			50,266

Total assets	$	2,373,564		$	2,417,427		$	2,395,971


Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	391,597		$	447,412		$	416,276
Accrued salaries, benefits and other		103,040			127,122			103,695
Customer deposits		283,779			296,827			288,654
Borrowings under revolving line of credit		125,000			-			150,000
Income taxes payable		1,670			67,052			14,678
Other liabilities		53,331			58,014			50,237

Total current liabilities		958,417			996,427			1,023,540

Deferred rent and lease incentives		193,819			173,061			179,103
Non-current deferred income taxes		-			-			1,213
Other long-term obligations		66,516			49,713			50,739

Total liabilities		1,218,752			1,219,201			1,254,595


Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued		-			-			-
Common stock: $.01 par value; 253,125 shares authorized; 88,738, 89,563 and 90,860 shares issued and outstanding at July 31, 2016, January 31, 2016 and August 2, 2015, respectively		888			896			909
Additional paid-in capital		542,711			541,307			532,835
Retained earnings		622,608			668,545			615,193
Accumulated other comprehensive loss		(9,860	)		(10,616	)		(5,625	)
Treasury stock, at cost		(1,535	)		(1,906	)		(1,936	)

Total stockholders’ equity		1,154,812			1,198,226			1,141,376

Total liabilities and stockholders’ equity	$	2,373,564		$	2,417,427		$	2,395,971

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

Twenty-six weeks ended July 31, 2016 and August 2, 2015

(Dollars in thousands)


	Year-to-Date
	2016			2015
Cash flows from operating activities
Net earnings	$	91,382		$	98,458
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		83,369			83,233
Loss on disposal/impairment of assets		1,520			2,074
Amortization of deferred lease incentives		(12,550	)		(12,075	)
Deferred income taxes		(10,472	)		(8,533	)
Tax benefit related to stock-based awards		21,864			25,917
Excess tax benefit related to stock-based awards		(4,727	)		(11,807	)
Stock-based compensation expense		27,476			24,913
Other		(866	)		69
Changes in:
Accounts receivable		(19,021	)		(14,854	)
Merchandise inventories		18,221			(144,934	)
Prepaid catalog expenses		1,822			(4,146	)
Prepaid expenses and other assets		(22,724	)		(19,708	)
Accounts payable		(71,614	)		15,625
Accrued salaries, benefits and other current and long-term liabilities		(12,867	)		(30,835	)
Customer deposits		(13,500	)		27,243
Deferred rent and lease incentives		21,534			24,034
Income taxes payable		(65,399	)		(17,869	)

Net cash provided by operating activities		33,448			36,805


Cash flows from investing activities:
Purchases of property and equipment		(77,877	)		(86,849	)
Other		363			278

Net cash used in investing activities		(77,514	)		(86,571	)


Cash flows from financing activities:
Borrowings under revolving line of credit		125,000			150,000
Repurchase of common stock		(76,166	)		(125,000	)
Payment of dividends		(67,571	)		(64,044	)
Tax withholdings related to stock-based awards		(24,635	)		(27,175	)
Excess tax benefit related to stock-based awards		4,727			11,807
Proceeds related to stock-based awards		1,532			2,647
Repayment of long-term obligations		-			(1,968	)
Other		(47	)		-

Net cash used in financing activities		(37,160	)		(53,733	)


Effect of exchange rates on cash and cash equivalents		(1,299	)		348
Net decrease in cash and cash equivalents		(82,525	)		(103,151	)
Cash and cash equivalents at beginning of period		193,647			222,927

Cash and cash equivalents at end of period	$	111,122		$	119,776

Exhibit 1

2^nd Quarter Operating Margin By Segment*

($ in thousands)


	E-commerce				Retail				Unallocated				Total
	Q2 16		Q2 15		Q2 16		Q2 15		Q2 16		Q2 15		Q2 16		Q2 15
Net Revenues	$	599,683	$	569,913	$	559,346	$	557,115	$	-	$	-	$	1,159,029	$	1,127,028
Operating Income/(Expense)		132,733		122,461		33,217		40,503		(82,674)		(79,621)		83,276		83,343
Operating Margin		22.1%		21.5%		5.9%		7.3%		(7.1%)		(7.1%)		7.2%		7.4%

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

ACT

Q2 16

ACT

Q3 16

GUID

FY 16

GUID

2016 GAAP Diluted EPS

$0.44

$0.58

$0.75 - $0.80

$3.26 - $3.46

Impact of Unusual Business Events ⁽¹⁾

$0.09

2016 Non-GAAP Diluted EPS Excluding Unusual Business Events ⁽²⁾

$0.53

$0.58

$0.75 - $0.80

$3.35 - $3.55

Q1 15

ACT

Q2 15

ACT

Q3 15

ACT

FY 15

ACT

2015 GAAP Diluted EPS

$0.48

$0.58

$0.77

$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
	May 1, 2016		Openings		Closings			Jul. 31, 2016		Aug. 2, 2015		Jul. 31, 2016		Aug. 2, 2015
Williams-Sonoma		241		1		(1	)		241		241		6,600		6,600
Pottery Barn		200		1		-			201		199		13,800		13,700
Pottery Barn Kids		90		-		(1	)		89		89		7,500		7,500
West Elm		87		2		-			89		78		13,300		13,400
Rejuvenation		6		-		-			6		5		9,000		10,000
Total		624		4		(2	)		626		612		10,000		9,900


	May 1, 2016		Jul. 31, 2016		Aug. 2, 2015
Total store selling square footage		3,867,000		3,894,000		3,771,000
Total store leased square footage		6,218,000		6,262,000		6,088,000

Notes:

(1)

Impact of Unusual Business Events – During Q1 16, we incurred severance-related reorganization charges due to the reduction of headcount primarily in our corporate functions of approximately $13 million, or $0.09 per diluted share. These charges were recorded as SG&A expense within the unallocated segment.

(2)

SEC Regulation G – Non-GAAP Information – This table includes 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 FY 16 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.

WILLIAMS SONOMA INC - FORM 8-K - EX-99.1 - August 24, 2016

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