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8-K - 8-K - WILLIAMS SONOMA INCd936337d8k.htm

Exhibit 99.1

 

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Williams-Sonoma, Inc. announces strong results for the first quarter of 2020

Total comparable brand revenue growth of 2.6%, including e-commerce comps accelerating to 31.2%

GAAP diluted EPS of $0.45; Non-GAAP diluted EPS of $0.74

Solid liquidity position with over $860 million in cash

San Francisco, CA, May 28, 2020 – Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the first fiscal quarter ended May 3, 2020 (“Q1 20”) versus the first fiscal quarter ended May 5, 2019 (“Q1 19”).

“As the COVID-19 health crisis continues to impact our daily lives, our deep gratitude goes to all of the people who are taking care of our communities in the fight against this pandemic. We also want to thank our associates for their agility, commitment and partnership in continuing to meet our customers’ needs while prioritizing the health and safety of each other, our customers and our communities,” said Laura Alber, President and Chief Executive Officer.

“In this highly disrupted environment, we are proud to deliver 2.6% comp growth in the first quarter, despite having all of our 616 stores closed for more than half of the quarter. Our large e-commerce business had breakout comp growth in the second half of the quarter and continues to accelerate. Our teams maximized demand online, leaning into new and innovative ways to engage and serve our customers virtually. We gained market share with strong new customer growth in our DTC business, giving us even more confidence in the growth trajectory of our e-commerce business longer term,” Alber continued. “The resilience of our business through this crisis exemplifies the advantage of our unique multi-brand, multi-channel platform and our commitment to all of our stakeholders. Nothing makes me prouder than to have achieved our results while staying true to our company’s core value of taking care of our people, customers and communities. Our strong financial position and fortress balance sheet have allowed us to support our associates with pay continuation, while giving back to support relief efforts in our local communities.”

Alber concluded, “Reflecting on the longer term, this crisis has accelerated our industry’s shift to e-commerce, and given rise to a newfound appreciation for the home. We believe that with our differentiated value proposition of sustainable, design-led products and a powerful digital first platform, we are well positioned.”

FIRST QUARTER 2020

 

   

Net revenues of $1.235 billion were relatively flat to last year despite stores being temporarily closed for most of the quarter, driven by a significant acceleration in e-commerce revenue growth to over 30%

   

Total comparable brand revenue growth of 2.6%, with positive comparable revenue growth in almost all brands, including Pottery Barn Kids and Teen at 8.5%, Williams Sonoma at 5.4% and West Elm at 3.3%

   

Higher year-over-year merchandise margins; gross margin deleverage reflects the impact from higher shipping costs and occupancy deleverage

   

Occupancy costs were $175 million, relatively flat to last year

   

SG&A leverage of approximately 80bps, reflecting improved advertising ROI and the positive impact of cost reductions across the business

   

GAAP operating margin of 3.9%; non-GAAP operating margin of 6.4%

   

GAAP diluted EPS of $0.45; non-GAAP diluted EPS of $0.74

   

Maintains strong liquidity position of over $860 million in cash, further strengthened by the one-year extension of the $300 million term loan and a new $200 million unsecured revolving facility, which has not yet been drawn upon

   

Board of Directors declares quarterly cash dividend of $0.48 per common share, reflecting strong commitment to shareholder returns

 

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COVID-19 RESPONSE TO DATE

Support for Associates

 

   

Continued pay and benefits for store and corporate associates throughout the store closure period

   

Paid special weekly bonuses to hourly and managerial associates in distribution centers

   

Created a dedicated associate hotline to provide real time support for any COVID-related issues

   

Provided personal protective equipment and enhanced sanitation protocols throughout all locations that remained open or began to open for various activities allowed under local and state guidelines

   

Reinforced social distancing through signage, floor markers, taped grid patterns on floors and directional arrows

   

Continued telehealth support and employee assistance programs

   

Provided special wellness resources and tools

   

Supported over 350 associates experiencing financial hardship due to COVID-19 through the Williams-Sonoma, Inc. Foundation

   

Implemented temporary work from home for corporate associates

   

Reassigned associates whose work could not be done from home to other business-critical areas

Support for Customers

 

   

Accelerated the expansion of virtual Design Chat across all brands

   

Launched “Ask the Expert” chat service in the Williams Sonoma brand

   

Launched Virtual Design Appointments

   

Launched contactless curbside pickup at 475 locations so far, leveraging our omni-channel capabilities

   

In re-opened stores, implemented heightened safety measures to ensure we maintain a safe and comfortable shopping environment for customers and associates, including:

   

Shopping by appointment

   

Limitation on the number of customers and associates in-store consistent with state-specific guidelines

   

New signage to encourage social distancing, including floor markers, directional traffic arrows and signage at every store entrance

   

Wellness Ambassadors to manage customer traffic flow and monitor store traffic to limit customers based on store footprint

   

Daily wellness checks for associates

   

A supply of masks and gloves for associates in-store

   

Frequent sanitization and enhanced cleaning throughout the day

   

Altered delivery procedures with customer and associate safety as the top priority, including a safety briefing with the customer pre-delivery, maintaining 6 feet of separation from the customer at all times, and a supply of masks, gloves and booties for all delivery associates

Support for Communities

 

   

Donated food & personal care kits to frontline health care workers

   

Donated surgical masks to hospitals in New York and San Francisco

   

Raised over $800,000 across all brands for No Kid Hungry’s efforts to provide meals to children in need during the pandemic

   

Donated home goods to our nonprofit partner Good360 that go to a network of nonprofits in need

   

Our best-in-class vendor base has gone above and beyond to prioritize the health and safety of their workers and to respond to the needs of their communities:

   

In several of our Fair-Trade factories, community development funds from the Fair-Trade program were used to ensure workers had access to food, protective gear, and personal care products

 

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Many of our vendors in Vietnam and India have converted their production lines to produce sanitizers, face mask, medical protective suits, and healthcare textiles

   

Williams Sonoma launched the Take a Break on Us national campaign, which provides coffee machines and coffee capsules for various hospitals across the country

   

West Elm partnered with Designtex and repurposed sheeting to manufacture and donate 2,500 masks to CAMBA, a Brooklyn-based nonprofit agency and used its 3D printing capability at its Industry City Makers Studio to print face shields for first responders

   

West Elm continued to support and protect our west elm LOCAL and small business community including expanding our vendor base and increasing our local product offerings by 50%

   

West Elm worked with nonprofit partners in Guatemala to repurpose funds from the Pintando el Cambio to provide families in the community with food and protective gear

GUIDANCE

Given the dynamic nature of the COVID-19 crisis and the continuing macroeconomic uncertainty that could impact its performance, the company is not providing guidance for fiscal year 2020.

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

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 28, 2020, 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.

CONTACT INFORMATION

Julie Whalen EVP, Chief Financial Officer – (415) 616 8524

Elise Wang VP, Investor Relations – (415) 616 8571

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 acquisition and operations of Outward, Inc., employment-related expense, inventory-related charges and store asset impairments due to the impact of COVID-19. 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

 

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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; the sustainability of our online growth; 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; and our long-term financial targets.

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 impact of the coronavirus on our global supply chain, retail store operations and customer demand, 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 2, 2020 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 May 3, 2020. 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 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.

 

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Condensed Consolidated Statements of Earnings (unaudited)

 

     Thirteen Weeks Ended     Thirteen Weeks Ended  
     May 3, 2020     May 5, 2019  

In thousands, except per share amounts

   $      % of
Revenues
    $      % of
Revenues
 

Net revenues

   $ 1,235,203        100   $ 1,241,132        100

Cost of goods sold

     820,943        66.5       796,801        64.2  
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     414,260        33.5       444,331        35.8  

Selling, general and administrative expenses

     365,615        29.6       370,199        29.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     48,645        3.9       74,132        6.0  

Interest expense, net

     2,159        0.2       2,253        0.2  
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings before income taxes

     46,486        3.8       71,879        5.8  

Income taxes

     11,063        0.9       19,223        1.5  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net earnings

   $ 35,423        2.9   $ 52,656        4.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per share (EPS):

          

Basic

   $ 0.46        $ 0.67     

Diluted

   $ 0.45        $ 0.66     
  

 

 

      

 

 

    

Shares used in calculation of EPS:

 

       

Basic

     77,262          78,683     

Diluted

     78,399          79,867     
  

 

 

      

 

 

    

 

1st Quarter Net Revenues and Comparable Brand Revenue Growth (Decline) by Concept*

 

    

Net Revenues

(Millions)

     Comparable Brand Revenue
Growth (Decline)
 
        Q1 20        Q1 19      Q1 20     Q1 19  

Pottery Barn

   $ 480      $ 492        (1.1 %)      1.5

West Elm

     315        309        3.3       11.8  

Williams Sonoma

     199        195        5.4       (1.6

Pottery Barn Kids and Teen

     189        177        8.5       1.2  

Other

     52        68        N/A       N/A  

Total

   $ 1,235      $ 1,241        2.6     3.5
   
   

 

  *

See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue, which is calculated on a 13-week to 13-week basis for both Q1 2019 and Q1 2020. Comparable stores that were temporarily closed on March 17, 2020 through the remainder of the quarter due to COVID-19 were not excluded from the comparable stores calculation for Q1 2020.

 

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Condensed Consolidated Balance Sheets (unaudited)

 

In thousands, except per share amounts

   May 3, 2020     Feb. 2, 2020     May 5, 2019  

Assets

      

Current assets

      

Cash and cash equivalents

   $ 861,002     $ 432,162     $ 107,683  

Accounts receivable, net

     104,829       111,737       102,195  

Merchandise inventories, net

     1,070,681       1,100,544       1,155,427  

Prepaid expenses

     90,433       90,426       98,213  

Other current assets

     22,099       20,766       22,128  
  

 

 

   

 

 

   

 

 

 

Total current assets

     2,149,044       1,755,635       1,485,646  
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

     907,219       929,038       916,030  

Operating lease right-of-use assets

     1,175,402       1,166,383       1,200,972  

Deferred income taxes, net

     33,320       47,977       34,215  

Goodwill

     85,335       85,343       85,357  

Other long-term assets, net

     67,795       69,666       66,145  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,418,115     $ 4,054,042     $ 3,788,365  
  

 

 

   

 

 

   

 

 

 

Liabilities and stockholders’ equity

      

Current liabilities

      

Accounts payable

   $ 423,375     $ 521,235     $ 385,646  

Accrued expenses

     137,495       175,003       109,169  

Gift card and other deferred revenue

     299,353       289,613       291,839  

Income taxes payable

     24,049       22,501       24,384  

Current debt

     487,823       299,818       —    

Operating lease liabilities

     224,541       227,923       227,427  

Other current liabilities

     85,458       73,462       75,750  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,682,094       1,609,555       1,114,215  
  

 

 

   

 

 

   

 

 

 

Deferred rent and lease incentives

     26,254       27,659       30,536  

Long-term debt

     299,868       —         299,670  

Long-term operating lease liabilities

     1,109,473       1,094,579       1,139,625  

Other long-term liabilities

     81,497       86,389       82,551  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     3,199,186       2,818,182       2,666,597  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity

      

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

     —         —         —    

Common stock: $.01 par value; 253,125 shares authorized; 77,759, 77,137 and 78,808 shares issued and outstanding at May 3, 2020, February 2, 2020 and May 5, 2019, respectively

     778       772       788  

Additional paid-in capital

     596,184       605,822       571,772  

Retained earnings

     641,917       644,794       564,127  

Accumulated other comprehensive loss

     (19,351     (14,587     (13,945

Treasury stock, at cost

     (599     (941     (974
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     1,218,929       1,235,860       1,121,768  
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,418,115     $ 4,054,042     $ 3,788,365  
  

 

 

   

 

 

   

 

 

 

 

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Retail Store Data

(unaudited)

 

      February 2, 2020      Openings      Closings     May 3, 2020      May 5, 2019  

Williams Sonoma

     211        1        —         212        219  

Pottery Barn

     201        —          —         201        205  

West Elm

     118        2        (1     119        113  

Pottery Barn Kids

     74        —          —         74        78  

Rejuvenation

     10        —          —         10        10  

Total

     614        3        (1     616        625  

 

 

 

 

 

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Condensed Consolidated Statement of Cash Flows (unaudited)

 

     Thirteen Weeks Ended  

In thousands

   May 3, 2020     May 5, 2019  

Cash flows from operating activities:

    

Net earnings

   $ 35,423     $ 52,656  

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

    

Depreciation and amortization

     46,224       46,838  

(Gain) loss on disposal/impairment of assets

     16,185       (323

Amortization of deferred lease incentives

     (1,405     (2,306

Non-cash lease expense

     54,262       51,596  

Deferred income taxes

     (2,585     (4,126

Tax benefit related to stock-based awards

     12,039       14,898  

Stock-based compensation expense

     19,703       18,529  

Other

     129       69  

Changes in:

    

Accounts receivable

     8,950       4,684  

Merchandise inventories

     28,513       (31,460

Prepaid expenses and other assets

     (215     (4,914

Accounts payable

     (92,871     (144,399

Accrued expenses and other liabilities

     (29,050     (49,196

Gift card and other deferred revenue

     9,960       1,558  

Operating lease liabilities

     (57,629     (55,099

Income taxes payable

     6,240       2,915  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     53,873       (98,080
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (42,321     (36,148

Other

     242       107  
  

 

 

   

 

 

 

Net cash used in investing activities

     (42,079     (36,041
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings under revolving line of credit

     487,823       —    

Payment of dividends

     (39,391     (36,868

Tax withholdings related to stock-based awards

     (28,912     (25,406

Repurchases of common stock

     —         (33,848
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     419,520       (96,122
  

 

 

   

 

 

 

Effect of exchange rates on cash and cash equivalents

     (2,474     (1,028

Net increase (decrease) in cash and cash equivalents

     428,840       (231,271

Cash and cash equivalents at beginning of period

     432,162       338,954  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $         861,002     $         107,683  
  

 

 

   

 

 

 

 

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Exhibit 1

 

1st Quarter GAAP to Non-GAAP Reconciliation

(unaudited)

(Dollars in thousands, except per share data)

 

     Thirteen Weeks Ended  
     May 3, 2020     May 5, 2019  
     $     % of
revenues
    $     % of
revenues
 

Gross profit

   $ 414,260       33.5   $ 444,331       35.8

Outward-related1

     —           535    

Employment-related expense2

     —           30    

Inventory write-off3

     11,378               —            

Non-GAAP gross profit

   $ 425,638       34.5   $ 444,896       35.9
   

Selling, general and administrative expenses

   $ 365,615       29.6   $ 370,199       29.8

Outward-related1

     (3,358       (5,877  

Employment-related expense2

     —           (6,496  

Asset impairment4

     (15,620             —            

Non-GAAP selling, general and administrative expenses

   $ 346,637       28.1   $ 357,826       28.9
   
     $     % of
revenues
    $     % of
revenues
 

Operating income

   $ 48,645       3.9   $ 74,132       6.0

Outward-related1

     3,358         6,412    

Employment-related expense2

     —           6,526    

Inventory write-off3

     11,378         —      

Asset impairment4

     15,620               —            

Non-GAAP operating income

   $ 79,001       6.4   $ 87,070       7.0
   
     $     Tax rate     $     Tax rate  

Income taxes

   $ 11,063       23.8   $ 19,223       26.7

Outward-related1

     741         1,428    

Employment-related expense2

     —           (289  

Inventory write-off3

     2,940         —      

Asset impairment4

     4,037               —            

Non-GAAP income taxes

   $ 18,781       24.5   $ 20,362       24.0
   

Diluted EPS

   $ 0.45       $ 0.66    

Outward-related1

     0.03         0.06    

Employment-related expense2

     —           0.09    

Inventory write-off3

     0.11         —      

Asset impairment4

     0.15               —            

Non-GAAP diluted EPS*

   $ 0.74             $ 0.81          
   
*

Per share amounts may not sum due to rounding to the nearest cent per diluted share

 

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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 Q1 2020, we incurred approximately $3.4 million associated with acquisition-related compensation expense and amortization of acquired intangibles for Outward, Inc. and, during Q1 2019, we incurred approximately $6.4 million associated with acquisition-related compensation expense and amortization of acquired intangibles, as well as the operations of Outward, Inc.

 

2

During Q1 2019, we incurred approximately $6.5 million of employment-related expense that was primarily associated with severance-related reorganization expenses.

 

3

During Q1 2020, we incurred approximately $11.4 million of inventory write-offs for inventory with minor damage that we could not liquidate through our outlets due to store closures resulting from COVID-19.

 

4

During Q1 2020, we incurred approximately $15.6 million of expense associated with store asset impairments due to the impact that COVID-19 had on our retail stores.

Return on Invested Capital (“ROIC”)

We believe ROIC is a useful financial measure for investors in evaluating the efficient and effective use of capital, and is an important component of long-term shareholder return. We define ROIC as non-GAAP net operating profit after tax (NOPAT), divided by our average invested capital. NOPAT is defined as non-GAAP operating income, plus rent expense, less estimated taxes at the company’s effective tax rate. Average invested capital is defined as the two-year average of total assets less current liabilities, plus capitalized leases, less cash in excess of $200 million.

ROIC is not a measure of financial performance under GAAP, and should be considered in addition to, and not as a substitute for other financial measures prepared in accordance with GAAP. Our method of determining ROIC may differ from other companies’ methods and therefore may not be comparable.

 

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