Williams-Sonoma, Inc. (NYSE:WSM) Q2 2023 Earnings Conference Call August 23, 2023 10:00 AM ET Company Participants Jeremy Brooks - Chief Accounting Officer and Head of Investor Relations Laura Alber - President and Chief Executive Officer Jeff Howie - Executive Vice President and Chief Financial Officer Conference Call Participants Max Rakhlenko - TD Cowen Seth Basham - Wedbush Securities Chuck Grom - Gordon Haskett Cristina Fernandez - Telsey Advisory Group Anthony Chukumba - Loop Capital Markets Peter Ben ...

_________________________ FORM 10-Q _________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2023. or UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-14077 _________________________ WILLIAMS-SONOMA, INC. (Exact name of regis ...

Financial Data and Key Metrics Changes - In Q1 2023, net revenues were $1.755 billion, slightly below expectations, with a year-over-year comparable brand revenue growth of negative 6% and a two-year growth of 3.5% [34][35] - The operating margin was 12.9%, down 420 basis points from the previous year but 590 basis points above 2019 levels, demonstrating profitability resilience [42][45] - Diluted earnings per share were $2.64, which is 25% lower than last year's record of $3.50 but significantly above 2019's $0.81 [43] Business Line Data and Key Metrics Changes - Pottery Barn experienced a negative 0.4% net comp in Q1 but a positive 14% on a two-year basis and 54.4% on a four-year basis, with strength in exclusive decorating and textiles categories [15][16] - The West Elm brand faced a negative 15.8% comp in Q1, with a new brand president focusing on design, brand awareness, and product expansion [19][20] - The Williams-Sonoma brand had a negative 4.4% comp in Q1 but a positive 33.9% on a four-year basis, focusing on product exclusivity and innovation [21] Market Data and Key Metrics Changes - Demand trends softened from negative mid-single digits in Q4 to down 10% in Q1, particularly in high-ticket furniture, while high-ticket electronics and kitchen offerings remained strong [14] - The B2B segment saw a total decline of 7%, but the contract side grew mid-double digits, indicating a strong pipeline of projects [22][90] Company Strategy and Development Direction - The company emphasizes a digital-first, design-led strategy, focusing on innovation and sustainability, with the recent launch of the GreenRow brand targeting market white space [9][27] - The company is expanding into global markets, with significant growth in India and the Middle East, and plans to open additional stores in these regions [23][24] Management's Comments on Operating Environment and Future Outlook - Management acknowledges continued uncertainty in the macro environment but remains confident in long-term growth, projecting mid to high-single-digit top-line growth with operating margins exceeding 15% [50][51] - The first half of 2023 is expected to be challenging, but the second half may see easier comparisons and reduced supply chain cost pressures [26][50] Other Important Information - The company was recognized as one of the top 10 companies on Forbes' list of America's best employers for diversity in 2023, highlighting its commitment to a values-based culture [13] - The company undertook a reduction in force and closed a manufacturing facility to drive efficiency, expecting annualized savings of $40 million [32][33] Q&A Session Summary Question: Consumer focus on full-price selling and conveying value - Management noted that despite a cautious consumer environment, customers are still spending on unique products, and the company is positioned to gain market share from competitors like Bed Bath & Beyond [52][53] Question: Revenue guidance and market share gains - Management reiterated that the first half of the year will be tougher, but the second half should see improved demand as headwinds turn into tailwinds [56][58] Question: Product margins and gross margin cadence - Management indicated that selling margins were down 350 basis points due to higher shipping costs and product costs, but expects these pressures to ease in the back half of the year [63][64] Question: Operating margin protection amid weaker consumer trends - Management expressed confidence in maintaining the 14% to 15% operating margin guidance through cost control and efficiency measures [68][71] Question: Backlog status - Management confirmed that the backlog is normalized and not a factor in current results [72] Question: B2B segment performance - Management highlighted strong growth in the contract side of the B2B business, particularly in hospitality and commercial sectors, while the trade side has softened [90][91]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Williams-Sonoma is an omni-channel specialty retailer of home products with a digital-first strategy and in-house design - The company operates as an omni-channel specialty retailer with a portfolio of distinct brands including Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham[20](index=20&type=chunk) - Key business differentiators are identified as **in-house design**, a **digital-first channel strategy**, and strong company values[19](index=19&type=chunk) - As of January 29, 2023, the company operates **530 stores** across the U.S., Puerto Rico, Canada, Australia, and the United Kingdom, supplemented by **138 franchised locations**[29](index=29&type=chunk) - In fiscal 2022, approximately **67% of merchandise purchases** were sourced from foreign vendors, predominantly in Asia and Europe[30](index=30&type=chunk) - The business experiences significant seasonal variations, with a large portion of net revenues and earnings historically realized in the **fourth quarter**[32](index=32&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from consumer spending, supply chain disruptions, cybersecurity threats, and global operations - Business performance is sensitive to consumer spending on home furnishings, which is influenced by **economic conditions, inflation, interest rates, and the housing market**[62](index=62&type=chunk)[63](index=63&type=chunk) - The company faces risks from its reliance on foreign vendors (**67% of purchases**) and global operations, including currency fluctuations, trade policies, and political instability[108](index=108&type=chunk)[109](index=109&type=chunk) - The e-commerce business, representing **over 66% of net revenues**, is vulnerable to risks such as security breaches and evolving data privacy laws like CCPA and CPRA[82](index=82&type=chunk)[83](index=83&type=chunk) - **Supply chain disruptions**, including reliance on third-party carriers and potential labor disputes, could harm timely delivery of merchandise and increase costs[67](index=67&type=chunk)[68](index=68&type=chunk) - The company's ESG goals expose it to risks, including **increased costs, reputational damage** if goals are not met, and evolving reporting standards[77](index=77&type=chunk)[78](index=78&type=chunk)[80](index=80&type=chunk) [Unresolved Staff Comments](index=38&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[148](index=148&type=chunk) [Properties](index=39&type=section&id=Item%202.%20Properties) The company leases extensive retail and distribution space and owns its corporate headquarters and data centers Leased Store Space | Date | Total Leased Store Space (sq. ft.) | Number of Stores | | :--- | :--- | :--- | | Jan 29, 2023 | 5,962,000 | 530 | | Jan 30, 2022 | 6,004,000 | 544 | - The company owns **471,000 square feet** of space, mainly in California, which houses its corporate headquarters and certain data center operations[153](index=153&type=chunk) [Legal Proceedings](index=40&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to have a material adverse effect - The company is involved in ordinary course legal proceedings which are **not currently considered material**[155](index=155&type=chunk) [Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[156](index=156&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company repurchased $880.0 million in stock in FY2022 and authorized a new $1 billion repurchase program - In fiscal 2022, the company repurchased **6,423,643 shares** of common stock for a total cost of **$880.0 million**[165](index=165&type=chunk) - In March 2023, the Board of Directors authorized a new stock repurchase program for **$1 billion**, which replaced the existing program[165](index=165&type=chunk) Five Year Cumulative Total Return Comparison | | 1/28/18 | 2/3/19 | 2/2/20 | 1/31/21 | 1/30/22 | 1/29/23 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Williams-Sonoma, Inc. | $100.00 | $104.33 | $139.37 | $262.59 | $320.43 | $268.67 | | NYSE Composite Index | $100.00 | $94.38 | $107.18 | $116.13 | $137.22 | $135.37 | | S&P Retailing | $100.00 | $108.42 | $127.45 | $180.19 | $195.77 | $160.10 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2022 net revenues grew 5.2% to $8.67 billion, while gross margin declined and operating cash flow decreased [Results of Operations](index=45&type=section&id=7.1%20Results%20of%20Operations) FY2022 revenue growth was driven by Pottery Barn, while higher product costs increased COGS as a percentage of revenue Net Revenues by Brand (Fiscal 2022 vs 2021) | Brand | Fiscal 2022 (in thousands) | Fiscal 2021 (in thousands) | | :--- | :--- | :--- | | Pottery Barn | $3,555,521 | $3,120,687 | | West Elm | $2,278,131 | $2,234,548 | | Williams Sonoma | $1,286,651 | $1,345,851 | | Pottery Barn Kids and Teen | $1,132,937 | $1,139,893 | | Other | $421,177 | $404,957 | | **Total** | **$8,674,417** | **$8,245,936** | Comparable Brand Revenue Growth (Fiscal 2022 vs 2021) | Brand | Fiscal 2022 | Fiscal 2021 | | :--- | :--- | :--- | | Pottery Barn | 14.9% | 23.9% | | West Elm | 2.5% | 33.1% | | Williams Sonoma | (1.7)% | 10.5% | | Pottery Barn Kids and Teen | 0.4% | 11.6% | | **Total** | **6.5%** | **22.0%** | - Cost of goods sold as a percentage of net revenues increased to **57.6% in FY2022** from 56.0% in FY2021, driven by higher product, ocean freight, and shipping costs[195](index=195&type=chunk) - SG&A as a percentage of net revenues decreased to **25.1% in FY2022** from 26.4% in FY2021, mainly due to leverage of employment and advertising costs[198](index=198&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with $367.3 million in cash and an undrawn $500 million credit facility - The company ended fiscal 2022 with **$367.3 million in cash** and cash equivalents and no outstanding borrowings under its **$500 million revolving line of credit**[208](index=208&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) Cash Flow Summary (Fiscal 2022 vs 2021) | Cash Flow Activity | Fiscal 2022 (in billions) | Fiscal 2021 (in billions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1.1 | $1.4 | | Net cash used in investing activities | ($0.35) | ($0.23) | | Net cash used in financing activities | ($1.2) | ($1.5) | - Material cash requirements include **$1.7 billion in operating lease obligations** and approximately **$981.0 million in purchase obligations**[202](index=202&type=chunk)[204](index=204&type=chunk) [Critical Accounting Estimates](index=49&type=section&id=7.3%20Critical%20Accounting%20Estimates) Key estimates include inventory reserves, asset impairment, lease rates, and uncertain tax position reserves - Estimates for merchandise inventory obsolescence are based on historical trends and specific identification; the reserve was **$24.7 million** as of Jan 29, 2023[220](index=220&type=chunk)[222](index=222&type=chunk) - In fiscal 2022, impairment charges of **$15.6 million** were recognized for underperforming stores and assets in the Outward, Inc subsidiary[224](index=224&type=chunk)[226](index=226&type=chunk) - The company had **$37.1 million** of gross unrecognized tax benefits as of January 29, 2023, with a potential decrease of up to **$6.2 million** possible within twelve months[228](index=228&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are from foreign currency fluctuations, which are partially hedged - Interest rate risk is limited as there were **no borrowings** under the variable-rate Revolver during fiscal 2022[231](index=231&type=chunk) - The company is exposed to foreign currency risk and uses **foreign currency forward contracts** to hedge a portion of its Canadian dollar exposure for inventory purchases[234](index=234&type=chunk)[333](index=333&type=chunk) [Financial Statements and Supplementary Data](index=53&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited financial statements, showing $8.67 billion in revenue and $1.13 billion in net earnings Consolidated Statement of Earnings Highlights (Fiscal Year Ended Jan 29, 2023) | Metric | Amount (in thousands) | | :--- | :--- | | Net revenues | $8,674,417 | | Gross profit | $3,677,733 | | Operating income | $1,498,422 | | Net earnings | $1,127,904 | | Diluted earnings per share | $16.32 | Consolidated Balance Sheet Highlights (As of Jan 29, 2023) | Metric | Amount (in thousands) | | :--- | :--- | | Total current assets | $2,036,080 | | Total assets | $4,663,016 | | Total current liabilities | $1,636,451 | | Total liabilities | $2,961,965 | | Total stockholders' equity | $1,701,051 | - The independent auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the financial statements and internal controls over financial reporting[352](index=352&type=chunk) - The auditor identified the **impairment assessment of Property and Equipment** as a critical audit matter due to significant judgments in forecasting future store cash flows[359](index=359&type=chunk)[360](index=360&type=chunk) [Controls and Procedures](index=77&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal controls were effective - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures are effective** as of the end of the fiscal year[365](index=365&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's **internal control over financial reporting was effective** as of January 29, 2023[367](index=367&type=chunk) Part III Part III incorporates information by reference from the company's 2023 Proxy Statement for several items [Directors, Executive Officers and Corporate Governance](index=78&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[374](index=374&type=chunk) [Executive Compensation](index=78&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[375](index=375&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[376](index=376&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=78&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[377](index=377&type=chunk) [Principal Accountant Fees and Services](index=78&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[378](index=378&type=chunk) Part IV This part lists the financial statements, schedules, and exhibits filed with the Form 10-K [Exhibits and Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and provides an index of all exhibits filed with the report - This item lists the consolidated financial statements and the report of the independent registered public accounting firm filed with the 10-K[381](index=381&type=chunk) - An exhibit index is provided, listing all documents filed or incorporated by reference, such as the Certificate of Incorporation, credit agreements, and CEO/CFO certifications[382](index=382&type=chunk)[395](index=395&type=chunk) [Form 10-K Summary](index=81&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[394](index=394&type=chunk)

Financial Data and Key Metrics Changes - The company achieved record revenue of $8.674 billion in fiscal 2022, reflecting a 6.5% year-over-year growth, following a 22% comp in 2021 and a 17% comp in 2020 [30][32] - Diluted earnings per share (EPS) grew by over 11% to $16.54 from $14.85 last year, marking the fourth consecutive year of EPS growth [15][32] - Operating margin for fiscal 2022 was 17.5%, consistent with guidance and demonstrating the resilience of the operating model [31][32] Business Line Data and Key Metrics Changes - Pottery Barn reported a positive 5.8% comp in Q4 and a 14.9% comp for the full year, driven by successful product offerings and growth initiatives [18] - The children's business under Pottery Barn achieved a positive 4% comp in Q4 and 0.4% for the year, with notable growth from baby and dorm categories [19] - West Elm faced challenges with a negative 10.7% comp in Q4, although it maintained a 2.5% comp for the full year [20] - The Williams-Sonoma brand experienced a negative 2.5% comp in Q4 and a negative 1.7% for the full year [23] Market Data and Key Metrics Changes - E-commerce sales represented 66% of total revenues, with a 4.5% comp growth in this channel [30] - The company’s B2B business grew by 27% year-over-year, nearing $1 billion in demand, and is expected to contribute approximately 100 basis points to comps in 2023 [11][61] Company Strategy and Development Direction - The company aims to leverage its in-house design capabilities and vertically integrated sourcing to deliver high-quality, sustainable products [8][9] - Expansion into global markets, particularly through partnerships like the one with Reliance Group in India, is a key growth initiative [12] - The company is focused on reducing costs and managing inventory levels while maintaining a strong emphasis on customer service and profitable growth [24][25] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertain macroeconomic environment, including high interest rates and potential recession impacts, but expressed confidence in the company's ability to navigate these challenges [24][26] - The company anticipates a tough first half of 2023, with guidance for net revenues ranging from down 3% to positive 3% [48] - Long-term growth expectations remain optimistic, with a belief in mid- to high-single-digit top line growth and operating margins exceeding 15% once external conditions improve [26][52] Other Important Information - The company recorded an impairment charge of $17.7 million in Q4 related to software and hardware costs, which was adjusted in non-GAAP results [5] - The company announced a 15% increase in its quarterly dividend payout, marking the 14th consecutive year of dividend increases [51] Q&A Session Summary Question: Divergence between Pottery Barn and West Elm comps - Management noted that Pottery Barn's wider product range and successful seasonal assortment contributed to its performance, while West Elm faced challenges due to demographic shifts and economic conditions [55][56] Question: Expectations for B2B sales growth in 2023 - B2B sales are expected to continue growing, contributing approximately 100 basis points to comps in 2023, with a strong pipeline of projects [61][63] Question: Scenarios for 2023 guidance - Management indicated that the first half of 2023 will be challenging, but the second half may see improved conditions as year-over-year comparisons become easier [66][67] Question: Performance in the first quarter - Recent performance has been inconsistent, similar to Q4, with management focusing on market share opportunities despite macro challenges [74] Question: Sustainability of cost-cutting measures - Management expressed confidence in sustaining cost-cutting measures and highlighted the flexibility of their operating model to manage SG&A effectively [76][78] Question: Consumer demand trends - Management observed mixed performance in high-ticket items, with a focus on remodeling and home improvement as potential growth areas despite lower existing home sales [85][86]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) WILLIAMS-SONOMA, INC. ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-14077 _________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 30, 2022. (Exact name of registrant as specified in its charter) _________________________ De ...

Financial Data and Key Metrics Changes - The company reported net revenues of $2.2 billion, with comparable brand revenue growth of 8.1%, a two-year comp of 25%, and a three-year comp of almost 50% [32] - Gross margin was 41.5%, down 220 basis points from the previous year, primarily due to higher outbound shipping costs and increased furniture mix [33][34] - Operating income grew 2% to $340 million, with a strong operating margin of 15.5%, only 80 basis points below last year [38] Business Line Data and Key Metrics Changes - Pottery Barn achieved a 19.6% comp growth, with a two-year stack of 35.5% and almost 60% on a three-year basis [17] - West Elm reported a 4.2% comp growth in Q3, with a two-year stack of 26.6% and 48.4% on a three-year basis [18] - The Williams-Sonoma brand experienced a negative 1.5% comp in Q3 but positive growth on a two-year and three-year basis [21] Market Data and Key Metrics Changes - The company noted strength in both franchise and company-owned businesses, particularly highlighting opportunities in India and Canada [13][14] - The B2B segment generated over $30 million in demand, marking a 17% increase from the previous year, indicating strong growth potential in an estimated $80 billion total addressable market [10][12] Company Strategy and Development Direction - The company aims to capture more market share in a fragmented industry, leveraging its multi-brand portfolio and in-house design capabilities [8][28] - Sustainability initiatives are a key focus, with goals to plant 6 million trees and recognition for ESG leadership [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic uncertainty affecting consumer behavior but expressed confidence in the company's ability to navigate challenges and take market share [26][48] - The company reiterated its fiscal year '22 guidance of mid to high single-digit revenue growth, despite the unpredictable macroeconomic environment [43][46] Other Important Information - The company ended the quarter with a cash balance of $113 million and no debt, returning over $1 billion to shareholders through dividends and share repurchases [39][40] - Merchandise inventories increased by 33% compared to last year, with ongoing efforts to manage backorders and improve inventory composition [41][42] Q&A Session Summary Question: Inventory levels and comfort with current makeup - Management indicated that inventory levels are up 33% but emphasized the importance of looking at a three-year basis for context, with ongoing efforts to improve inventory composition and location [54] Question: Demand trends and backlog clearance - Demand was described as inconsistent throughout Q3, with expectations that backlog levels will remain elevated into the first half of '23 [60] Question: Performance by brand and customer demographics - Management noted that lower-income customers are more affected by current economic conditions, while the core customer base remains affluent [64] Question: B2B sales expectations - The company remains on track to achieve $1 billion in B2B sales this year, driven by strong demand and a fragmented market [83] Question: Competitive environment and promotions - Management acknowledged increased promotions in the market but reiterated their commitment to maintaining pricing integrity and avoiding site-wide promotions [85] Question: Gross margin pressures - Various headwinds impacting gross margin include higher product costs and shipping expenses, with expectations for these pressures to continue into Q4 and the first half of '23 [88] Question: Retail performance drivers - Retail comp growth of 16.9% was driven by average unit retail (AUR) and traffic, with management optimistic about continued strong performance during the holiday season [94]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q _________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2022. or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-14077 _________________________ WILLIAMS-SONOMA, INC. 3250 Van Ness Avenue, ...

Williams-Sonoma, Inc. (NYSE:WSM) Q2 2022 Earnings Conference Call August 24, 2022 5:00 PM ET Company Participants Jeremy Brooks - Chief Accounting Officer and Head, IR Laura Alber - President and CEO Julie Whalen - EVP and CFO Felix Carbullido - EVP and Chief Marketing Officer Conference Call Participants Max Rakhlenko - Cowen and Company Cristina Fernández - Telsey Advisory Group Adrienne Yih - Barclays Seth Basham - Wedbush Securities Anthony Chukumba - Loop Capital Markets Chuck Grom - Gordon Haskett ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Williams-Sonoma, Inc.'s unaudited Condensed Consolidated Financial Statements for the thirteen weeks ended May 1, 2022, including earnings, balance sheets, cash flows, and accompanying notes [Condensed Consolidated Statements of Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) Net revenues for Q1 2022 reached $1.89 billion, with operating income of $323.5 million and net earnings of $254.1 million, yielding diluted EPS of $3.50 Q1 2022 vs Q1 2021 Statement of Earnings (in thousands, except per share amounts) | Metric | May 1, 2022 | May 2, 2021 | | :--- | :--- | :--- | | Net revenues | $1,891,227 | $1,749,029 | | Gross profit | $828,548 | $752,853 | | Operating income | $323,481 | $275,177 | | Net earnings | $254,113 | $227,802 | | Diluted earnings per share | $3.50 | $2.90 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of May 1, 2022, total assets were $4.21 billion, with cash at $324.8 million and inventories at $1.40 billion, while total liabilities were $2.90 billion and equity was $1.31 billion Key Balance Sheet Items (in thousands) | Metric | May 1, 2022 | January 30, 2022 | May 2, 2021 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $324,835 | $850,338 | $639,670 | | Merchandise inventories, net | $1,396,135 | $1,246,372 | $1,087,528 | | Total assets | $4,210,713 | $4,625,620 | $4,110,240 | | Total liabilities | $2,900,969 | $2,961,413 | $2,662,944 | | Total stockholders' equity | $1,309,744 | $1,664,207 | $1,447,296 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $184.5 million in Q1 2022, with $71.1 million used in investing and $637.7 million in financing activities, resulting in a $525.5 million net cash decrease Cash Flow Summary (in thousands) | Cash Flow Activity | For the Thirteen Weeks Ended May 1, 2022 | For the Thirteen Weeks Ended May 2, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $184,519 | $238,881 | | Net cash used in investing activities | $(71,100) | $(42,267) | | Net cash used in financing activities | $(637,733) | $(759,556) | | Net decrease in cash and cash equivalents | $(525,503) | $(560,667) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide context to the financial statements, detailing accounting policies, borrowing arrangements, segment reporting, and the impact of global supply chain disruptions - Global supply chain disruptions, including factory closures and port congestion, continued into Q1 2022, causing inventory delays and higher costs. These challenges are expected to persist for the remainder of fiscal 2022[27](index=27&type=chunk) Net Revenues by Brand (in thousands) | Brand | For the Thirteen Weeks Ended May 1, 2022 | For the Thirteen Weeks Ended May 2, 2021 | | :--- | :--- | :--- | | Pottery Barn | $774,646 | $679,055 | | West Elm | $536,293 | $477,317 | | Williams Sonoma | $252,220 | $265,607 | | Pottery Barn Kids and Teen | $226,969 | $236,067 | | Other | $101,099 | $90,983 | | **Total** | **$1,891,227** | **$1,749,029** | - In March 2022, the Board authorized a new **$1.5 billion** stock repurchase program. During Q1 2022, the company repurchased **3.38 million shares** for **$501.1 million**, leaving **$1.1 billion** available under the new program[45](index=45&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 financial results, highlighting an 8.1% net revenue increase, 9.5% comparable brand growth, ongoing supply chain challenges, margin improvements, and a strong liquidity position - Q1 2022 net revenues increased by **8.1%** to **$1.89 billion**, with comparable brand revenue growth of **9.5%**, driven by strength in Pottery Barn and West Elm[76](index=76&type=chunk) - The company continues to face global supply chain disruptions, leading to inventory receipt delays, higher costs, and elevated backorders, which are expected to negatively impact inventory levels until the second half of fiscal 2022[75](index=75&type=chunk)[80](index=80&type=chunk) - The company ended the quarter with a strong liquidity position, holding **$324.8 million** in cash, generating **$184.5 million** in operating cash flow, and having no borrowings under its revolving line of credit[79](index=79&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) Q1 2022 operational results show strong top-line growth from Pottery Barn and West Elm, offset by declines in other brands, alongside improved gross margin and reduced SG&A as a percentage of revenue Comparable Brand Revenue Growth | Brand | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Pottery Barn | 14.6% | 41.3% | | West Elm | 12.8% | 50.9% | | Williams Sonoma | (2.2)% | 35.3% | | Pottery Barn Kids and Teen | (3.1)% | 27.6% | | **Total** | **9.5%** | **40.4%** | - Cost of goods sold as a percentage of net revenues decreased from **57.0%** to **56.2%** year-over-year, primarily driven by higher merchandise margins from reduced promotional activity[90](index=90&type=chunk) - Selling, general and administrative expenses as a percentage of net revenues decreased from **27.3%** to **26.7%** year-over-year, mainly due to leverage of employment and advertising costs on higher sales[92](index=92&type=chunk) [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) As of May 1, 2022, the company maintained strong liquidity with $324.8 million in cash and full availability on its $500 million credit facility, funding capital expenditures, stock repurchases, and dividends - The company maintains a **$500 million** unsecured revolving line of credit, which can be increased by up to **$250 million**. As of May 1, 2022, there were no borrowings under the revolver[99](index=99&type=chunk)[100](index=100&type=chunk) - Net cash provided by operating activities decreased to **$184.5 million** in Q1 2022 from **$238.9 million** in Q1 2021, primarily due to an increase in merchandise inventories[103](index=103&type=chunk) - Net cash used in financing activities totaled **$637.7 million**, driven by **$501.1 million** in common stock repurchases and **$58.2 million** in dividend payments[105](index=105&type=chunk)[45](index=45&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=20&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate changes on its variable-rate credit facility and foreign currency fluctuations from international operations, partially mitigated by hedging strategies - The company's revolving credit facility has a variable interest rate, but there were no borrowings under it during the first quarter of fiscal 2022[109](index=109&type=chunk) - The majority of inventory purchases are denominated in U.S. dollars, limiting direct foreign currency transaction risk. However, a decline in the U.S. dollar could lead to increased purchasing costs from vendors[111](index=111&type=chunk) - To mitigate risks from foreign operations with functional currencies other than the U.S. dollar, the company hedges a portion of its foreign currency exposure with forward contracts[112](index=112&type=chunk) [Controls and Procedures](index=20&type=section&id=Item%204.%20Controls%20and%20Procedures) As of May 1, 2022, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period[113](index=113&type=chunk) - No changes occurred in internal control over financial reporting during the first quarter of fiscal 2022 that materially affected, or are reasonably likely to materially affect, these controls[114](index=114&type=chunk) [PART II. OTHER INFORMATION](index=21&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=21&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various lawsuits and claims incidental to ordinary business, none of which are expected to have a material adverse effect on financial statements - The company is involved in lawsuits, claims, and proceedings in the ordinary course of business, which are not currently considered material[44](index=44&type=chunk)[116](index=116&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the company's risk factors during Q1 2022; a comprehensive description is available in the Annual Report on Form 10-K - There were no material changes to the company's risk factors during the current quarterly reporting period[117](index=117&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=21&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In March 2022, a new $1.5 billion stock repurchase program was authorized, under which the company repurchased 3.38 million shares for $501.1 million in Q1 2022, with $1.07 billion remaining - A new stock repurchase program for **$1.5 billion** was authorized in March 2022, replacing the existing program[118](index=118&type=chunk) Common Stock Repurchases in Q1 2022 | Fiscal Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Jan 31 - Feb 27, 2022 | 432,841 | $161.72 | $740,751,000 | | Feb 28 - Mar 27, 2022 | 443,234 | $151.01 | $1,433,068,000 | | Mar 28 - May 1, 2022 | 2,503,656 | $145.44 | $1,068,925,000 | | **Total** | **3,379,731** | **$148.26** | **$1,068,925,000** | [Exhibits](index=22&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Exhibits filed with this report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and financial data in Inline XBRL format (101, 104)[126](index=126&type=chunk)