Williams-Sonoma(WSM) - 2025 Q1 - Quarterly Report

Revenue Performance - Net revenues in Q1 2024 decreased by $95.1 million or 5.4%, with a company comparable brand revenue decline of 4.9%[70] - Pottery Barn saw a 10.8% comparable brand revenue decline in Q1 2024, with a 11.2% decline on a two-year basis and 3.4% growth on a three-year basis[71] - West Elm experienced a 4.1% brand comp decline in Q1 2024, with a 19.9% decline on a two-year basis and 7.1% decline on a three-year basis[72] - Williams Sonoma brand saw 0.9% brand comp growth in Q1 2024, with a 3.5% decline on a two-year basis and 5.7% decline on a three-year basis[73] - Comparable brand revenue growth for Pottery Barn declined by 10.8% in Q1 fiscal 2024, while West Elm declined by 4.1%, Williams Sonoma grew by 0.9%, and Pottery Barn Kids and Teen grew by 2.8%[81] Profitability and Margins - Gross profit increased by $127.5 million or 18.9% in Q1 2024 compared to Q1 2023, with gross margin rising to 48.3% from 38.5%[86] - Gross profit decreased by $153.5 million (18.5%) in Q1 fiscal 2023 compared to Q1 fiscal 2022, with gross margin declining to 38.5% from 43.8%[87] Earnings and Tax - Diluted earnings per share for Q1 2024 was $4.07, including a $0.59 benefit from an out-of-period adjustment[75] - The effective tax rate for Q1 fiscal 2024 was 21.8%, down from 23.6% in Q1 fiscal 2023, due to higher excess tax benefits from stock-based compensation[90] - The company's subsidiaries are not subject to Pillar Two minimum tax in Q1 fiscal 2024 under the OECD Safe Harbor rules[92] Cash Flow and Financial Position - The company held $1.3 billion in cash and cash equivalents as of April 28, 2024, with $226.8 million in operating cash flow generated in Q1 2024[76] - Net cash provided by operating activities for Q1 fiscal 2024 was $226.8 million, a decrease from $342.5 million in Q1 fiscal 2023, primarily due to a decrease in accounts payable[104] - Net cash used in investing activities for Q1 fiscal 2024 was $39.5 million, compared to $49.9 million in Q1 fiscal 2023, primarily for technology, supply chain enhancements, and store construction[105] - Net cash used in financing activities for Q1 fiscal 2024 was $193.7 million, a decrease from $362.4 million in Q1 fiscal 2023, primarily due to lower common stock repurchases[106] Credit and Borrowings - The company has a $500 million unsecured revolving line of credit, with no borrowings during Q1 2024[99] - The company's Revolver has a variable interest rate, but no borrowings were made under it during Q1 fiscal 2024[110] Operational Adjustments and Expenses - The company identified a cumulative over-recognition of freight expense of $49.0 million for fiscal years 2021-2023, which was adjusted in Q1 2024[74] - SG&A increased by $3.1 million or 0.7% in Q1 2024 compared to Q1 2023, with SG&A as a percentage of net revenues rising to 28.8% from 27.1%[89] Seasonal Variations - The company's business is subject to seasonal variations, with higher revenues and net earnings typically realized from October through January[107] Foreign Currency Exposure - The company's operations in Canada, Australia, the UK, Asia, and Europe expose it to foreign currency exchange rate fluctuations, but most purchases and sales are denominated in U.S. dollars, limiting this risk[113] - Some foreign operations have a functional currency other than the U.S. dollar, but the impact of exchange rate fluctuations was not material in Q1 fiscal 2024 or Q1 fiscal 2023[113] - A hypothetical 10% change in foreign currency exchange rates would not have a material impact on the company's historical or current financial statements[113] - The company may hedge a portion of its foreign currency exposure using foreign currency forward contracts to mitigate risk as it expands globally[113] Internal Controls - The company's disclosure controls and procedures were evaluated as effective as of April 28, 2024[115]