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Williams-Sonoma(WSM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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 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 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 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 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 202227 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 program45 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 Elm76 - 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 20227580 - 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 credit79 Results of Operations 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 activity90 - 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 sales92 Liquidity and Capital Resources 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 revolver99100 - 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 inventories103 - 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 payments10545 Quantitative and Qualitative Disclosures About Market Risk 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 2022109 - 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 vendors111 - 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 contracts112 Controls and Procedures 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 period113 - 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 controls114 PART II. OTHER INFORMATION Legal Proceedings 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 material44116 Risk Factors 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 period117 Unregistered Sales of Equity Securities and Use of Proceeds 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 program118 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 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