Williams-Sonoma(WSM) - 2023 Q4 - Annual Report

Part I Business 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] - Key business differentiators are identified as in-house design, a digital-first channel strategy, and strong company values[19] - 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] - In fiscal 2022, approximately 67% of merchandise purchases were sourced from foreign vendors, predominantly in Asia and Europe[30] - The business experiences significant seasonal variations, with a large portion of net revenues and earnings historically realized in the fourth quarter[32] Risk Factors 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][63] - 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][109] - 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][83] - Supply chain disruptions, including reliance on third-party carriers and potential labor disputes, could harm timely delivery of merchandise and increase costs[67][68] - The company's ESG goals expose it to risks, including increased costs, reputational damage if goals are not met, and evolving reporting standards[77][78][80] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[148] Properties 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] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[156] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - In March 2023, the Board of Directors authorized a new stock repurchase program for $1 billion, which replaced the existing program[165] 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 FY2022 net revenues grew 5.2% to $8.67 billion, while gross margin declined and operating cash flow decreased Results of Operations 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] - 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] Liquidity and Capital Resources 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][210][212] 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][204] Critical Accounting Estimates 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][222] - In fiscal 2022, impairment charges of $15.6 million were recognized for underperforming stores and assets in the Outward, Inc subsidiary[224][226] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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][333] Financial Statements and Supplementary Data 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] - 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][360] Controls and Procedures 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] - 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] Part III Part III incorporates information by reference from the company's 2023 Proxy Statement for several items Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accountant Fees and Services 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] Part IV This part lists the financial statements, schedules, and exhibits filed with the Form 10-K Exhibits and Financial Statement Schedules 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] - 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][395] Form 10-K Summary The company reports that there is no Form 10-K summary - None[394]