Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third fiscal quarter ended November 1, 2015 (“Q3 15”) versus the third fiscal quarter ended November 2, 2014 (“Q3 14”).

3rd QUARTER 2015 RESULTS

          –   Q3 15 net revenues grew 7.8% to $1.232 billion versus $1.143 billion in Q3 14 with comparable brand revenue growth of 4.5%.
 
– Q3 15 operating margin was 9.0% versus 9.2% in Q3 14.
 
– Q3 15 diluted earnings per share (“EPS”) was $0.77 versus $0.68 in Q3 14.
 
– Cash returned to stockholders totaled $103 million, comprising $71 million in stock repurchases and $32 million in dividends.
 

Laura Alber, President and Chief Executive Officer, commented, “We are pleased with our solid third quarter results, which speak to the power of our brands and our ability to execute our customer-focused strategy. We achieved total net revenue growth of 8%, EPS growth of 13%, and we are reiterating our full year guidance. Looking ahead, while the retail landscape and consumer demand has been more volatile, we believe our balanced portfolio of differentiated brands and strong multi-channel platform positions us for ongoing market share gains. Our focus remains on executing our strategic initiatives to drive long-term sustainable growth for our shareholders.”

Net revenues increased to $1.232 billion in Q3 15 from $1.143 billion in Q3 14.

Comparable brand revenue growth in Q3 15 increased 4.5% on top of 8.7% in Q3 14 as shown in the table below:

             

3rd Quarter Comparable Brand Revenue Growth by Concept*

 
     

Q3 15

     Q3 14

Pottery Barn

   

2.0%

   

7.0%

Williams-Sonoma 1.2% 4.3%
West Elm 15.7% 17.4%
Pottery Barn Kids 4.7% 8.6%
PBteen     (0.9%)     11.7%

Total

     4.5%     8.7%
* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue growth.
 

E-commerce net revenues in Q3 15 increased 7.0% to $628 million from $587 million in Q3 14. E-commerce net revenues generated 51% of total company net revenues in both Q3 15 and Q3 14.

Retail net revenues in Q3 15 increased 8.6% (4.3% excluding international growth) to $604 million from $556 million in Q3 14.

Operating margin in Q3 15 was 9.0% compared to 9.2% in Q3 14:

          –   Gross margin was 36.6% in Q3 15 versus 37.7% in Q3 14.
 
– Selling, general and administrative (“SG&A”) expenses were $341 million, or 27.6% of net revenues in Q3 15, versus $327 million, or 28.6% of net revenues, in Q3 14.
 

EPS in Q3 15 was $0.77 versus $0.68 in Q3 14.

Merchandise inventories at the end of Q3 15 increased 12.5% to $1.102 billion from $980 million at the end of Q3 14.

STOCK REPURCHASE PROGRAM

During Q3 15, we repurchased 922,127 shares of common stock at an average cost of $77.54 per share and a total cost of approximately $71 million. As of November 1, 2015, there was approximately $90 million remaining under our $750 million stock repurchase program announced in March 2013.

FISCAL YEAR 2015 FINANCIAL GUIDANCE

 

4th Quarter 2015 Guidance Financial Highlights

   
Total Net Revenues (millions) $1,575 – $1,630
Comparable Brand Revenue Growth 2% – 5%
Diluted EPS $1.53 – $1.62
       
 

Fiscal Year 2015 Guidance Financial Highlights
(Includes impact of the west coast port slowdown)*

 
Total Net Revenues (millions) $4,965 – $5,020
Comparable Brand Revenue Growth 4% – 6%
Operating Margin 10.2% – 10.5%
Diluted EPS $3.36 – $3.45
Income Tax Rate 38.3% – 38.8%
Capital Spending (millions) $200 – $220
Depreciation and Amortization (millions) $170 – $180
 

* We have estimated the impact of the west coast port slowdown to be an
  approximate $30 million to $40 million reduction in net revenues and a $0.10 to
  $0.12 reduction in EPS in fiscal year 2015.

 
 

Store Opening and Closing Guidance by Retail Concept*

   
FY 2014 ACT FY 2015 GUID
Total New     Close     End
Williams-Sonoma     243 5     (10)     238
Pottery Barn 199 4 (6) 197
Pottery Barn Kids 85 6 (3) 88
West Elm 69 18 - 87
Rejuvenation     5 1     -     6
Total     601 34     (19)     616

* Included in the FY 14 store count are 13 stores in Australia and one
  store in the UK. FY 15 guidance includes six additional Australian stores.

 

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 19, 2015, 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.

SEC REGULATION G — NON-GAAP INFORMATION

We have reconciled non-GAAP diluted EPS with the most directly comparable GAAP financial measure in Exhibit 1. This non-GAAP financial measure excludes the impact of unusual business events which occurred in FY 14. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our FY 15 guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

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 market share; our strategic initiatives; our future financial guidance, including Q4 15 and FY 2015 guidance; our stock repurchase program; the impact of the west coast port slowdown; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q3 15; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; 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; 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 1, 2015 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. 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 eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 623 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East, the Philippines and Mexico.

   
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended November 1, 2015 and November 2, 2014
(Dollars and shares in thousands, except per share amounts)
 

3rd Quarter

     
2015 2014
$  

% of
Revenues

$  

% of
Revenues

E-commerce net revenues

$

628,191

 

51.0

%

$

586,976

 

51.3

%

Retail net revenues   603,891   49.0     556,186   48.7  
Net revenues 1,232,082 100.0 1,143,162 100.0
 
Cost of goods sold   780,894   63.4     711,755   62.3  
Gross profit 451,188 36.6 431,407 37.7
 
Selling, general and administrative expenses   340,505   27.6     326,687   28.6  
Operating income 110,683 9.0 104,720 9.2
 
Interest (income) expense, net   342   -     117   -  
Earnings before income taxes 110,341 9.0 104,603 9.2
 
Income taxes   39,859   3.2     39,695   3.5  
Net earnings $ 70,482   5.7 % $ 64,908   5.7 %
 
Earnings per share (EPS):
Basic $0.78 $0.70
Diluted $0.77 $0.68
 
Shares used in calculation of EPS:
Basic 90,437 93,067
Diluted 91,801 94,920
 
 
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirty-nine weeks ended November 1, 2015 and November 2, 2014
(Dollars and shares in thousands, except per share amounts)
   

Year-to-Date

     
2015 2014
$  

% of
Revenues

$  

% of
Revenues

E-commerce net revenues $ 1,730,677   51.1 % $ 1,600,854   50.7 %

Retail net revenues

 

1,659,109

 

48.9

 

 

1,555,740

 

49.3

 
Net revenues 3,389,786 100.0 3,156,594 100.0
 
Cost of goods sold   2,153,132   63.5     1,974,681   62.6  
Gross profit 1,236,654 36.5 1,181,913 37.4
 
Selling, general and administrative expenses   970,700   28.6     917,531   29.1  
Operating income 265,954 7.8 264,382 8.4
 
Interest (income) expense, net   625   -     88   -  
Earnings before income taxes 265,329 7.8 264,294 8.4
 
Income taxes   96,389   2.8     102,477   3.2  
Net earnings $ 168,940   5.0 % $ 161,817   5.1 %
 
Earnings per share (EPS):
Basic $1.85 $1.72
Diluted $1.82 $1.69
 
Shares used in calculation of EPS:
Basic 91,129 93,862
Diluted 92,576 95,603
 
 
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
                 
Nov. 1, 2015 Feb. 1, 2015 Nov. 2, 2014
Assets
Current assets
Cash and cash equivalents $

72,264

$ 222,927 $ 107,703
Accounts receivable, net 88,535 67,465 63,664
Merchandise inventories, net 1,102,349 887,701 979,719
Prepaid catalog expenses 35,762 33,942 39,116
Prepaid expenses 59,276 36,265 56,517
Deferred income taxes, net 130,684 130,618 121,380
Other assets   12,966     13,005     14,816  
Total current assets   1,501,836     1,391,923     1,382,915  
 
Property and equipment, net 883,459 883,012 866,670
Non-current deferred income taxes, net 2,560 4,265 4,142
Other assets, net   47,821     51,077     50,220  
Total assets $ 2,435,676   $ 2,330,277   $ 2,303,947  
 
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 395,033 $ 397,037 $ 411,232
Accrued salaries, benefits and other 115,720 136,012 117,410
Customer deposits 293,317 261,679 265,058
Borrowings under revolving line of credit 200,000 - 90,000
Income taxes payable 35,317 32,488 4,750
Current portion of long-term debt - 1,968 1,968
Other liabilities   55,152     46,764     46,134  
Total current liabilities   1,094,539     875,948     936,552  
 
Deferred rent and lease incentives 174,059 166,925 168,078
Other long-term obligations   50,545     62,698     62,942  
Total liabilities   1,319,143     1,105,571     1,167,572  
 
 
Stockholders’ equity

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

- - -

Common stock: $.01 par value; 253,125 shares authorized;
  90,010, 91,891 and 92,219 shares issued and outstanding
  at November 1, 2015, February 1, 2015 and November 2,
  2014, respectively

901 919 923
Additional paid-in capital 538,737 527,261 519,783
Retained earnings 585,928 701,214 612,611

Accumulated other comprehensive income (loss)

(7,127 ) (2,548 ) 5,203
Treasury stock, at cost   (1,906 )   (2,140 )   (2,145 )
Total stockholders’ equity   1,116,533     1,224,706     1,136,375  
     
Total liabilities and stockholders’ equity $ 2,435,676   $ 2,330,277   $ 2,303,947  
 
 
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Thirty-nine weeks ended November 1, 2015 and November 2, 2014
(Dollars in thousands)
 
    Year-to-Date
         
2015 2014
Cash flows from operating activities
Net earnings $ 168,940 $ 161,817
 
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 125,093 121,135
Loss on disposal/impairment of assets 3,558 1,581
Amortization of deferred lease incentives (18,326 ) (18,577 )
Deferred income taxes (13,526 ) (13,031 )
Tax benefit related to stock-based awards 29,603 49,451
Excess tax benefit related to stock-based awards (14,283 ) (24,408 )
Stock-based compensation expense 36,182 34,729
Other 91 352
 
Changes in:
Accounts receivable (21,875 ) (4,455 )
Merchandise inventories (216,294 ) (165,839 )
Prepaid catalog expenses (1,820 ) (5,560 )
Prepaid expenses and other assets (20,909 ) (22,000 )
Accounts payable (10,179 ) 8,193
Accrued salaries, benefits and other current and long-term liabilities (13,494 ) (12,242 )
Customer deposits 32,016 36,897
Deferred rent and lease incentives 25,561 18,392
Income taxes payable   2,707     (44,634 )
Net cash provided by operating activities   93,045     121,801  
 
Cash flows from investing activities:
Purchases of property and equipment (136,069 ) (131,670 )
Restricted cash receipts - 14,289
Other   535     1,205  
Net cash used in investing activities   (135,534 )   (116,176 )
 
Cash flows from financing activities:
Borrowings under revolving line of credit 200,000 90,000
Repurchase of common stock (196,497 ) (195,235 )
Payment of dividends (96,020 ) (95,267 )
Tax withholdings related to stock-based awards (31,019 ) (53,440 )
Excess tax benefit related to stock-based awards 14,283 24,408
Net proceeds related to stock-based awards 2,647 3,511
Repayments of long-term obligations (1,968 ) (1,785 )
Other   -     (4 )
Net cash used in financing activities   (108,574 )   (227,812 )
 
Effect of exchange rates on cash and cash equivalents 400 (231 )
Net decrease in cash and cash equivalents (150,663 ) (222,418 )
Cash and cash equivalents at beginning of period   222,927     330,121  
Cash and cash equivalents at end of period $ 72,264   $ 107,703  
 
 

Exhibit 1

3rd Quarter Operating Margin By Segment*

($ in thousands)

             
      E-commerce   Retail   Unallocated   Total  
      Q3 15     Q3 14   Q3 15     Q3 14   Q3 15     Q3 14   Q3 15     Q3 14  
Net Revenues $ 628,191     $

586,976

$ 603,891     $ 556,186 $ -   $ - $ 1,232,082     $ 1,143,162
Operating Income/(Expense)       137,828       136,617     49,213       49,973     (76,358 )     (81,870 )   110,683       104,720  
Operating Margin      

21.9%

 

   

23.3%

 

 

8.1%

 

   

9.0%

 

 

(6.2%

)

    

(7.2%

)

 

 

9.0%

 

   

9.2%

 

* See the Company’s 10-K and 10-Q filings for additional information on segment reporting and the definition of Operating
  Income/(Expense) and Operating Margin.

 
                                     
Reconciliation of Quarterly and Fiscal Year Actual GAAP to Non-GAAP
Diluted Earnings Per Share**

(Totals rounded to the nearest cent per diluted share)

                         
     

Q1 15
ACT

      

Q2 15
ACT

      

Q3 15
ACT

      

Q4 15
GUID

    

FY 15
GUID

2015 GAAP Diluted EPS     $0.48       $0.58      

$0.77

       $1.53 - $1.62     $3.36 - $3.45
 
                                     
     

Q1 14
ACT

      

Q2 14
ACT

      

Q3 14
ACT

      

Q4 14
ACT

    

FY 14
ACT

2014 GAAP Diluted EPS $0.48 $0.53 $0.68 $1.57 $3.24
Impact of Unusual Business Events (1)     -       -       -       (0.05)     (0.04)

2014 Non-GAAP Diluted EPS Excluding Unusual
Business Events (2)

     $0.48       $0.53       $0.68       $1.52     $3.20

** Due to the differences between the quarterly and year-to-date weighted average share count calculations and rounding to
  the nearest cent per diluted share, totals may not equal the sum of the line items and fiscal year diluted EPS may not
  equal the sum of the quarters.

       

Store Statistics

 

    Store Count    

Avg. Leased Square Footage
Per Store

 

    Aug. 2, 2015     Openings     Closings     Nov. 1, 2015     Nov. 2, 2014 Nov. 1, 2015     Nov. 2, 2014
Williams-Sonoma     241     4     (2)     243     248 6,600     6,600
Pottery Barn 199 2 (1) 200 198 13,700 13,700
Pottery Barn Kids 89 1 - 90 85 7,500 7,700
West Elm 78 6 - 84 68 13,400 13,800
Rejuvenation     5     1     -     6     4 9,000     13,200
Total     612     14     (3)     623     603 9,900     9,900
 
                     
Aug. 2, 2015 Nov. 1, 2015 Nov. 2, 2014
Total store selling square footage 3,771,000 3,839,000 3,688,000
Total store leased square footage 6,088,000     6,188,000           5,988,000    
 
 

Notes:

(1)     Impact of Unusual Business Events – During FY 14, we received our share of the VISA/MasterCard antitrust litigation settlement. This settlement (a benefit) totaled approximately $0.04 per diluted share in FY 14, and is recorded in SG&A expenses within the unallocated segment.
 
(2) SEC Regulation G – Non-GAAP Information – This table includes non-GAAP diluted EPS. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our FY 15 guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.