SAN FRANCISCO--(BUSINESS WIRE)--Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the second fiscal quarter ended August 2, 2020 (“Q2 20”) versus the second fiscal quarter ended August 4, 2019 (“Q2 19”). “We delivered an exceptional second quarter with net comp growth of 10.5% and demand comp growth of almost 19%, operating margin expansion to nearly double that of last year, and record earnings growth of over 100%. E-commerce again drove our results growing 46% in the quarter, and our stores performed better-than-expected, improving throughout the quarter as we re-opened. In a time when home is more important than ever, we have taken this opportunity to push our longer term plans. We will: Our digital-first strategy, our trusted and curated brands, our omni-channel approach, and our commitment to sustainability will continue to provide a powerful source of differentiation and competitive advantage as we execute against these priorities,” said Laura Alber, President and Chief Executive Officer. “As always, and especially in challenging times, what makes us proud as a company goes well beyond the products we sell. In the last several months, we have witnessed not only the ongoing impact of a global pandemic but also heartbreaking reminders of racial injustice in our country,” Alber continued. “As we continue to support COVID-19 relief efforts in our communities, we are also taking action to help drive positive change and create a more equitable, inclusive future for all. These are extraordinary times that require us to continuously evolve and rethink how we best serve all our stakeholders. We are rising to the challenge, learning and adapting, and leading with our values in everything we do.” Alber concluded, “Longer term, we believe the behavioral changes and industry shifts that have emerged from the pandemic will persist and continue to favor our business. We are investing in the next phase of our growth and the opportunities that position us for accelerated market share gain.” SECOND QUARTER 2020 Net revenue growth of 8.8% to $1.491 billion, driven by a significant acceleration in e-commerce revenue growth to approximately 46% E-commerce penetration reached an all-time high of almost 76% of total company revenues Demand comparable brand revenue growth of almost 19%, which includes orders placed but not yet filled in the quarter (See Exhibit 1) Net comparable brand revenue growth of 10.5%, with sequential and year-over-year acceleration in nearly all brands, including Williams Sonoma at a record 29.4%, Pottery Barn at 8.1% and West Elm at 7.0% Gross margin expansion of 160bps, driven by higher year-over-year merchandise margins and occupancy leverage Occupancy costs were $166 million, down 5.8% from last year and leveraging 170bps GAAP SG&A leverage of approximately 450bps; non-GAAP SG&A leverage of approximately 460bps, reflecting substantially higher advertising ROI and the positive impact of cost reductions across the business, combined with the strength of our topline performance GAAP operating margin of 12.4%; non-GAAP operating margin of 13.1%, nearly double that of last year and the highest quarterly operating margin performance outside of a holiday fourth quarter GAAP diluted EPS of $1.70; non-GAAP diluted EPS of $1.80, nearly 107% higher than last year Maintains strong liquidity position of $948 million in cash, including approximately $216 million in operating cash flow resulting from our strong Q2 20 performance Board of Directors declares quarterly cash dividend of $0.48 per common share, reflecting strong commitment to shareholder returns GUIDANCE Given the dynamic nature of the COVID-19 crisis and the continuing macroeconomic uncertainty that could impact its performance, the company is not providing guidance for fiscal year 2020. Long-Term Financial Guidance Total net revenues growth of mid to high single digits Non-GAAP operating margin expansion Above-industry average ROIC (See Exhibit 1) CONFERENCE CALL AND WEBCAST INFORMATION Williams-Sonoma, Inc. will host a live conference call today, August 26, 2020, 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 This press release includes non-GAAP financial measures. Exhibit 1 provides reconciliations of these non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential variability and limited visibility of excluded items; these excluded items include expenses related to the acquisition of Outward, Inc., inventory-related charges and store asset impairments due to the impact of COVID-19. We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance on a comparable basis with prior periods. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. In addition, certain other items may be excluded from non-GAAP financial measures when the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for or superior to the GAAP financial measures presented in this press release and our financial statements and other publicly filed reports. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies. 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 ability to capture significant opportunities in the home furnishings industry and increase our market share; our ability to continue to improve performance; the sustainability of our online growth; our ability to fill all of the orders placed in the quarter; the quality of our product pipeline; expected improvements in our inventory position; the long-term impact of the pandemic on behavioral changes and industry shifts; our focus on operational excellence; our ability to improve customers’ experience; our optimism about the future; our ability to maximize growth and maintain high profitability; and our long-term financial targets. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; the impact of the coronavirus on our global supply chain, retail store operations and customer demand, 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; the impact of current and potential future tariffs and our ability to mitigate impacts; 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 2, 2020 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. We have not filed our Form 10-Q for the quarter ended August 2, 2020. As a result, all financial results described here should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates that are identified prior to the time we file the Form 10-Q. 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 distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, Pottery Barn Teen, Williams Sonoma Home, Rejuvenation, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and retail stores. These brands are also part of The Key Rewards, our free-to-join loyalty program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, offer international shipping to customers worldwide, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico and South Korea, as well as e-commerce websites in certain locations. Condensed Consolidated Statements of Earnings (unaudited) Thirteen Weeks Ended Twenty-six Weeks Ended August 2, 2020 August 4, 2019 August 2, 2020 August 4, 2019 $ % of Revenues $ % of Revenues $ % of Revenues $ % of Revenues Net revenues 1,490,777 100 % 1,370,814 100 % 2,725,980 100 % 2,611,946 100 % Cost of goods sold 939,575 63.0 % 886,953 64.7 % 1,760,518 64.6 % 1,683,754 64.5 % Gross profit 551,202 37.0 % 483,861 35.3 % 965,462 35.4 % 928,192 35.5 % Selling, general and administrative expenses 365,841 24.5 % 397,696 29.0 % 731,456 26.8 % 767,895 29.4 % Operating income 185,361 12.4 % 86,165 6.3 % 234,006 8.6 % 160,297 6.1 % Interest expense, net 6,464 0.4 % 2,669 0.2 % 8,623 0.3 % 4,922 0.2 % Earnings before income taxes 178,897 12.0 % 83,496 6.1 % 225,383 8.3 % 155,375 5.9 % Income taxes 44,333 3.0 % 20,848 1.5 % 55,396 2.0 % 40,071 1.5 % Net earnings 134,564 9.0 % 62,648 4.6 % 169,987 6.2 % 115,304 4.4 % Earnings per share (EPS): Basic $1.73 $0.80 $2.19 $1.47 Diluted $1.70 $0.79 $2.16 $1.45 Shares used in calculation of EPS: Basic 77,783 78,488 77,522 78,586 Diluted 79,264 79,470 78,841 79,633 2nd Quarter Net Revenues and Comparable Brand Revenue Growth (Decline) by Concept* Net Revenues (Millions) Comparable Brand Revenue Growth (Decline) Q2 20 Q2 19 Q2 20 Q2 19 Pottery Barn $ 563 $ 525 8.1 % 4.2 % West Elm $ 381 $ 358 7.0 % 17.5 % Williams Sonoma $ 243 $ 191 29.4 % (1.1 %) Pottery Barn Kids and Teen $ 236 $ 228 4.8 % 3.7 % Other $ 68 $ 69 N/A N/A Total $ 1,491 $ 1,371 10.5 % 6.5 % *See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue, which is calculated on a 13-week to 13-week basis for both Q2 2019 and Q2 2020. Comparable stores that were temporarily closed due to COVID-19 were not excluded from the comparable stores calculation for Q2 2020. Condensed Consolidated Balance Sheets (unaudited) In thousands, except per share amounts August 2, 2020 February 2, 2020 August 4, 2019 ASSETS Current assets Cash and cash equivalents $ 947,760 $ 432,162 $ 120,467 Accounts receivable, net 128,737 111,737 111,114 Merchandise inventories, net 1,042,340 1,100,544 1,187,728 Prepaid expenses 109,495 90,426 117,017 Other current assets 27,098 20,766 21,693 Total current assets 2,255,430 1,755,635 1,558,019 Property and equipment, net 887,401 929,038 913,059 Operating lease right-of-use assets 1,146,229 1,166,383 1,208,528 Deferred income taxes, net 37,789 47,977 38,803 Goodwill 85,419 85,343 85,348 Other long-term assets, net 75,028 69,666 65,924 Total assets $ 4,487,296 $ 4,054,042 $ 3,869,681 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 373,086 $ 521,235 $ 404,337 Accrued expenses 158,407 175,003 127,137 Gift card and other deferred revenue 292,684 289,613 283,108 Income taxes payable 28,502 22,501 13,065 Current debt — 299,818 — Borrowings under revolving line of credit 487,823 — 60,000 Operating lease liabilities 221,575 227,923 222,978 Other current liabilities 102,086 73,462 76,254 Total current liabilities 1,664,163 1,609,555 1,186,879 Deferred rent and lease incentives 24,684 27,659 28,618 Long-term debt 298,995 — 299,719 Long-term operating lease liabilities 1,080,622 1,094,579 1,148,031 Other long-term liabilities 85,910 86,389 84,831 Total liabilities 3,154,374 2,818,182 2,748,078 Stockholders’ equity Preferred stock: $.01 par value; 7,500 shares authorized; none issued — — — Common stock: $.01 par value; 253,125 shares authorized; 77,796, 77,137 and 78,203 shares issued and outstanding at August 2, 2020, February 2, 2020 and August 4, 2019, respectively 778 772 783 Additional paid-in capital 608,892 605,822 584,828 Retained earnings 736,772 644,794 552,454 Accumulated other comprehensive loss (12,921 ) (14,587 ) (15,488 ) Treasury stock, at cost (599 ) (941 ) (974 ) Total stockholders’ equity 1,332,922 1,235,860 1,121,603 Total liabilities and stockholders’ equity $ 4,487,296 $ 4,054,042 $ 3,869,681 Retail Store Data (unaudited) May 3, 2020 Openings Closings August 2, 2020 August 4, 2019 Williams Sonoma 212 — (2) 210 218 Pottery Barn 201 — — 201 205 West Elm 119 3 (1) 121 112 Pottery Barn Kids 74 — (2) 72 78 Rejuvenation 10 — — 10 10 Total 616 3 (5) 614 623 Condensed Consolidated Statement of Cash Flows (unaudited) Twenty Six Weeks Ended In thousands August 2, 2020 August 4, 2019 Cash flows from operating activities: Net earnings $ 169,987 $ 115,304 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 93,120 93,744 (Gain) loss on disposal/impairment of assets 25,408 (6 ) Amortization of deferred lease incentives (2,975 ) (4,228 ) Non-cash lease expense 108,448 105,437 Deferred income taxes (2,229 ) (8,428 ) Tax benefit related to stock-based awards 12,694 14,110 Stock-based compensation expense 33,395 35,401 Other 255 92 Changes in: Accounts receivable (16,740 ) (4,430 ) Merchandise inventories 60,055 (63,576 ) Prepaid expenses and other assets (30,968 ) (24,506 ) Accounts payable (141,602 ) (127,511 ) Accrued expenses and other liabilities 12,117 (30,677 ) Gift card and other deferred revenue 2,936 (7,173 ) Operating lease liabilities (113,489 ) (111,782 ) Income taxes payable 5,988 (8,407 ) Net cash provided by (used in) operating activities 216,400 (26,636 ) Cash flows from investing activities: Purchases of property and equipment (76,123 ) (77,189 ) Other 241 470 Net cash used in investing activities (75,882 ) (76,719 ) Cash flows from financing activities: Borrowings under revolving line of credit 487,823 60,000 Payment of dividends (79,274 ) (75,453 ) Tax withholdings related to stock-based awards (29,589 ) (25,887 ) Debt issuance costs (1,050 ) — Repurchases of common stock — (72,131 ) Net cash provided by (used in) financing activities 377,910 (113,471 ) Effect of exchange rates on cash and cash equivalents (2,830 ) (1,661 ) Net increase (decrease) in cash and cash equivalents 515,598 (218,487 ) Cash and cash equivalents at beginning of period 432,162 338,954 Cash and cash equivalents at end of period $ 947,760 $ 120,467 $ 551,202 37.0 % $ 483,861 35.3 % $ 965,462 35.4 % $ 928,192 35.5 % - 879 - 1,414 - - - 30 - - 11,378 - $ 551,202 37.0 % $ 484,740 35.4 % $ 976,840 35.8 % $ 929,636 35.6 % $ 365,841 24.5 % $ 397,696 29.0 % $ 731,456 26.8 % $ 767,895 29.4 % (3,341 ) (6,351 ) (6,699 ) (12,228 ) - (623 ) - (7,119 ) (6,355 ) - (21,975 ) - $ 356,145 23.9 % $ 390,722 28.5 % $ 702,782 25.8 % $ 748,548 28.7 % $ 185,361 12.4 % $ 86,165 6.3 % $ 234,006 8.6 % $ 160,297 6.1 % 3,341 7,230 6,699 13,642 - 623 - 7,149 - - 11,378 - 6,355 - 21,975 - $ 195,057 13.1 % $ 94,018 6.9 % $ 274,058 10.1 % $ 181,088 6.9 % $ Tax rate $ Tax rate $ Tax rate $ Tax rate $ 44,333 24.8 % $ 20,848 25.0 % $ 55,396 24.6 % $ 40,071 25.8 % 451 1,536 1,192 2,964 - (493 ) - (782 ) - - 2,940 - 1,287 - 5,324 - $ 46,071 24.4 % $ 21,891 24.0 % $ 64,852 24.4 % $ 42,253 24.0 % $ 1.70 $ 0.79 $ 2.16 $ 1.45 0.04 0.07 0.07 0.13 - 0.01 - 0.10 - - 0.11 - 0.06 - 0.21 - $ 1.80 $ 0.87 $ 2.54 $ 1.68 SEC Regulation G – Non-GAAP Information These tables include non-GAAP gross profit, gross margin, selling, general and administrative expense, operating income, operating margin, income taxes, effective tax rate and diluted EPS. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our quarterly actual results on a comparable basis with prior periods. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Notes to Exhibit 1: Demand comparable brand revenue growth Demand comparable brand revenue growth includes orders placed but not yet filled or charged to the customer in the quarter. Return on Invested Capital (“ROIC”) We believe ROIC is a useful financial measure for investors in evaluating the efficient and effective use of capital, and is an important component of long-term shareholder return. We define ROIC as non-GAAP net operating profit after tax (NOPAT), divided by our average invested capital. NOPAT is defined as non-GAAP operating income, plus rent expense, less estimated taxes at the company’s effective tax rate. Average invested capital is defined as the two-year average of total assets less current liabilities, plus capitalized leases, less cash in excess of $200 million. ROIC is not a measure of financial performance under GAAP, and should be considered in addition to, and not as a substitute for other financial measures prepared in accordance with GAAP. Our method of determining ROIC may differ from other companies’ methods and therefore may not be comparable. WSM-IR