Williams-Sonoma, Inc. beats first quarter 2016 estimates
Net revenues grow 6.5% with comparable brand revenue growth of 4.5%
GAAP EPS of $0.44, non-GAAP EPS increases 10.4% to $0.53

Reiterates full-year guidance

SAN FRANCISCO--()--Williams-Sonoma, Inc. (NYSE:WSM) today announced operating results for the first fiscal quarter ended May 1, 2016 (“Q1 16”) versus the first fiscal quarter ended May 3, 2015 (“Q1 15”).

1st QUARTER 2016 RESULTS

       

  Q1 16 net revenues grew 6.5% to $1.098 billion versus $1.031 billion in Q1 15 with comparable brand revenue growth of 4.5%.

 

Q1 16 operating margin was 5.8% versus 7.0% in Q1 15. Excluding unusual business events due to severance-related reorganization charges of approximately $13 million (see Note 1 in Exhibit 1), non-GAAP operating margin was 7.0% in Q1 16. See Exhibit 1 for a reconciliation of GAAP to non-GAAP operating margin.
 

Q1 16 diluted earnings per share (“EPS”) was $0.44 versus $0.48 in Q1 15. Excluding unusual business events due to severance-related reorganization charges of approximately $0.09 per diluted share, non-GAAP EPS was $0.53 in Q1 16. See Exhibit 1 for a reconciliation of GAAP to non-GAAP EPS.
 

Cash returned to stockholders totaled $75 million, comprising $41 million in stock repurchases and $34 million in dividends.

Laura Alber, President and Chief Executive Officer, commented, “In the first quarter we saw accelerated growth in West Elm and Williams-Sonoma, as well as improvement across the Pottery Barn brands. We also saw positive results from our inventory and supply chain initiatives. We believe our strong brands and profitable multi-channel strategy create a sustainable competitive advantage. We are executing against our key growth and profitability initiatives, and believe we are on track to deliver on both our near and longer-term goals.”

Net revenues increased to $1.098 billion in Q1 16 from $1.031 billion in Q1 15.

Comparable brand revenue growth in Q1 16 increased 4.5% on top of 4.6% in Q1 15 as shown in the table below:

 

1st Quarter Comparable Brand Revenue Growth by Concept*

            Q1 16           Q1 15
Pottery Barn           0.2 %           2.4 %
Williams-Sonoma 3.5 % 2.7 %
West Elm 19.0 % 15.3 %
Pottery Barn Kids 1.7 % 0.8 %
PBteen           1.9 %           3.0 %
Total           4.5 %           4.6 %
* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue.
 

E-commerce net revenues in Q1 16 increased 8.2% to $576 million from $533 million in Q1 15. E-commerce net revenues generated 52.5% of total company net revenues in Q1 16 and 51.7% of total company net revenues in Q1 15.

Retail net revenues in Q1 16 increased 4.7% to $522 million from $498 million in Q1 15.

Operating margin in Q1 16 was 5.8% compared to 7.0% in Q1 15. Excluding unusual business events, non-GAAP operating margin was 7.0% in Q1 16:

       

  Gross margin was 35.8% in Q1 16 versus 36.8% in Q1 15, with deleverage primarily resulting from our supply chain and inventory initiatives, fulfillment-related costs, as well as lower margins associated with higher franchise and wholesale revenues. Merchandise margins were down slightly versus Q1 15.
 

Selling, general and administrative (“SG&A”) expenses were $329 million, or 30.0% of net revenues in Q1 16, versus $307 million, or 29.8% of net revenues, in Q1 15. Excluding unusual business events due to severance-related reorganization charges of approximately $13 million, non-GAAP SG&A expenses were $316 million, or 28.8% of net revenues, in Q1 16.

EPS in Q1 16 was $0.44 versus $0.48 in Q1 15. Excluding unusual business events, non-GAAP EPS was $0.53 in Q1 16.

Merchandise inventories at the end of Q1 16 increased 0.2% to $945 million from $943 million at the end of Q1 15.

STOCK REPURCHASE PROGRAM

During Q1 16, we repurchased 727,629 shares of common stock at an average cost of $55.85 per share and a total cost of approximately $41 million. As of May 1, 2016, there was approximately $521 million remaining under our current stock repurchase authorizations.

FISCAL YEAR 2016 FINANCIAL GUIDANCE

 

2nd Quarter 2016 Guidance Financial Highlights

     

Total Net Revenues (millions)

$1,145 – $1,175

Comparable Brand Revenue Growth

1% – 4%

Diluted EPS

$0.54 – $0.60

 
         
 

Fiscal Year 2016 Guidance Financial Highlights

 
Total Net Revenues (millions) $5,150 – $5,250
Comparable Brand Revenue Growth 3% – 6%
Non-GAAP Operating Margin* 9.8% – 10.0%
Non-GAAP Diluted EPS* $3.50 – $3.65
Income Tax Rate 37.0% – 38.0%
Capital Spending (millions) $200 – $220
Depreciation and Amortization (millions)       $170 – $180
* Excludes severance-related reorganization charges of approximately $13 million (or $0.09 per diluted share) during Q1 2016.
 
 

Store Opening and Closing Guidance by Retail Concept*

     
FY 2015 ACT     FY 2016 GUID
        Total     New       Close       End
Williams-Sonoma       239 5       (10)       234
Pottery Barn 197 6 (2) 201
Pottery Barn Kids 89 2 (4) 87
West Elm 87 13 (2) 98
Rejuvenation       6     1       -       7
Total       618     27       (18)       627

* Included in the FY 15 store count are 19 stores in Australia and one store in the UK.

 

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 25, 2016, 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 SG&A, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of severance-related reorganization charges in Q1 16. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. 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 and FY 16 guidance 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 measures 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 sustainable competitive advantage; our execution of key growth and profitability initiatives; our ability to deliver on near and longer-term goals; our future financial guidance, including Q2 16 and FY 2016 guidance; our stock repurchase programs; 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 Q1 16; 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 January 31, 2016 and all subsequent 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 624 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 and the Philippines and stores and e-commerce websites in Mexico.

 
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended May 1, 2016 and May 3, 2015
(Dollars and shares in thousands, except per share amounts)
     
 

1st Quarter

2016       2015
    % of       % of
$     Revenues $       Revenues
E-commerce net revenues $ 576,234 52.5 % $ 532,573 51.7 %
Retail net revenues   521,583       47.5     498,103       48.3  
Net revenues 1,097,817 100.0 1,030,676 100.0
 
Cost of goods sold   705,300       64.2     651,835       63.2  
Gross profit 392,517 35.8 378,841 36.8
 
Selling, general and administrative expenses   328,992       30.0     306,913       29.8  
Operating income 63,525 5.8 71,928 7.0
 
Interest (income) expense, net   (68 )     -     8       -  
Earnings before income taxes 63,593 5.8 71,920 7.0
 
Income taxes   23,996       2.2     27,130       2.6  
Net earnings $ 39,597       3.6 % $ 44,790       4.3 %
 
Earnings per share (EPS):
Basic $0.44 $0.49
Diluted $0.44 $0.48
 
Shares used in calculation of EPS:
Basic 89,298 91,707
Diluted 90,514 93,300
 
 
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
                 
     
May 1, 2016 Jan. 31, 2016 May 3, 2015
Assets
Current assets
Cash and cash equivalents $ 99,217 $ 193,647 $ 78,851
Accounts receivable, net 75,364 79,304 64,720
Merchandise inventories, net 944,632 978,138 942,800
Prepaid catalog expenses 29,916 28,919 35,648
Prepaid expenses 53,689 44,654 59,684
Deferred income taxes, net - - 130,889
Other assets   9,844     11,438     11,627  
Total current assets   1,212,662     1,336,100     1,324,219  
 
Property and equipment, net 893,640 886,813 876,785
Non-current deferred income taxes, net 131,597 141,784 -
Other assets, net   52,469     52,730     50,085  
Total assets $ 2,290,368   $ 2,417,427   $ 2,251,089  
 
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 339,392 $ 447,412 $ 367,525
Accrued salaries, benefits and other 96,577 127,122 87,067
Customer deposits 275,116 296,827 258,854
Borrowings under revolving line of credit 100,000 - 60,000
Income taxes payable 7,764 67,052 8,322
Current portion of long-term debt - - 1,968
Other liabilities   52,907     58,014     45,092  
Total current liabilities   871,756     996,427     828,828  
 
Deferred rent and lease incentives 188,715 173,061 170,528
Non-current deferred income taxes - - 1,958
Other long-term obligations   67,041     49,713     63,143  
Total liabilities   1,127,512     1,219,201     1,064,457  
 
 
Stockholders’ equity

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

- - -

Common stock: $.01 par value; 253,125 shares authorized;
    89,350, 89,563 and 91,644 shares issued and outstanding
    at May 1, 2016, January 31, 2016 and May 3, 2015,
    respectively

894 896 917
Additional paid-in capital 534,414 541,307 527,257
Retained earnings 636,986 668,545 662,671
Accumulated other comprehensive loss (7,875 ) (10,616 ) (2,257 )
Treasury stock, at cost   (1,563 )   (1,906 )   (1,956 )
Total stockholders’ equity   1,162,856     1,198,226     1,186,632  
     
Total liabilities and stockholders' equity $ 2,290,368   $ 2,417,427   $ 2,251,089  
 
 
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Thirteen weeks ended May 1, 2016 and May 3, 2015
(Dollars in thousands)
 
 
      Year-to-Date
         
2016 2015
Cash flows from operating activities
Net earnings $ 39,597 $ 44,790
 

Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:

Depreciation and amortization 41,240 41,478
Loss on disposal/impairment of assets 880 1,694
Amortization of deferred lease incentives (5,987 ) (5,999 )
Deferred income taxes (5,796 ) (5,498 )
Tax benefit related to stock-based awards 20,087 20,572
Excess tax benefit related to stock-based awards (3,824 ) (8,724 )
Stock-based compensation expense 15,732 14,010
Other (418 ) 51
 
Changes in:
Accounts receivable 3,781 2,864
Merchandise inventories 37,424 (53,746 )
Prepaid catalog expenses (997 ) (1,706 )
Prepaid expenses and other assets (7,683 ) (21,439 )
Accounts payable (113,510 ) (25,030 )
Accrued salaries, benefits and other current and long-term liabilities (20,875 ) (51,387 )
Customer deposits (22,465 ) (3,106 )
Deferred rent and lease incentives 9,439 8,260
Income taxes payable   (59,285 )   (24,155 )
Net cash used in operating activities   (72,660 )   (67,071 )
 
Cash flows from investing activities:
Purchases of property and equipment (28,149 ) (40,384 )
Other   294     5  
Net cash used in investing activities   (27,855 )   (40,379 )
 
Cash flows from financing activities:
Borrowings under revolving line of credit 100,000 60,000
Repurchase of common stock (40,639 ) (52,562 )
Payment of dividends (34,423 ) (31,934 )
Tax withholdings related to stock-based awards (22,904 ) (21,734 )
Excess tax benefit related to stock-based awards 3,824 8,724
Proceeds related to stock-based awards 995 1,836
Other   (48 )   -  
Net cash provided by (used in) financing activities   6,805     (35,670 )
 
Effect of exchange rates on cash and cash equivalents (720 ) (956 )
Net decrease in cash and cash equivalents (94,430 ) (144,076 )
Cash and cash equivalents at beginning of period   193,647     222,927  
Cash and cash equivalents at end of period $ 99,217   $ 78,851  
 
 
Exhibit 1

Reconciliation of 1st Quarter GAAP to Non-GAAP Operating Income and Operating Margin By Segment*

($ in thousands)

               
      E-commerce   Retail   Unallocated   Total
      Q1 16     Q1 15   Q1 16     Q1 15   Q1 16     Q1 15   Q1 16     Q1 15
Net Revenues $ 576,234     $ 532,573 $ 521,583     $ 498,103 $ -     $ - $ 1,097,817     $ 1,030,676

GAAP Operating Income/(Expense)

      131,545       127,574     30,125       28,126     (98,145)       (83,772)     63,525       71,928
GAAP Operating Margin       22.8%       24.0%     5.8%       5.6%     (8.9%)       (8.1%)     5.8%       7.0%
Unusual Business Events (1)       -       -     -       -     13,221       -     13,221       -

Non-GAAP Operating Income/
(Expense) Excluding Unusual
Business Events (2)

    $ 131,545     $ 127,574   $ 30,125     $ 28,126   $ (84,924)     $ (83,772)   $ 76,746     $ 71,928
Non-GAAP Operating Margin (2)       22.8%       24.0%     5.8%       5.6%     (7.7%)       (8.1%)     7.0%       7.0%

* 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 GAAP to Non-GAAP

Diluted Earnings Per Share**

(Totals rounded to the nearest cent per diluted share)

                                 
               

Q1 16
ACT

         

Q2 16
GUID

 

FY 16
GUID

2016 GAAP Diluted EPS               $0.44           $0.54 - $0.60   $3.41 - $3.56
Impact of Unusual Business Events (1)               $0.09           -   $0.09

2016 Non-GAAP Diluted EPS Excluding Unusual Business Events (2)

             

$0.53

         

$0.54 - $0.60

 

$3.50 - $3.65

                         
                                 
               

Q1 15
ACT

         

Q2 15
ACT

 

FY 15
ACT

2015 GAAP Diluted EPS              

$0.48

         

$0.58

 

$3.37

** 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

      Avg. Leased Square Footage
Store Count   Per Store

 

     

   Jan. 31, 2016

     

   Openings

  Closings    

   May 1, 2016

     

   May 3, 2015

May 1, 2016   May 3, 2015
Williams-Sonoma       239       2   -   241       241 6,600   6,600
Pottery Barn 197 3 - 200 198 13,800 13,700
Pottery Barn Kids 89 2

(1

)

90 87 7,500 7,500
West Elm 87 - - 87 72 13,200 13,600
Rejuvenation       6       -   -     6       5 9,000   10,000
Total       618       7  

(1

)

  624       603 10,000   9,900
 
             

Jan. 31, 2016

May 1, 2016

May 3, 2015

Total store selling square footage

        3,827,000

         3,867,000

        3,709,000

Total store leased square footage

        6,163,000

         6,218,000

        5,998,000

 

Notes:

(1)  

Impact of Unusual Business Events – During Q1 16, we incurred severance-related reorganization charges due to the reduction of headcount primarily in our corporate functions of approximately $13 million, or $0.09 per diluted share. These charges were recorded as SG&A expense within the unallocated segment.

(2) SEC Regulation G – Non-GAAP Information – These tables include non-GAAP operating income, operating margin 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 and FY 16 guidance 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.

Contacts

WILLIAMS-SONOMA, INC.
Julie P. Whalen, 415-616-8524
EVP, Chief Financial Officer
-or-
Beth Potillo-Miller, 415-616-8643
SVP, Finance & Corporate Treasurer
Investor Relations

Recent Stories

RSS feed for Williams-Sonoma, Inc.

Williams-Sonoma, Inc.