EX-99.1

EX-99.1 2 d290272dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

WILLIAMS-SONOMA, INC.

3250 Van Ness Avenue

San Francisco, CA 94109


						CONTACT:
						Julie P. Whalen
						EVP, Chief Financial Officer
						(415) 616-8524

						Beth Potillo-Miller
						SVP, Finance & Corporate Treasurer
						Investor Relations
						(415) 616-8643

PRESS RELEASE

Williams-Sonoma, Inc. announces third quarter 2016 results

Net revenues grow 1.1% with GAAP EPS of $0.78 and non-GAAP EPS of $0.79

Gross margin improves to 36.8% and merchandise inventories decrease 3.5%

San Francisco, CA, November 17, 2016 – Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third fiscal quarter ended October 30, 2016 (“Q3 16”) versus the third fiscal quarter ended November 1, 2015 (“Q3 15”).

3^rd QUARTER 2016 RESULTS

•

Q3 16 net revenues grew 1.1% to $1.245 billion versus $1.232 billion in Q3 15 with comparable brand revenue decreasing 0.4%.

•

Q3 16 operating margin was 8.8% versus 9.0% in Q3 15. Excluding unusual business events due to severance-related reorganization charges (see Note 1 in Exhibit 1), non-GAAP operating margin was 8.9% in Q3 16. See Exhibit 1 for a reconciliation of GAAP to non-GAAP operating margin.

•

Q3 16 diluted earnings per share (“EPS”) was $0.78 versus $0.77 in Q3 15. Excluding unusual business events due to severance-related reorganization charges of approximately $0.01 per diluted share, non-GAAP EPS was $0.79 in Q3 16. See Exhibit 1 for a reconciliation of GAAP to non-GAAP EPS.

•

Cash returned to stockholders totaled $72 million, comprising $39 million in stock repurchases and $33 million in dividends.

Laura Alber, President and Chief Executive Officer, commented: “Our third quarter performance demonstrates our competitive strengths – our differentiated portfolio of brands and profitable multi-channel business model – as well as the ongoing success of our strategic initiatives that we have seen this year. We saw continued double-digit growth in West Elm, our newer businesses Rejuvenation and Mark and Graham, and our international company-owned businesses. We also made additional progress across our supply chain and continued to reduce inventory, which resulted in better gross margins, allowing us to meet our earnings commitment at the high end of our guidance range, despite a more difficult retail environment.”

Alber continued: “Although the current environment is less certain, we remain focused on what we can control, and we are confident that the ongoing progress on our strategic initiatives will improve service for our customers and will drive long-term sustainable profitable growth for our shareholders.”

Net revenues increased to $1.245 billion in Q3 16 from $1.232 billion in Q3 15.

Comparable brand revenue in Q3 16 decreased 0.4% compared to 4.5% growth in Q3 15 as shown in the table below:


3^rd Quarter Comparable Brand Revenue Growth by Concept*
	Q3 16			Q3 15
Pottery Barn		(4.6%	)		2.0%
Williams-Sonoma		0.1%			1.2%
West Elm		12.0%			15.7%
Pottery Barn Kids		(1.0%	)		4.7%
PBteen		(10.9%	)		(0.9%	)
Total		(0.4%	)		4.5%
* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue.

E-commerce net revenues in Q3 16 increased 3.3% to $649 million from $628 million in Q3 15. E-commerce net revenues generated 52.1% of total company net revenues in Q3 16 and 51.0% of total company net revenues in Q3 15.

Retail net revenues in Q3 16 decreased 1.2% to $597 million from $604 million in Q3 15.

Operating margin in Q3 16 was 8.8% compared to 9.0% in Q3 15. Excluding unusual business events, non-GAAP operating margin was 8.9% in Q3 16:

•

Gross margin was 36.8% in Q3 16 versus 36.6% in Q3 15.

•

Selling, general and administrative (“SG&A”) expenses were $348 million, or 28.0% of net revenues in Q3 16, versus $341 million, or 27.6% of net revenues in Q3 15. Excluding unusual business events due to severance-related reorganization charges of approximately $1.2 million, non-GAAP SG&A expenses were $347 million, or 27.9% of net revenues, in Q3 16.

EPS in Q3 16 was $0.78 versus $0.77 in Q3 15. Excluding unusual business events, non-GAAP EPS was $0.79 in Q3 16.

Merchandise inventories at the end of Q3 16 decreased 3.5% to $1.064 billion from $1.102 billion at the end of Q3 15.

STOCK REPURCHASE PROGRAM

During Q3 16, we repurchased 771,327 shares of common stock at an average cost of $50.56 per share and a total cost of approximately $39 million. As of October 30, 2016, there was approximately $447 million remaining under our current stock repurchase program.

FISCAL YEAR 2016 FINANCIAL GUIDANCE


4^t^h Quarter 2016 Guidance Financial Highlights
Total Net Revenues (millions)		$1,570 – $1,650
Comparable Brand Revenue Growth/(Decrease)		(1%) – 4%
Diluted EPS		$1.45 – $1.55


Fiscal Year 2016 Guidance Financial Highlights
Total Net Revenues (millions)		$5,070 – $5,150
Comparable Brand Revenue Growth		1% – 2%
Non-GAAP Operating Margin*		9.4% – 9.6%
Non-GAAP Diluted EPS**		$3.35 – $3.45
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 $14 million, or 0.3% of operating margin during Q1 2016 and Q3 2016. Including these charges, GAAP operating margin guidance would be 9.1% to 9.3%. ** Excludes severance-related reorganization charges of approximately $14 million, or $0.10 per diluted share during Q1 2016 and Q3 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			5		(2	)	200
Pottery Barn Kids		89			2		(4	)	87
West Elm		87			13		(2	)	98
Rejuvenation		6			1		-		7
Total		618			26		(18	)	626

* 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, November 17, 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 income, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of severance-related reorganization charges in Q1 16 and Q3 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: the progress on our strategic initiatives; our growth drivers; our future financial guidance, including Q4 16 and FY 2016 guidance; our stock repurchase program; 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 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 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 635 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 October 30, 2016 and November 1, 2015

(Dollars and shares in thousands, except per share amounts)


	3^rd Quarter
	2016					2015
	$		% of Revenues			$		% of Revenues
E-commerce net revenues	$	648,743		52.1	%	$	628,191		51.0	%
Retail net revenues		596,642		47.9			603,891		49.0

Net revenues		1,245,385		100.0			1,232,082		100.0
Cost of goods sold		787,162		63.2			780,894		63.4

Gross profit		458,223		36.8			451,188		36.6
Selling, general and administrative expenses		348,244		28.0			340,505		27.6

Operating income		109,979		8.8			110,683		9.0
Interest (income) expense, net		488		—			342		—

Earnings before income taxes		109,491		8.8			110,341		9.0
Income taxes		40,113		3.2			39,859		3.2

Net earnings	$	69,378		5.6	%	$	70,482		5.7	%


Earnings per share (EPS):
Basic	$	0.78				$	0.78
Diluted	$	0.78				$	0.77
Shares used in calculation of EPS:
Basic		88,382					90,437
Diluted		89,144					91,801

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Earnings (unaudited)

Thirty-nine weeks ended October 30, 2016 and November 1, 2015

(Dollars and shares in thousands, except per share amounts)


	Year-to-Date
	2016					2015
	$		% of Revenues			$		% of Revenues
E-commerce net revenues	$	1,824,660		52.1	%	$	1,730,677		51.1	%
Retail net revenues		1,677,571		47.9			1,659,109		48.9

Net revenues		3,502,231		100.0			3,389,786		100.0
Cost of goods sold		2,240,952		64.0			2,153,132		63.5

Gross profit		1,261,279		36.0			1,236,654		36.5
Selling, general and administrative expenses		1,004,499		28.7			970,700		28.6

Operating income		256,780		7.3			265,954		7.8
Interest (income) expense, net		587		—			625		—

Earnings before income taxes		256,193		7.3			265,329		7.8
Income taxes		95,433		2.7			96,389		2.8

Net earnings	$	160,760		4.6	%	$	168,940		5.0	%


Earnings per share (EPS):
Basic	$	1.81				$	1.85
Diluted	$	1.79				$	1.82
Shares used in calculation of EPS:
Basic		88,906					91,129
Diluted		89,764					92,576

Williams-Sonoma, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(Dollars and shares in thousands, except per share amounts)


	Oct. 30, 2016			Jan. 31, 2016			Nov. 1, 2015
Assets
Current assets
Cash and cash equivalents	$	75,381		$	193,647		$	72,264
Accounts receivable, net		96,386			79,304			88,535
Merchandise inventories, net		1,063,747			978,138			1,102,349
Prepaid catalog expenses		25,329			28,919			35,762
Prepaid expenses		74,195			44,654			59,276
Deferred income taxes, net		-			-			130,684
Other assets		12,176			11,438			12,966

Total current assets		1,347,214			1,336,100			1,501,836

Property and equipment, net		918,020			886,813			883,459
Non-current deferred income taxes, net		136,558			141,784			2,560
Other assets, net		51,540			52,730			47,821

Total assets	$	2,453,332		$	2,417,427		$	2,435,676


Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	450,144		$	447,412		$	395,033
Accrued salaries, benefits and other		111,445			127,122			115,720
Customer deposits		289,737			296,827			293,317
Borrowings under revolving line of credit		125,000			-			200,000
Income taxes payable		1,122			67,052			35,317
Other liabilities		53,423			58,014			55,152

Total current liabilities		1,030,871			996,427			1,094,539

Deferred rent and lease incentives		192,948			173,061			174,059
Other long-term obligations		70,031			49,713			50,545

Total liabilities		1,293,850			1,219,201			1,319,143


Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued		-			-			-
Common stock: $.01 par value; 253,125 shares authorized; 88,014, 89,563 and 90,010 shares issued and outstanding at October 30, 2016, January 31, 2016 and November 1, 2015, respectively		881			896			901
Additional paid-in capital		547,513			541,307			538,737
Retained earnings		623,243			668,545			585,928
Accumulated other comprehensive loss		(10,772	)		(10,616	)		(7,127	)
Treasury stock, at cost		(1,383	)		(1,906	)		(1,906	)

Total stockholders’ equity		1,159,482			1,198,226			1,116,533

Total liabilities and stockholders’ equity	$	2,453,332		$	2,417,427		$	2,435,676

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

Thirty-nine weeks ended October 30, 2016 and November 1, 2015

(Dollars in thousands)


	Year-to-Date
	2016			2015
Cash flows from operating activities
Net earnings	$	160,760		$	168,940
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		127,745			125,093
Loss on disposal/impairment of assets		1,852			3,558
Amortization of deferred lease incentives		(18,789	)		(18,326	)
Deferred income taxes		(14,461	)		(13,526	)
Tax benefit related to stock-based awards		23,571			29,603
Excess tax benefit related to stock-based awards		(4,817	)		(14,283	)
Stock-based compensation expense		37,975			36,182
Other		(647	)		91
Changes in:
Accounts receivable		(17,400	)		(21,875	)
Merchandise inventories		(82,410	)		(216,294	)
Prepaid catalog expenses		3,591			(1,820	)
Prepaid expenses and other assets		(29,205	)		(20,909	)
Accounts payable		(17,403	)		(10,179	)
Accrued salaries, benefits and other current and long-term liabilities		(507	)		(13,494	)
Customer deposits		(7,445	)		32,016
Deferred rent and lease incentives		25,969			25,561
Income taxes payable		(65,915	)		2,707

Net cash provided by operating activities		122,464			93,045


Cash flows from investing activities:
Purchases of property and equipment		(127,169	)		(136,069	)
Other		370			535

Net cash used in investing activities		(126,799	)		(135,534	)


Cash flows from financing activities:
Borrowings under revolving line of credit		125,000			200,000
Repurchase of common stock		(115,167	)		(196,497	)
Payment of dividends		(100,854	)		(96,020	)
Tax withholdings related to stock-based awards		(26,518	)		(31,019	)
Excess tax benefit related to stock-based awards		4,817			14,283
Net proceeds related to stock-based awards		1,532			2,647
Repayment of long-term obligations		-			(1,968	)
Other		(48	)		-

Net cash used in financing activities		(111,238	)		(108,574	)


Effect of exchange rates on cash and cash equivalents		(2,693	)		400
Net decrease in cash and cash equivalents		(118,266	)		(150,663	)
Cash and cash equivalents at beginning of period		193,647			222,927

Cash and cash equivalents at end of period	$	75,381		$	72,264

Exhibit 1

3^rd Quarter Operating Margin By Segment*

($ in thousands)


	E-commerce				Retail				Unallocated				Total
	Q3 16		Q3 15		Q3 16		Q3 15		Q3 16		Q3 15		Q3 16		Q3 15
Net Revenues	$	648,743	$	628,191	$	596,642	$	603,891	$	-	$	-	$	1,245,385	$	1,232,082
GAAP Operating Income/(Expense)		150,164		137,828		47,080		49,213		(87,265)		(76,358)		109,979		110,683
GAAP Operating Margin		23.1%		21.9%		7.9%		8.1%		(7.0%)		(6.2%)		8.8%		9.0%

Unusual Business Events ⁽¹⁾		-		-		-		-		1,185		-		1,185		-
Non-GAAP Operating Income/ (Expense) Excluding Unusual Business Events ⁽²⁾	$	150,164	$	137,828	$	47,080	$	49,213	$	(86,080)	$	(76,358)	$	111,164	$	110,683
Non-GAAP Operating Margin ⁽²⁾		23.1%		21.9%		7.9%		8.1%		(6.9%)		(6.2%)		8.9%		9.0%

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

ACT

Q3 16

ACT

Q4 16

GUID

FY 16

GUID

2016 GAAP Diluted EPS

$0.44

$0.58

$0.78

$1.45 - $1.55

$3.25 - $3.35

Impact of Unusual Business Events ⁽¹⁾

$0.09

$0.01

$0.10

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

$0.53

$0.58

$0.79

$1.45 - $1.55

$3.35 - $3.45

Q1 15

ACT

Q2 15

ACT

Q3 15

ACT

Q4 15

ACT

FY 15

ACT

2015 GAAP Diluted EPS

$0.48

$0.58

$0.77

$1.55

$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


	Store Count											Avg. Leased Square Footage Per Store
	Jul. 31, 2016		Openings		Closings			Oct. 30, 2016		Nov. 1, 2015		Oct. 30, 2016		Nov. 1, 2015
Williams-Sonoma		241		1		(1	)		241		243		6,600		6,600
Pottery Barn		201		1		-			202		200		13,800		13,700
Pottery Barn Kids		89		-		-			89		90		7,500		7,500
West Elm		89		10		(2	)		97		84		13,300		13,400
Rejuvenation		6		-		-			6		6		9,300		9,000
Total		626		12		(3	)		635		623		10,000		9,900


	Jul. 31, 2016		Oct. 30, 2016		Nov. 1, 2015
Total store selling square footage		3,894,000		3,966,000		3,839,000
Total store leased square footage		6,262,000		6,381,000		6,188,000

Notes:

(1)

Impact of Unusual Business Events – During Q1 16 and Q3 16, we incurred severance-related reorganization charges due to headcount reduction primarily in our corporate functions totaling approximately $14 million, or $0.10 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.