NOTE E. SEGMENT REPORTING

We have two reportable segments, e-commerce and retail. The e-commerce segment has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation and Mark and Graham, which sell our products through our e-commerce websites and direct-mail catalogs. Our e-commerce merchandise strategies are operating segments, which have been aggregated into one reportable segment, e-commerce. The retail segment, which includes our franchise operations, has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation, which sell our products through our retail stores. Our retail merchandise strategies are operating segments, which have been aggregated into one reportable segment, retail. Management’s expectation is that the overall economic characteristics of each of our operating segments will be similar over time based on management’s judgment that the operating segments have had similar historical economic characteristics and are expected to have similar long-term financial performance in the future.

These reportable segments are strategic business units that offer similar products for the home. They are managed separately because the business units utilize two distinct distribution and marketing strategies. Based on management’s best estimate, our operating segments include allocations of certain expenses, including advertising and employment costs, to the extent they have been determined to benefit both channels. These operating segments are aggregated at the channel level for reporting purposes since our brands are interdependent for economies of scale and we do not maintain fully allocated income statements at the brand level. As a result, material financial decisions related to the brands are made at the channel level. Furthermore, it is not practicable for us to report revenue by product group.

We use operating income to evaluate segment profitability. Operating income is defined as earnings (loss) before net interest income (expense) and income taxes. Unallocated costs before interest and income taxes include corporate employee-related costs, occupancy expenses (including depreciation expense), administrative costs and third-party service costs, primarily in our corporate administrative and systems departments. Unallocated assets include corporate cash and cash equivalents, prepaid expenses, the net book value of corporate facilities and related information systems, deferred income taxes and other corporate long-lived assets.

Income taxes are calculated at an entity level and are not allocated to our reportable segments.

Segment Information


In thousands	E-commerce		Retail		Unallocated			Total
Thirteen weeks ended October 28, 2018
Net revenues¹	$	746,716	$	610,267	$	—		$	1,356,983
Depreciation and amortization expense		9,877		21,574		15,907			47,358
Operating income (loss)²		152,204		45,052		(102,872	)		94,384
Capital expenditures		12,068		20,038		16,199			48,305
Thirteen weeks ended October 29, 2017
Net revenues¹	$	690,045	$	609,291	$	—		$	1,299,336
Depreciation and amortization expense		6,870		22,555		16,000			45,425
Operating income (loss)²		142,865		42,804		(74,856	)		110,813
Capital expenditures		13,184		22,066		17,844			53,094
Thirty-nine weeks ended October 28, 2018
Net revenues¹	$	2,079,838	$	1,755,319	$	—		$	3,835,157
Depreciation and amortization expense		26,874		67,067		47,226			141,167
Operating income (loss)²		432,245		101,035		(298,180	)		235,100
Assets³		874,259		1,156,075		688,425			2,718,759
Capital expenditures		26,820		55,728		45,778			128,326
Thirty-nine weeks ended October 29, 2017
Net revenues¹	$	1,901,348	$	1,711,101	$	—		$	3,612,449
Depreciation and amortization expense		20,625		67,282		47,566			135,473
Operating income (loss)²		410,008		99,110		(254,247	)		254,871
Assets³		732,842		1,156,117		691,425			2,580,384
Capital expenditures		24,173		61,851		49,797			135,821

Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $79.0 million and $84.1 million for the thirteen weeks ended October 28, 2018 and October 29, 2017, respectively, and $239.1 million and $234.1 million for the thirty-nine weeks ended October 28, 2018 and October 29, 2017, respectively.

The thirteen and thirty-nine weeks ended October 28, 2018 includes: $6.0 million and $17.9 million of expense, respectively, related to our acquisition of Outward, Inc., (primarily acquisition-related compensation costs, the amortization of intangible assets acquired, and the operations of the Outward business), of which $4.6 million and $13.7 million, respectively, is recorded in the e-commerce segment and $1.4 million and $4.2 million, respectively, is recorded in the unallocated segment; $1.9 million and $5.4 million, respectively, of employment-related expense associated with a one-time special equity grant, which is recorded within the unallocated segment, as well as $1.1 million and $6.4 million of expense related to impairment and early lease termination charges which is primarily recorded in the retail segment. The thirty-nine weeks ended October 29, 2017 includes $5.7 million of severance-related charges in our corporate functions, which is recorded within the unallocated segment.

³	Includes long-term assets related to our international operations of approximately $51.0 million and $58.5 million as of October 28, 2018 and October 29, 2017, respectively.