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Williams-Sonoma E-Commerce Growth Explodes

June 14, 2018

Williams-Sonoma reported operating results for the first fiscal quarter (“Q1 18”) ended April 29, 2018 versus the first fiscal quarter (“Q1 17”) ended April 30, 2017.

KEY HIGHLIGHTS

st Quarter 2018

  • Net revenue growth of 8.2%
  • Comparable brand revenue growth of 5.5%
  • E-commerce net revenue growth accelerates double-digits, to 53.7% of total company net revenues
  • GAAP operating margin of 5.5%; non-GAAP operating margin of 6.3%
  • GAAP diluted EPS of $0.54; non-GAAP diluted EPS of $0.67 outperforms guidance
  • Merchandise inventories growth of 1.5%, significantly below net revenue growth

These results include the adoption of ASU No. 2014-09, which pertains to revenue recognition, in the first quarter of 2018. The year-over-year impact of this change in accounting is a financial benefit of $13.6 million in net revenues, $1.6 million in operating income and $0.01 in EPS. From a rate perspective, this amounts to a benefit of approximately 130bps of revenue growth, 30bps of comparable brand revenue growth, 70bps of gross margin improvement, 60bps of selling, general and administrative expense deleverage and 10bps of operating margin improvement. See Exhibit 2 for more details on the financial impact of adoption.

Fiscal Year 2018 Guidance

  • Net revenue guidance raised to $5,495 billion – $5,655 billion
  • Non-GAAP diluted EPS raised to $4.15 – $4.25

Laura Alber, President and Chief Executive Officer, commented, “Following a robust fourth quarter, we saw continued strength in the first quarter. We achieved strong results against our guidance range across all metrics, with our e-commerce revenues outpacing to almost 54% of our total revenues. Our customer growth continued to trend positively for both new and existing customers, demonstrating the success of our balanced customer acquisition strategy.”

Alber continued, “These results speak to the power of our established multi-channel model, distinctive brand portfolio and world-class customer service heritage – all of which are our company’s competitive strengths. Based on this strong start to the year, we are raising our full year guidance for net revenues by $20 million and for EPS by $0.03.”

st QUARTER 2018 RESULTS

Net revenues increased 8.2% to $1.203 billion in Q1 18 from $1.112 billion in Q1 17. Excluding certain discrete items, non-GAAP net revenues were $1.202 billion in Q1 18 or an 8.2% increase on Q1 17. See Exhibit 1.

Comparable brand revenue in Q1 18 increased 5.5% compared to an increase of 0.1% in Q1 17 as shown in the table below:

st Quarter Comparable Brand Revenue Growth (Decline) by Concept*

       
 

Q1 18 

 

Q1 17 

Pottery Barn 2.7%   (1.4%)
West Elm 9.0%   6.0%
Williams Sonoma 5.6%   3.2%
Pottery Barn Kids and Teen1 5.3%   (8.0%)
Total 5.5%   0.1%

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

1Starting in Q1 18, the performance of the Pottery Barn Kids and PBteen brands are being
reported on a combined basis as Pottery Barn Kids and Teen. For reference, the
comparable brand revenue growth for Pottery Barn Kids and PBteen were 4.3% and 8.2%,
respectively, for Q1 18, and (5.7%) and (14.3%), respectively, for Q1 17.

 

E-commerce net revenues in Q1 18 increased 11.3% to $646 million from $581 million in Q1 17. Excluding certain discrete items, non-GAAP e-commerce net revenues were $645 million in Q1 18 or an 11.2% increase on Q1 17. See Exhibit 1.

Retail net revenues in Q1 18 increased 4.9% to $557 million from $531 million in Q1 17.

Operating margin in Q1 18 was 5.5% compared to 5.6% in Q1 17. Excluding certain discrete items, non-GAAP operating margin was 6.3% in Q1 18 versus 6.1% in Q1 17. See Exhibit 1.

     

Gross margin was 35.9% in Q1 18 versus 35.6% in Q1 17. Excluding certain discrete items, non-GAAP gross margin was 36.0% in Q1 18. See Exhibit 1.

         
     

Selling, general and administrative (“SG&A”) expenses were $366 million, or 30.4% of net revenues in Q1 18, versus $333 million, or 30.0% of net revenues in Q1 17. Excluding certain discrete items, non-GAAP SG&A expenses were $358 million, or 29.7% of net revenues in Q1 18 versus $328 million, or 29.5% of net revenues in Q1 17. See Exhibit 1.

The effective income tax rate in Q1 18 was 30.9% versus 36.8% in Q1 17. Excluding certain discrete items, the non-GAAP effective income tax rate was 23.8% in Q1 18 versus 34.5% in Q1 17. See Exhibit 1.

EPS in Q1 18 was $0.54 versus $0.45 in Q1 17. Excluding certain discrete items, non-GAAP EPS was $0.67 in Q1 18 versus $0.51 in Q1 17. See Exhibit 1.

Merchandise inventories at the end of Q1 18 increased 1.5% to $1.053 billion from $1.037 billion at the end of Q1 17.

STOCK REPURCHASE PROGRAM

During Q1 18, we repurchased 732,000 shares of common stock at an average cost of $51.53 per share and a total cost of approximately $38 million. As of April 29, 2018, there was approximately $481 million remaining under our current stock repurchase program.

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