Williams-Sonoma, Inc.

Good day. Welcome to the Williams-Sonoma, Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after the presentation. This call is being recorded. I would now like to turn the call over to Elise Wang, Vice President of Investor Relations, to discuss non-GAAP financial measures and forward-looking statements. Please go ahead.

Thank you. Good afternoon. This call should be considered in conjunction with the press release that we issued earlier today. Unless indicated otherwise, our discussion today will relate to results and guidance based on certain non-GAAP measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the non-GAAP financial measures may be useful are discussed in Exhibit 1 of our press release. This call also contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which addressed the financial condition, results of operation, business initiatives, trends, growth plans, and prospects of the company in 2020 and beyond, and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current press release and SEC filing. including the most recent 10K for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the conference call over to Laura Alber, our President and Chief Executive Officer.

Thank you, Elise. Good afternoon, everyone, and thank you all for joining us. Also on the call with me today are Julie Whalen, our Chief Financial Officer, Felix Carbullido, our Chief Marketing Officer, and Yasser Anwar, our Chief Technology Officer. Before we get started on our Q1 results, we hope you and your families sincerely are safe and healthy during this time. And our deep gratitude goes to all of the people who are taking care of our communities in the fight against this pandemic. I want to also thank all of our Williams-Sonoma, Inc. associates for their incredible agility, commitment, and partnership in responding to this crisis. Our people are at the heart of our company, and we are inspired by how they've adapted to serve our customers in these times. In the first quarter, we are proud to deliver an overall company comp growth of 2.6%, despite having all of our 616 stores closed for more than half the quarter. Our teams maximize demand online, leaning into new and innovative ways to engage and serve our customers virtually, driving DTC comps to over 31% in the first quarter. These results reflect our powerful digital-first platform and the relevance of our high-quality, sustainable products and superior customer service. The strategic investments that we have made over the years give us a competitive advantage in this disrupted environment that favors digital. Nothing makes me prouder, though, than to have achieved our results while staying true to our company's core value of taking care of our people, customers, and communities. From the onset of this pandemic, safety and pay continuation for our people have been key priorities. In mid-March, we acted swiftly to close our stores and institute work from home policies for our corporate employees. And we made the decision to provide pay and benefits to all of our store associates who have been regularly working more than 12 hours weekly for the entire time our stores have been closed. To support our local communities, we have donated food, Personal Care Kits, and Surgical Masks to Healthcare Workers on the Frontline. We've also raised more than $800,000 across our brands for the relief efforts of No Kid Hungry. We take our responsibility to all of our stakeholders very seriously, and we feel fortunate to be in a position to take care of our people and our communities. We are also very focused on our financial health. In addition to maximizing e-commerce, we have made aggressive cuts across the company in expenses, inventory, and capital expenditures, and will continue to strengthen our financial position while prioritizing investments and strategic priorities. Julie will share with you in detail the actions we've taken to bolster our balance sheet. As we mentioned on our last call, we entered the new fiscal year in a strong position. For the month of February through March 11th, when the health crisis began to accelerate, we delivered high single-digit comp growth in line with our long-term outlook. After the outbreak escalated and the closure of our retail stores went into effect on March 17th, our e-commerce business had breakout comp growth and has continued to accelerate. Total comp growth, including the impact from our closed stores, was positive across nearly all brands, with particular strength in our Potterburn children's business, which drove an 8.5% comp, and the Liam Snell brand with a comp of 5.4%. West Elm delivered a comp of 3.3, while our emerging brands Rejuvenation and Mark & Graham drove a combined comp of 2.4. Potter Barn's e-commerce demand was extremely strong and gained momentum throughout the quarter. We also reduced our level of promotions across our brands, which led to an improvement in our product margins for the quarter. Our ability to grow our business in this time speaks to the power of our multi-channel platform and our organizational agility rooted and a long-standing culture of innovation. To maximize demand online, we've enhanced our digital experience even further. We've expanded our services online, including design chat, virtual design appointment, and ask the expert, leveraging our Outward, Inc. 3D visualization technology. And we redeployed our retail associates to serve our customer in these new ways. These virtual services leverage the knowledge and expertise of our store associates, who are an important source of differentiation for our brands and enable them to connect with our customers and deliver superior experience online. Also, a key part of our success is our Omni services, including buy online, pick up in store, which we launched in early 2018. We've also accelerated our speed to market in a number of digital innovations to enhance the convenience of shopping online. These innovations include improvements in product discovery, site merchandising, and the search experience, as well as email and site personalization, and we have a faster checkout. With the pivot to digital, we've also deployed more resources to digital content creation. As consumers spend increasingly more time on social media while sheltering in place, we are leaning into this trend by publishing more user-generated content and campaigns in our social channels. We are also producing more live events to engage and interact with our customers in real time. These digital initiatives have contributed to a dramatic acceleration in our online KPIs, such as traffic, conversion, and customer growth across our brands. We're particularly encouraged to see our new customer counts up substantially and previously retail-only customers shopping with us online. This gives us even more confidence in our DTC growth trajectory for the balance of the year and our ability to continue to take share. The majority of our first-time online customers are now also members of the key, our cross-brand loyalty program. We have always understood the importance of retention in cross-brand shopping. and the key is at the center of our strategy. As an indication of the power of this program in driving incremental growth, in the second half of the quarter, online sales from existing key members nearly doubled compared to last year, while they also maintained their pre-COVID total sales growth levels despite store closures. We've also seen shopping across our brands increase as customers realize the breadth of our offering across our portfolio and are eager to earn rewards wherever they shop with us. Our efforts to optimize our digital experience during this time could not have been realized without the ingenuity and thoughtfulness of our brand and tech teams. In the Williams-Sonoma brand, we saw significant growth in nearly all merchandise categories with particular strength in electrics, cookware, food and housewares. Our content strategy across our digital channels pivoted to relevant topics for more quality time at home, such as recipes, live demonstrations, and family activities. Our online growth was driven by a change in our customer profile, which was dominated by new retail primary and cross-channel customers. We also achieved traffic and conversion rates that were similar to our peak holiday season. Growth in Potter Barn kids and teen also accelerated even further this quarter. As a business that's already predominantly online, we are primed to meet the surge in demand for children's home furnishings as schools and child care centers close nationwide and parents turn to us for study and playroom solutions. We also saw continued strength in our baby business and our offering of Green Guard Gold certified furniture and organic cotton bedding. At a time when health and safety is more important than ever, We are focused on further amplifying our leadership in the children's home furnishings market in offering sustainable products that are safe for kids and good for the planet. In West Elm, we also continue to see strong results. Furniture continued to lead our growth in the first quarter with strong demand for our expanded outdoor assortment as well as home office furniture. To meet the material acceleration in e-commerce growth, We have introduced new social engagement tools and enhanced our editorial experiences and room inspiration content in our digital channels. In the pot of our brand, we began the quarter with positive trends in all product divisions and channels. Despite the retail closures, we saw demand accelerate materially through the quarter in our furniture offerings, in home office, outdoor, bedding, and functional accessories. Our DTC-oriented growth initiative curated marketplace and apartment assortment also continue to contribute incrementally. The quarter also benefited from our continuous optimization of our digital experience, including improvements in product discovery and site merchandising. As we look to the rest of the year, we are optimistic that there are significant lifestyle changes that favor our business. However, there also remains considerable uncertainty. Some of the factors that we are modeling for include the prolonged economic impact this pandemic could have and the incremental cost of doing business in whatever form of reopening the economy takes for the rest of 2020 and the foreseeable future. As a result, we are not issuing full year guidance today. However, I would like to give you an update on second quarter to date. We continue to see robust trends in e-commerce and acceleration across all of our brands. Since May 1st, we have reopened a total of 364 stores consistent with government regulations. In these stores, we have in place strict safety protocols such as frequent sanitization, limitation on the number of customers and associates in store, shopping by appointment, and a supply of masks and gloves for our associates. We're also fulfilling customer orders through curbside pickup, which has now been launched in 475 of our retail locations nationwide. Customer response has been strong so far in our reopened stores, driven by appointment-only shopping. However, with strict social distancing measures in place, customer limits will continue to constrain sales in our stores. For locations where retail restrictions have not been lifted, we will keep those stores closed through June 14th and continue to provide pay and benefits for this extended period of closure for associates who have been regularly working more than 12 hours weekly. Reflecting on the longer term, this crisis has accelerated our industry shift to e-commerce and given rise to a newfound appreciation for the home. We believe that with our differentiated value proposition of high-quality, design-led, sustainable products and our large e-commerce business, We are well positioned. Our resilience during this turbulent time exemplifies the advantage of our unique, multi-brand, multi-channel platform and our commitment to all of our stakeholders. We will continue to invest to strengthen our digital first model, enhancing the convenience of our online channels. We also continue to prioritize the growth initiatives that we laid out at the beginning of the year, including West Elm and our cross-brand initiatives, The Key and Business to Business. We entered this crisis in a strong financial position and with clear momentum across our brands. It's moments like these that set us apart from the competition and reinforce our ability to outperform. We are confident that we will emerge from this crisis an even stronger company. Thank you for your continued support. I wish you and your families the best. And now I will turn this call over to Julie for more of the financial details.