Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma Incorporated Second 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 Security Litigation Reform Act of 1995, which addressed the financial conditions, results of operations, business initiatives, trends, growth plans, and prospects of the company in 2020 and beyond, and are subject to risks and uncertainties that would cause actual results to differ materially from first forward-looking statements. Please refer to the company's current press release and SEC filings, including the most recent 10-K, 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. As you saw in our press release, we delivered an exceptional second quarter, with net comp growth of 10.5%, operating margin expansion to nearly double that of last year at 13.1%, and record earnings growth of over 100%. E-commerce again drove our results, growing 46% in the quarter, and our stores performed better than expected, improving throughout the quarter as we reopened. In a time when home is more important than ever, we have taken this opportunity to push our longer-term plans, We will do this in three different ways. First, we will accelerate digital growth and fundamentally shift the channel mix of our business. Second, we're focusing our marketing strategy on content and building customer relationships. And third, we're stepping up our profitability and our longer-term earnings outlook. Our digital-first strategy, our trusted brands, our omnichannel approach, and our commitment to sustainability will continue to provide a powerful source of differentiation and a competitive advantage for our business. As always, and especially in challenging times, what makes us proud as a company goes well beyond the products we sell. In the last several months, we've witnessed not only the ongoing impact of the global pandemic, but also heartbreaking reminders of racial injustice in our country. As we continue to support COVID relief efforts in our communities, we are also taking action to help drive positive change and create a more equitable, inclusive future for all. We are committing to multi-year donations to racial justice organizations and increasing black representation internally and deepening our diversity and inclusion efforts. These are extraordinary times that require us to continuously evolve and rethink how we best serve all of our stakeholders. We are rising to the challenge, learning, adapting, and leading with our values in everything we do. We know thoughtful actions now will shape the next phase of our growth. We are firmly focused on this opportunity and investing in long-term strategies. Now let's talk about Q2 in more detail. While our net comp was at 10.5%, demand comp was substantially higher. Our e-commerce business grew at a net comp of over 46% and included purchases made through our omnichannel services such as curbside pickup and ship from store. We further optimized our digital experience adding more inspiring content and enhancing the speed and usability of our e-commerce sites. As it relates to our stores, traffic was down but conversion was up substantially and our stores outperformed expectations improving materially from May to July with third quarter to date demand comp improving to negative high single digits. Another highlight of the quarter was the significant expansion in our margins. In addition to cost savings across the business, we substantially pulled back on promotions and leaned into content-led marketing. Our value equation is driving lasting, authentic connections with our customers and also attracting record-high new customers. Our e-commerce performance this quarter was a powerful example of our brand and digital strategies at work. The key drivers of our growth were innovative, sustainable products, an engaging content-rich experience, and technology improvements. Our newly designed single-page checkout experience, improved site speed, extensive product information page improvements, and our outward-powered design crew room planner enhancements all drove strong results. Also this quarter, we continued to optimize our digital spend to high returning investments, leveraging our in-house media capabilities and a strict test and learn agenda across the portfolio. Our content-rich online experience, coupled with our marketing strategies, drove another quarter of very strong customer growth in the e-commerce channel, as well as substantial increase in organic traffic. Now let's talk about our brands. Probably the most impressive was the Williams-Sonoma brand, which delivered a record quarter with a net comp of 29.4%. We maximized the shift to cooking at home during the pandemic and executed on a relevant marketing strategy. Customer growth reached over 15%, and we saw an increasing number of new and returning customers turning to us for their cooking and at-home dining needs. Our marketing and relevant content strategies were driven by our food-first approach, highlighting ideas, recipes and culinary skills that revolved around eating well at home. To support the vendor community across the country, we added perishable products from local restaurants and increased our assortment of foods to meet the rising demand from our customers. As we look forward, we are excited about the growing interest in cooking, especially for millennials, which will not only benefit our business in the short term, but as more people learn to cook, it will become a lifelong skill that should drive our business over the longer term. To continue our growth trajectory in the Williams-Sonoma brand, we are focused on innovative exclusive products, further improving our digital experience, driving more awareness and interest in cooking at home, and optimizing our channel mix. Our Potter Bar brand also had a very successful quarter, driving a net comp of 8.1%. Our product line continued to improve with exciting new aesthetics and high-quality, sustainable products at great price points. Businesses that saw particular strength in the quarter were outdoor furniture, work from home solutions, and products to update family living spaces. Our growth initiatives, PV Apartment and Marketplace, also grew ahead of expectations and contributed meaningfully to our comp growth. The foundation of our Q2 performance was the tremendous results in our e-commerce channel, which reached over 70% of our sales. We continued to improve our site experience by adding inspiring content that drove strong organic traffic, high average order value, and units per order. Our product of our children's home furnishings business was also strong in the second quarter, with a net comp of 4.8%. It's clear that customers are responding to our sustainable, high-quality products, Our industry-leading assortment of Green Guard certified organic and fair trade products are resonating with customers more than ever, especially in our baby business, which continue to accelerate in Q2 as a key growth category. One area of softness has been our backpack business, as most schools are starting the academic year with distance learning. But we are seeing a surge in our study-at-home solutions, especially home study furniture, across both Potterburg kids and teens, as we become the destination for study from home for kids of all ages. West Elm continues to deliver very strong net comps year over year at 7% and on a two-year basis of 24.5%. This brand continues to have high appeal particularly in our furniture categories where we saw substantial growth in indoor and outdoor as well as key successes in home office, dining and storage furniture this quarter. We substantially enhanced our digital experience in previously retail-dominant categories, like upholstery, textiles, and decorative accessories, which also contributed to our growth online. Also in the quarter, we expanded our SteelCase partnership with the launch of a new furniture collection aimed at helping our customers work from home comfortably and productively with products that provide form and function. Cross-brand, our business-to-business division, re-accelerated substantially to double-digit growth. As you know, this is a large, highly fragmented industry that we are disrupting. We have invested in a strong sales team and support in our infrastructure to turn this opportunity into a $2 billion business. In the second quarter, as states reopened, we were there for our customers in offering a furniture resource that was immediately available for hotels, restaurants, and corporate public spaces. We also continued to see significantly higher sales growth from our cross-brand loyalty key members compared to non-members and more customers shopping across our portfolio of brands to furnish their homes. It goes without saying that none of these results would be possible without our people. Their ongoing resilience and dedication have never been more apparent than during these difficult times. We are proud to continue to invest in our associates through several initiatives announced this quarter, including increasing the minimum wage for hourly associates and further enhancements to our parental leave policy. Folding on our strong culture, especially in times of real adversity, is not only the right thing to do, but also creates more loyalty and a better experience for our customers. Looking forward to the second half of the year and beyond, we are confident in our growth trajectory. The strong trends from last quarter are continuing. Our product pipeline is one of the best we've ever seen. Our e-commerce initiatives are driving accelerating KPIs and our inventory position will continuously improve. Longer term, we believe the behavioral changes and industry shifts that have emerged from the pandemic will persist and continue to favor our business. Over the past five months, we have seen an acceleration in online sales and with our powerful digital platform, and trusted brands, we are maximizing the shift and driving e-commerce sales to new levels. We expect this trend to continue and are executing to a future where stores will be fewer in number but even better in experience. As a result, we are not only more confident in our long-term financial outlook but in our potential to further expand our profitability. We are investing in the next phase of our growth and the opportunities that position us for accelerated market share gains. and as we look ahead, we are more optimistic than ever about our future. Now we'll turn over to Julie who will provide more detail on our second quarter financial results.