Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma Incorporated. 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 a 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 one of our press release. This call also contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which address the financial condition, results of operations, business initiatives, trends, growth plans, and prospects of the company in 2021 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 filings, including the most recent NK, 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 Albert, our President and Chief Executive Officer.

Thank you. Good afternoon, everyone, and thank you all for joining us. We are proud to report another record quarter of accelerating revenue and profitability with over 40% comp growth. and a 950 basis point expansion in our operating margin. These results were driven by strength across all of our brands. We are seeing strength in our core businesses and our new growth initiatives have outperformed. As reopenings accelerate across the country, a record number of customers continue to shop with us as they invest in their homes. We are honored to be our customers' destination for their entertaining and home furnishings needs as they welcome friends and family back. As a result, we are raising our full-year guidance from mid to high single-digit revenue growth to low double-digit to mid-teen revenue growth and year-over-year operating margin expansion. We believe our business is uniquely positioned to gain market share given our growth strategies and our three key differentiators, which are one, our in-house design, two, our digital first channel strategy, and three, our values. These differentiators are more relevant than ever with our customers, and are setting us further apart from our competition. Starting with our in-house design capability, we know that ultimately everything starts and ends with product. Our in-house designers, combined with our vendor partners, create proprietary products that are high quality, sustainable, and aesthetically unique. The strength of our value proposition has given us the opportunity to pull back on promotions. We see this as a sustainable change in our model and a game changer for the longer-term strength of our margins. In addition, our world-class design capabilities are driving new product launches across our brands. In Q1, we saw strong indicators of growth in these new initiatives. For example, in Pottery Barn, our rustic, modern, casual point of view in furniture, home furnishings, and decorating are driving double-digit growth in all categories. Growth in our bath renovation business accelerated to nearly 50% in the quarter, and our marketplace business gained momentum, growing over 70% in the quarter and reaching over 6% of our total Potter Barn brand sales. In Potter Barn Kids and Teen, we continue to amplify our leadership in the children's home furnishings market with our emphasis on design and sustainability. We are proud that 100% of our children's furniture is Green Guard Gold Certified, and our in-house design furniture collections are distinctive in the market. Furniture continues to be a key growth driver for the brand. We also saw outsized growth in key initiatives such as Baby, which grew over 30%, and our aesthetic expansion into Modern, which comped nearly 70% over last year. In West Elm, in addition to broad-based strength, our aggressive expansion in the outdoor category has been successful and incremental. This quarter, our outdoor furniture business grew at a comp of nearly 140%, driven by line extensions and our top-performing collections and new product introductions. We've expanded our year-round assortment and plan to introduce several new collections over the next year that will nearly double our outdoor business. Another exciting growth initiative is the expansion of our West Elm Kids business, including the launch of a dedicated e-commerce site. In the Williams-Sonoma brand, cooking at home and now entertaining at home are driving our customers' purchases. This quarter, we saw significant growth in all areas of entertaining, particularly outdoors and Easter gatherings. As the momentum builds with people coming back together and celebrating, we are well-positioned to meet their cooking and entertaining needs as we head into the back half of the year. Additionally, in our Williams-Sonoma home business, we delivered a 40% count for the quarter. Our decision to reposition the brand as a furniture destination is paying off and customers are responding very favorably to our high-end, sustainable, casual aesthetic. Our outdoor collections, for example, are delivering over 200% growth. We continue to believe that Williams Cinema Home is one of our biggest growth opportunities as the high-end luxury furniture market remains significantly underserved, especially online. Our cross-brand growth initiative, B2B, delivered another record-breaking quarter, up nearly 165% or $100 million in revenues, and is on track to reach over half a billion by year-end. The momentum in our contract business accelerated throughout the quarter as businesses started to reopen and our win rates on large projects continued to improve. One example of a high-profile project is with the Austin Football Club. Over the past 16 months, we have been furnishing the club's state-of-the-art Q2 stadium that's set to host its first international game next month. We are also thrilled that we continue to see repeat business from some of our key customers like Salesforce, and we have a growing number of new projects currently underway. Now I'd like to discuss our digital first positioning as a key differentiator. E-commerce is and will continue to power our growth, demonstrated by our sustained step-ups in top and bottom line results. We have built our e-commerce platform over decades of investment, including a supply chain custom-built to ship directly to customers, industry-leading in-house digital marketing capabilities, a digital-first house file, and a sophisticated tech stack. This quarter, our in-house tech platform and rapid experimentation program continue to deliver strong results. We introduce new features and improvements across the digital experience in site navigation and personalization, PIP experiences, and in our proprietary product recommendations platform, all of which drove double-digit growth and engagement and a significant lift in revenue per visitor. More of our customers are also utilizing our 3D design tool, the DesignCrew Room Planner, with total plans created in Q1 up nearly 50% compared to last year. As a reminder, customers who utilize this tool continue to generate twice as many sales as the average customer. We also have the advantage of being digital first, but not digital only. Our stores help drive our online growth and are a key competitive advantage. They give our customers the ability to experience our products in person, to access our convenient Omni services, and to take advantage of our free in-store or in-home design services. This operating model allowed us to generate strong e-commerce growth, maintaining over 65% of our revenue mix while delivering some of the highest retail growth we have seen on both a one-year and a two-year basis. As a reminder on our channel performance, we are up against short shutdowns from March 18th through the end of June last year and limited retail traffic due to COVID restrictions through the balance of the year. We are thrilled to see both our retail and DTC channels outperforming expectations. Our results this quarter also demonstrate the effectiveness of our digital marketing investments. We continue to focus on high ROI advertising vehicles. We manage our advertising spend in-house and have developed a robust test and learn agenda across our portfolio of brands, allowing us to find efficiencies and to reinvest. And the margin upside we have seen from less promotions also enables us to invest more in incremental high ROI marketing initiatives that drive the top line. We've also identified a large growth opportunity in cross-brand migration. We've seen a significant change in behavior since we launched the Key, our free loyalty program that allows customers to earn points across our brands and to use their rewards to any one of our brands. New customers are increasing their cross-brand spend at record levels, and we have just begun to tap into this opportunity. This year, we'll be implementing new cross-brand programs, messaging, and events that will further accelerate this cross-brand shopping behavior. We believe this is one of our key incremental growth opportunities, and we look forward to sharing more with you as we have some very exciting launches coming this fall. We are also proud to have made progress in the area of values, which is our third key differentiator. Last month, we became one of the first in our industry to commit to a science-based target for emissions reduction by 2030, including the goal of carbon neutrality across our own operations by 2025. We underwent an extensive year-long data gathering process using third-party experts and independent research alongside our company data to measure our carbon footprint and to arrive at this carbon reduction target. We are also proud to be gaining traction on our goal to plant 3 million trees in three years, with 1 million trees already planted since the campaign's inception at the beginning of 2021. In addition, we are recently included in the top 100 companies of Forbes Best Employers for Diversity, which honors our progress in creating a diverse and inclusive workplace for associates. We also continue to build on our relationships with our Black Equity Action Partners, the NAACP, the Jackie Robinson Foundation, and the National Urban League. And we have just established our new partnership with Asian Americans Advancing Justice, Asian Law Caucus. Hate-motivated attacks against the Asian community are simply unacceptable. We stand with the Asian community and our Asian associates, and we will continue to use our collective power to fight against hate, racism, and inequity in all forms. I would now like to discuss our outlook for the balance of the year and provide some insight into what we are currently seeing in our business. According to date, our business remains strong. We are seeing top line growth and strong margin continue. This is particularly important because we are now comping a substantial spike in home category demand last year as a result of the pandemic lockdown. And this trend further confirms our confidence and our growth outlook in a more normalized environment. From a supply chain perspective, although backwaters remain high, we are working to restore our in-stock levels. We continue to do all that we can to expedite inventory flow, and we are proactively extending our product lead times where necessary and reaching out to customers with timely updates as we work through these delays. The situation, however, remains difficult, especially with the heartbreaking COVID crisis in India, which of course is impacting production. Our current estimate is that we should be back in stock during the third quarter. As it relates to cost increases that continue to pressure the industry, i.e. shipping costs and raw material increases, we are confident that we can achieve our profitability goals due to our strong product margin expansion and occupancy leverage. From a macro perspective, we believe trends will continue in our favor. High consumer confidence, spending shift to e-commerce, the continuation of remote hybrid work, and a robust housing market provides a strong backdrop to our strategies. Also, as kids return to school, we've seen a significant recovery in our gear and dorm businesses, and expect this will continue and be material as we move into the fall. In addition, the outside's growth across all of our entertaining related categories, such as outdoor, dining, and tabletop, gives us confidence that the entertaining trend will further accelerate as we move throughout the year and as people welcome friends and family back into their homes, especially for the holidays. We also see a big opportunity in gift giving this year, as people gather and reconnect to give gifts in person this holiday. As far as other parts of our business, our B2B sales are accelerating week after week as our project pipeline continues to expand with the reopening of businesses across the country. And our global operations are also gaining momentum with the reopening of our company-owned stores and strong franchise business across the world. As we look ahead, we are confident in our runway for growth and profitability. The goals we have set are driving incremental growth faster than anticipated, our brand differentiators continue to accelerate, and favorable macro trends should continue to benefit our business for the long term. We are the only home furnishings retailer that's able to serve customers at scale online and provide the experience and convenience of physical retail with exclusive, sustainable products giving us the unique advantage to gain share for many years to come. Before I pass the call to Julie, I want to thank our associates for their ongoing hard work and dedication. Their resilience and innovation are a key part of our success and our ability to continue to deliver profitable market share gains for the long term.