Williams-Sonoma, Inc.

Welcome to the Williams Sonoma Inc. fourth quarter and fiscal year 2021 earnings conference call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining our fourth quarter and fiscal 21 earnings call. I'd like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including guidance for fiscal 22 and our long-term outlook. Although we believe these statements reflect our best estimates and all available information, we cannot make any assurances that these statements will materialize and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure, along with an explanation of how and why we use these measures, appears in Exhibit 1 to the press release we issued earlier today. This call should also be considered in conjunction with our periodic and annual filings with the SEC. Finally, the call is being recorded, and a replay will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura Elber, our President and Chief Executive Officer.

Laura Elber Thank you, Jeremy. Good afternoon, everyone. Thank you all for joining us. We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points. These results reflect the resilience in our business model as we successfully navigated unprecedented challenges within the supply chain, material and labor shortages, and capacity limitations from our incredible consumer demand. This resilience, coupled with continued execution in our growth initiatives, fueled an annual comp of 22%, operating margin expansion of 350 basis points, and EPS growth of 64% to 14.85 per share. Our three key differentiators, our in-house design, our digital first channel strategy, and our values continue to provide the framework for execution, both in our core business and in our growth areas like B2B, marketplace, cross-brands, and our global business, which excitingly have all gained traction faster than predicted and demonstrate to us that we are well positioned to continue to take share in this industry. First, let's spend some time on our top-line performance in the fourth quarter. Throughout fiscal 2021, we continued a deliberate reduction in our site-wide promotional cadence in all of our brands. Instead, we shifted our focus on delivering aspirational and inspirational content. and our customers clearly responded. This pricing power is entirely a function of our differentiated and sustainable product offering that our customers know and love. And further, despite the highly promotional environment in the fourth quarter, we made a conscious decision to maintain this pricing integrity and not pursue incremental top line at the cost of our merchandise margins. In fact, we delivered gross margin expansion of 290 basis points in the quarter. Further, this pricing power has allowed us the flexibility to absorb supply chain costs and aggressively fund marketing efforts. Our bottom line performance in the fourth quarter speaks for itself. We drove operating margin of 21% and a 37% increase in EPS, both of which demonstrate durability of our earnings power through execution in our core and growth initiative, which I'm excited to update you on now. Our B2B business continues to outperform. building its book of business to $753 million in 2021. B2B is an underserved and fractured industry. As we continue to take share in this white space, servicing businesses that need high-quality, sustainable furnishings at good price points. Furthermore, our in-house design capabilities, offering the wide breadth of aesthetics across our brands, coupled with our industry-leading global sourcing and supply chain operations, allows us to take this service to the next level. Our B2B business has tremendous potential to contribute to our results. Our growth targets continue to climb as we unlock new opportunities. And not only is our B2B business model accretive to our gross margin, but even more accretive to op margin as a result of its fixed operating costs. We continue to exceed our own expectations for this business, and longer term we believe this is one of our biggest opportunities. Another contributor to our success has been our global strategy. We're franchise first with strong retail and digital execution. During 2021, global achieved record revenue up 23% over last year with strong earnings growth. Core company-owned markets of Canada and UK achieved record results for the year and the quarter. Franchise continues to be a growth vehicle with the critical markets of the Middle East, Mexico, and India providing a large diverse growth base. With our systems investment in our new digital platform and large cost reductions in warehousing, transportation, and delivery, we expect to exceed our record results in 2022. Marketing is another component that sets us apart and drove results in FY21. Customers who shop across our brands generate three to four times more revenue than the single brand customer. And we've seen incredible results this past year due to our continued marketing efforts. In fiscal 21, approximately 60% of our sales came from cross-brand customers, a record high in terms of percent to total. And our cross-brand customer counts grew faster than those of the single brand customer. While new customer acquisition is always a priority and continues to grow, we believe we have even more upside by increasing our share of wallet with our existing customer base. Core to this strategy are three things. First, our cross-brand loyalty program, The Key. We continue to see record levels of customer engagement and an all-time high membership. Second, our recently launched cross-brand credit card. This card reached its six-month anniversary, producing cardholder spend and cross-brand activity that has exceeded our expectations. And third, we are focused on personalization efforts in our digital marketing. We continue to leverage our in-house managed first party data across our brands, which positions us for the cookie list future that is rapidly approaching. Remember our multifaceted loyalty program generates benefits across our portfolio and is a clear competitive advantage few of our peers offer. As a digital first company, we are in constant pursuit of incremental improvement to our customer's shopping journey online. We've improved several product finding and purchasing experiences on our website from improved room styling, native registry applications, and the removal of friction in the checkout process. Additionally, we relentlessly focus on continued optimization and automation in our DCs and logistics networks to improve our service time. On the sustainability front, we take great pride in the progress we are making with our impact initiatives and ESG leadership across the home furnishings industry. Notable accomplishments in this quarter included our second annual inclusion in Bloomberg's Gender Equality Index, being recognized as number 21 on Barron's 100 Most Sustainable Companies, and receiving an A rating from CDP for leadership in supplier engagement and our work with suppliers on tackling climate change. These commitments are reflected in the high-quality, sustainable products that we offer our customers and continue to distinguish our company and our brand. Our values are both central in our actions and embedded in our products. We always want to provide our customers with transparency, and each day we commit ourselves to maintaining the highest level of integrity and ethical standards. We are deeply saddened by the war in Ukraine, and we stand with Ukrainians and all people who oppose war and its atrocities on family and the home. Related to product and business with Russia, we have no operations in Russia. And as the situation between Russia and Ukraine escalated, our team identified a handful of products of Russian origin which we are no longer selling. And now let's turn to the performance of our brands. West Elm delivered an 18.3 comp in the fourth quarter, with all categories driving strong growth. Customers responded well to new products, including best sellers in bedroom, dining, storage, and occasional categories. Additionally, new categories such as bath, kids, and kitchen also contributed to incremental growth. On the full year, West Elm delivered a comp of 33.1%, building to a 48.3% on a two-year basis and continuing to build velocity and its mission to become a $3 billion brand. Potter Barn delivered another high-performance quarter with a 16.2% comp, driven by strong core franchises in key categories. Q4 results were enhanced by a strong seasonal decorating business and inspiring seasonal bedding and entertaining. On the full year, Potter Barn celebrated a record year with a comp of 23.9%, building to a 39.1% on a two-year basis. Also, we're delighted to report that Potter Barn has surpassed the halfway mark on its commitment to plant 3 million trees in three years to restore vulnerable forests. Our partner Arbor Foundation follows the best practices and the latest science to ensure maximum impact and promote biodiversity. And even better, based on the tremendous success of this program, our other brands have joined the effort, doubling our commitment to planting 6 million trees by 2023. We couple this with commitments to responsibly harvest wood and a robust sustainability story. Now I'd like to talk about Potter Barn Kids and Teens. As we indicated during our third quarter call, we were not entirely immune to the ripple effect from delays resulting from the supply chain disruption around the world. In particular, the shutdown and related backlogs from Vietnam had a larger impact on our children's home furnishings business, which ran a negative 6.1 comp for the quarter. Unfortunately, we expect to feel this impact at least through the second quarter this year. Despite this supply chain pressure, strength in the business includes our baby business, which is delivering growth through our offering of green guard gold furniture. along with additional volume from our in-store and online baby registry. Also, we delivered record results in our seasonal trim business as customers enjoyed the holidays. Potterburn Kids and Teens delivered a full-year comp of 11.6%, building to a 28.2% on a two-year basis. Our Williams-Sonoma business drove a fourth-quarter comp of 4.5% on top of a 26.2% comp last year with growth driven by demand for entertaining at home and gift giving. We continue to focus our strategy on expanding our exclusive product and Williams-Sonoma branded product to drive growth. We are pleased with improvements in the digital experience on the website that are driving conversion, and our store optimization strategy is working. Our high-impact store remodels and our market consolidation efforts are driving improved operating margins. On the full year, Williams-Sonoma delivered a comp of 10.5%, building to a 34.3% on a two-year basis. One of our key components of growth is our Williams-Sonoma Home business. Given the strength of the Williams-Sonoma brand name, our expertise in the furniture category, and the clear opportunity in the high-end home market, we believe that Williams-Sonoma Home is one of our biggest growth opportunities. In summary, We're immensely proud of our accomplishments and record results this fiscal year. I am confident that we will continue to raise the bar and extend this momentum in fiscal 2022. So far in the first quarter, we continue to see strong sales and margins. We have a robust lineup of growth initiatives and operational improvements planned for this year. And as we look further, we are confident in our long-term outlook, driving at least mid to high single-digit comps with top line growth to 10 billion by 2024 and operating margins relatively in line with fiscal 2021. Before I pass the call to Julie to go through the financials in more detail, I want to thank our entire team for never slowing down. I'm endlessly grateful for their outstanding work, their creative energy, and their relentless focus. I am privileged to work alongside this talented group of people. And with that, I'd like to turn the call to Julie.