Williams-Sonoma, Inc.

Today, ladies and gentlemen, and welcome to the Williams-Sonoma Incorporated Q2 2022 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the conclusion of the prepared remarks. Today's call is being recorded. 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 second quarter 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 estimate 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. Those measures should not be considered replacements for and should be read together with our GAAP results. A reconciliation of non-GAAP measures for the most directly comparable GAAP measure, along with an explanation of how and why we use those 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 filing with the SEC. 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 Elbert, our president and chief executive officer.

Thanks, Jeremy. Good afternoon, everyone. I'm excited to share our second quarter earnings today. Q2 marks another quarter of strong performance, delivering an 11.3 comp on the top line and earnings growth of over 19% to $3.87 per share. These impressive results reflect the strength of our multi-brand portfolio, the success of our growth initiatives, and the ongoing execution of the team. We continue to demonstrate our ability to perform by offering high-quality, differentiated, and sustainable products that our customers know and love. Our performance was driven by three factors, strong order fulfillment, positive demand comp, and our successful continued elimination of site-wide promotions. I'm very proud of this performance, especially given the macroeconomic backdrop and the strong compares we are up against, all while delivering an impressive 41.1% comp on a two-year basis. And it is this continued outperformance that gives us the confidence to reiterate our 2022 guidance and longer-term outlook today. Our positioning in the industry is a competitive strength. Our industry is large and fragmented, with more than half of sales from small, brick and mortar retailers that do not have sophisticated e-commerce capabilities. And with the arrival of the millennial generation to the household creation stage, this is a huge opportunity for ongoing market share gains for us while the rest of the players try to catch up. At the same time, our digital-first but not digital-only channel strategy provides a competitive edge in scaling the business into the future. compared to both retail and marketplace-only players. All of this creates an environment that is ripe for disruption and for us to take market share. We continue to win because of our key differentiators, which include our in-house design capabilities with inspirational, exclusive, sustainable, and high-quality products at compelling price points, our digital-first but not digital-only channel strategy, and our values, rooted in sustainability, diversity, equity, and inclusion, which are becoming even more fundamental to purchasing decisions for many customers. These differentiators set us apart as a leader in the industry. And now I want to highlight one of our opportunities, business to business. Our B2B business had another terrific quarter, driving a 32% increase in demand in Q2, and it is well on track to becoming a $1 billion business this year. We continue to grow in this space by focusing on diversifying our product pipeline across a range of industry verticals. In sports and entertainment, we are excited to service our first collegiate sports facility at San Diego State's new Snapdragon Stadium. In hospitality, we continue to gain market share through renovations and new builds, leveraging our diversity of brands. And in our commercial office pipeline, we are encouraged to see the momentum continue as companies return to the office and workspaces are reimagined. To drive the B2B growth, we are focused on the continued development of our sales team and expansion of our contract-grade product assortment. We remain optimistic and excited about the potential of this business as there is no one else providing the full suite of services and offerings that we do. Moving to sustainability, We are thrilled to announce the recent publication of our 2021 impact report, highlighting the progress and fulfillment of our industry-leading ESG goals. We remain committed to prioritizing sustainability, diversity, philanthropy, and worker well-being as key differentiators for our business. In the report, we detail progress on our longstanding commitments, including responsibly sourced cotton and wood, waste diversion, and increased fair trade premiums. We are also one of the first home furnishing brands to set a science-based target for reducing our emissions across our company, and we have made progress decreasing our carbon intensity. Now I'd like to talk about our global business. We continue to believe that global expansion represents a sizable opportunity, and we are focused on a multi-channel strategy in key markets. In Q2, we continued building momentum with our franchise partnership. Our presence in Mexico continues to drive growth, and we launched the Potter Barn and Potter Barn Kids websites in India with stores beginning in Q3 of this year and further expansion into 2023. And in our company-owned business in Canada, we continue to expand our family of brands with the launch of our Potter Barn Team website and the relaunches of Williams-Sonoma West Elm, and our Pottery Barn Kids websites in the market, all with great customer response. Before we get to the strong results of the brand, I want to update you on the supply chain. Unfortunately, this is an area where we continue to see significant disruption, inefficiencies, and cost pressures. Although our in-stock position has improved, we have still room to improve our on-time shipment to customers. Also, we continue to incur higher distribution center costs to support our growth as well as higher ocean freight. And we are still incurring added costs to ship out of market and multiple shipments to service our customers. We expect this pressure will continue in the second half of this year and the first half of next. This is reflected in our guidance and our outlook. Now, let's turn to the performance of our brands. Potter Barn delivered another extremely strong quarter with a 21.5% comp or 51.1% on a two-year basis. All channels and product divisions contributed to driving incremental demand. Our high-quality proprietary furniture business continues to lead the growth. Potter Barn continues to innovate with product and incremental growth initiatives. For example, in July, Potter Barn launched the Accessible Home, an exciting new concept designed to enhance the quality of life at home for the aging in-place community and people living with disabilities and injuries. Our customers have responded enthusiastically about our efforts to address this underserved market, and we believe this could be a significant opportunity across our portfolio of brands. Moving to West Elm, West Elm delivered a 6.1% comp in the second quarter, on top of 51.1% last year, or 57.2% on a two-year basis. We're excited about our new businesses in Kids and Bath, which continue to drive outsized growth for the brand. And we launched our dedicated B2B e-commerce experience and expanded assortment there. Looking forward to Q3, we are focused on three key areas of growth at West Elm. One, improving furniture in-stocks and lead time reductions. two, expanding our depth in seasonal decorating, hosting, and entertaining categories, and three, launching innovative collaborations across the brand. And with the ongoing success of our strategic initiatives, we remain confident in our ability to drive West Elm to become a $3 billion brand. Now I'd like to update you on our Potter Barn Children's Home Furnishings business, which delivered a sequentially stronger quarter with a 5.3% comp in Q2. During the quarter, we benefited from improving inventory receipts out of Vietnam, which followed factory closures that occurred in the back half of 2021. Also, we successfully launched our biggest ever back-to-school collection, and we enabled functionality to ship dorm products to any store in any brand in our fleet across the country. Early results also indicate the seasonal holiday business will be a success, given the early positive reaction to Halloween. In the Williams-Sonoma brand, I want to highlight our recently announced change in leadership. Felix Carbolito, previously our Chief Marketing Officer, has assumed the role of President of the Williams-Sonoma brand. Felix brings incredible talent to the position through his experience in strategy and operations, in addition to a breadth of merchandising, e-commerce, and marketing expertise. Felix is only three weeks into the role, but sees clear opportunities for the brand, particularly in key areas, including One, leaning further into the brand's heritage of inspiring those who love to cook at home with relevant and useful storytelling across all channels. Two, the importance of offering the best product and ensuring customers can rely on Williams-Sonoma to be in stock across the key essentials of a great home kitchen. And finally, there are white space opportunities, not only in our core offering, but also in new categories, that have clear adjacencies to the kitchen. In Q2, Williams-Sonoma came in at a positive 0.5 comp, with accelerating comps throughout the quarter. This was driven by an improved in-stock position, newness in the assortment, as well as higher conversion on the site, driven by our ongoing e-commerce initiatives that have improved imagery and shop paths. In-stock continues to improve, and we believe we will see further recovery in the back half. As part of the Williams-Sonoma brand, our Williams-Sonoma home business ran a high double-digit comp again this quarter and continues to be an opportunity. 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 destined to be a product leader of distinctive design-led, high-quality home furnishings. In summary, we are proud of our performance, and we remain committed to executing on our growth initiatives and operational improvements to drive market share gains and strong long-term financial returns. I want to thank our customers, our employees, and our shareholders. We are committed to delivering for all of you. And with that, I'd like to turn the call to Julie to go through all the financials in more detail.