Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma Third Quarter 2022 Earnings 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. 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 Third Quarter Earnings Call. I'd like to remind you that during the call, we will make forward-looking statements with respect to future events and financial performance, including guidance for fiscal 22. We believe these statements reflect our best estimates. However, 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 for the most directly comparable GAAP measure appears in Exhibit 1 to the press release we issued earlier today. The call should also be considered in conjunction with our filings with the SEC. Finally, 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.

Thank you, Jeremy, and good afternoon, everyone. We are proud of another strong quarter generating an 8.1% comp or 25% on a two-year basis and 50% comp growth on a three-year basis with record EPS growth of 12% over last year to $3.72 per share. These results reflect the continuation of backlog order fulfillment, strong product margins, and disciplined cost control. Demand comps for the quarter were slightly negative. This continued outperformance reflects the unique strength of our multi-brand portfolio, our growth initiatives, and ongoing execution of our talented team. Since we last spoke, the macro backdrop has become more uncertain. However, what has not changed is the large, and fragmented space in which we operate, where no one player owns significant market share. We believe we have an ability to capture more of this market in any environment. We have and will continue to deliver results, leveraging our key differentiators, our in-house design, our digital first but not digital only capabilities, and our values. These competitive advantages, in combination with our growth strategies, give us many opportunities for the future. As we talked about before, one of our largest is B2B, which had another excellent quarter driving over 30 million in demand, a 17% increase to last year. We continue to believe our B2B business presents a sizable growth driver for us as it disrupts an underserved estimated $80 billion total addressable market. B2B is building velocity with large and repeat projects from commercial and hospitality partners like Marriott and Hilton. We are also focused on diversifying into new industry verticals, including the healthcare space through multi-property partnerships with national accounts. In September, we successfully launched our improved corporate gifting and custom merchandise services, and we are encouraged by the early success leading into the holiday season. A key B2B customer of ours for over three years now, the Starbucks. We are thrilled to publicly announce that our team was able to assist Starbucks with the build-out of their gorgeous three-story flagship reserve store in the Empire State Building. In addition to incorporating furniture from Brooklyn-based West Elm, our B2B team had the opportunity to work with Starbucks to create custom furniture solutions to meet their unique needs. We look forward to growing our existing relationship with Starbucks. And now I'd like to talk about a global business where we continue to expand in key markets and grow our multi-channel presence. In Q3, we saw strength in both franchise and company-owned. In the franchise business, we believe that one of our biggest opportunities is in India. And after launching our website earlier this year, we opened our first Pottery Barn store in New Delhi, joining our West Elm stores in New Delhi and Mumbai. We plan to continue to focus on India And in early 2023, we'll be adding stores across our brands and continuing to improve our online experience with our great partner, the Reliance Group. In our company-owned business, I want to highlight Canada, where we successfully relaunched our websites this year across all the brands, driving order fulfillment and an improved Omni experience. Another important initiative is sustainability, for which we continue to be recognized for our impact initiatives and ESG leadership across the home furnishing industry. In Q3, we were named the top scorer on the Sustainable Furnishing Council Wood Furniture Scorecard for the fifth consecutive year, and West Elm received the Ford Stewardship Council Leadership Award for its use of FSC-certified wood. We recognize there is much more work to do in this space, and we are committed to continuing to be a leader in planning, people, and purpose. One of our sustainability initiatives is our goal to plant 6 million trees across our family of brands in partnership with the Arbor Day Foundation. We are excited to report that we have planted over 2 million trees to date. Now let's turn to the performance of our brands. Potter Barn delivered yet another very strong quarter with a 19.6% comp or 35.5% on a two-year stack and almost 60% on a three-year stack. Pottery Barn continues to perform, offering exclusive, high-quality, inspirational products. And strategic growth areas like apartment, marketplace, and bath reno are driving results. We're particularly proud of our accessible home collection, which launched in late July and has quickly scaled. West Elm delivered a 4.2% comp in the third quarter, or 26.6% on a two-year stack, and 48.4% on a three-year basis. During the quarter, we improved our in-stock inventory position, and we expect to continue to make improvements in our service levels into Q4 and next year. We are also very focused on improving our e-commerce experience and customer-facing conversion driving initiatives. I've had the opportunity to spend a lot of time with West Elm this quarter, and I am very impressed with the talented and passionate team running the brand. Our greatest opportunity at West Elm is doubling down on what has made this brand great, our commitment to design innovation and value price points. Now I'd like to update you on the Pottery Barn Children's Home Furnishings business, which ran a negative 4.8% comp in Q3, but a positive 12.1 on a two-year basis and a positive 35.9 on a three-year basis. We continue to see ongoing recovery in our in-stocks. And looking to the future, we have a strong pipeline of products at compelling values. The Williams-Sonoma brand ran a negative 1.5% comp in Q3, but a positive 6.1 on a two-year and a positive 36.5 on a three-year basis. We continue to see that people are hosting and entertaining at home. And as such, we saw strength in entertaining areas. In Q3, we successfully kicked off the holiday season with our exclusive collaboration with celebrity chef and author, Ina Garten. As part of this collaboration, Ina shares Thanksgiving tips for cooking and hosting the ultimate Thanksgiving dinner party. We also announced the exciting launch of a collaboration with renowned British heritage textile brand, William Morrison Company. William Sonoma Home delivered another double digit comp in Q3. We continue to see this business as an opportunity to deliver outside growth by picking up market share from the limited luxury high-end home market. We're excited to launch an expanded furnishings line for the kitchen in Q4. As we look to the holiday season, we are prepared to meet the needs of our gift-giving customers with compelling product offerings. Our stores are competitive advantage, and they are stock, and our associates are ready to serve our customers. And finally, our emerging brands, including Rejuve and Mark and Graham. Together, they ran a 7.8% comp this quarter. At Rejuvenation, we saw success in remodel categories related to kitchen and bathroom, including vanity, cabinet hardware, and wall lighting. And at Mark and Graham, wins were from the travel category, including luggage and travel accessories. We are proud of our third quarter results. but we are also aware that economic uncertainty is on the minds of consumers and investors alike. During the third quarter, we experienced deceleration and choppiness in our demand, and it is hard to know where the economy is going or how long the uncertainty will last. Nonetheless, we are controlling what we can control and looking at opportunities to reduce costs without an impact to the customer experience. In fact, we believe that protecting service and innovation is key to outperforming our peers. As it relates to pricing, we continue to be committed to not running site-wide promotions as we did before the pandemic, but we will continue to mark down and clear over stocks. We are working with our vendors to reduce costs and pass on that value strategically to our customers. As for additional expenses, out-of-market and redundant shipping expenses and transportation costs, have negatively impacted our gross margin. We continue to focus on these pressures and mitigation of these costs will be a significant benefit for us in the future, particularly in the second half of next year. In summary, we are conscious that the home furnishings market may contract due to macro factors. If this happens, we believe we are uniquely positioned to take market share, even if there is a downturn. And here's why. We've built a company of love brands with a shared platform of competitive differentiators that leads the industry. In-house design, the digital first but not digital only platform, and our values. We have identified opportunities for growth through strategic initiatives like B2B, global and marketplace, where we have the opportunity to disrupt. And finally, we have a culture of innovation and an experienced team who knows how to increase operational efficiencies and control costs while protecting service and driving new growth opportunities. Now, I will turn it over to Jeff to walk you through the results in more detail in his first earnings call as CFO.