Williams-Sonoma, Inc.

Inc. fourth 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 morning, and thank you for joining our fourth quarter earnings call. I'd like to remind you that during this call, we will make forward-looking statements with respect to future events in financial performance, including guidance for fiscal 23 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation 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. Specifically, we recorded an impairment charge of $17.7 million in the fourth quarter to write off certain software and hardware costs. and goodwill associated with Aperture, a division of our outward subsidiary. This impairment charge does not affect our ongoing use or strategy of the outward technology in our portfolio of brands and in our design and room planning functionality. Accordingly, our non-GAAP results for the fourth quarter and fiscal year 22 have been adjusted for this impairment charge. A full reconciliation of non-GAAP measures for the most directly comparable gap measure appears in Exhibit 1 to the press release we issued earlier this morning. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura Albert, our President and Chief Executive Officer.

Laura Albert Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. At William Sonoma, Inc., we're proud that despite the declining macro environment, we delivered another year of record revenue and record earnings. With our relentless focus on compelling product, customer service, and profitable growth, we continue to outperform our peers. We continue to gain market share, and we continue to distinguish ourselves as the world's largest digital-first, design-led, sustainable home retailer. And what are these things that distinguish us? No other home furnishings company offers our in-house design capabilities and vertically integrated sourcing organization. It allows us to deliver high quality, sustainable products at the best value to market that cannot be found anywhere else. No other home furnishings company offers our digital first, but not digital only channel strategy that's transforming the customer experience. With our proprietary e-commerce platform, we are one of the largest e-commerce players in the United States. Our in-house CRM and data analytic teams optimize our digital spend and customer connections. And our great stores not only deliver an outstanding customer experience, but also in 2022, we expanded our services with ship to store as we transition our stores to also serve as design centers, and omni-fulfillment hubs. And no other home furnishings company has our strong record on values that many consumers want today. In Q4, we are proud to be named through Newsweek's list of America's most responsible companies. The Morgan Stanley Capital International ESG assessment gave us a triple A rating, the highest possible. And we were included on the 2022 S&P Dow Jones Sustainability Index for North America, the only new retailer added to the North America list in 2022. Along with our key differentiators, our success and profitability has been driven by our new growth initiatives that are cross-brand and or are outside of our core brands. Our largest cross-brand growth driver is business-to-business. William Sonoma Inc. is no longer just a home furnishings company. We furnish our customers everywhere, from restaurants to hotels, from football stadiums to office spaces. We set the ambitious goal this year to reach a billion in demand in our B2B business, and we came very close, driving 27% year-over-year growth and 166% on a two-year basis. And we continue to win B2B accounts, due to our design capabilities and the wide range of products offered in our multi-brand portfolio. Another successful growth initiative is our expansion into global markets. In the massive market of India, our new partnership with the Reliance Group is off to a very strong start. With our exclusive and differentiated product line, our three stores and websites in India are outperforming our expectations in a market where we see tremendous opportunity. And in Canada, we relaunched our websites and saw improvements in conversion and AUR across brands. In our new businesses, Rejuvenation and Mark and Graham have also provided incremental growth. Together, in fiscal 2022, they represented nearly $270 million in revenues and drove nearly a 10% comp on the year. These two brands service white space needs of customers. At Rejuvenation, We're expanding into remodel categories related to kitchen and bathroom, including vanities, cabinet hardware, and custom wall lighting. And at Mark & Graham, our high-quality gift and personalization business is resonating with our customers, and we see outsized growth in the travel space, including luggage and accessories. Our core brands, Potter Barn, Potter Barn Kids, Potter Barn Teens, West Elm, and Williams-Sonoma, are also key contributors to our strong fiscal 2022, together growing at 6.4%. Put it all together, our key differentiators and our growth initiatives, and you see the results that we are reporting today. We're proud that we achieved our fiscal 22 annual guidance and delivered a 6.5% comp on the top line and an operating margin of 17.5%. At the same time, we drove EPS growth of over 11% to $16.54 per share from $14.85 last year. As I said at the top, we continue to outperform our peers. In a year where the industry grew 1%, we grew more than 5%. All of this is particularly impressive given the declining macro backdrop in Q3 and Q4 of 2022, and the record demand that we were up against in 2021. Stepping back for a moment and looking at the last 12 years, it's clear that we've consistently delivered. And more recently, since 2019, we've grown our revenues more than 47%, adding $2.8 billion to the top line. We've also more than doubled our operating margin, from 8.6% to 17.5%. Now let's talk specifically about Q4. Our Q4 results were achieved while the macro backdrop weakened. Our demand comps were in the negative mid-single digit comp range and were inconsistent across our portfolio of brands, leading to a net revenue comp of negative 0.6% total company. In addition, although supply chain cost increases pressured our margins, we were able to offset these headwinds with SG&A cost savings producing an operating margin of 19.9% and earnings per share of $5.50 in Q4. Now let's talk about our brands for Q4 and for the full year. Pottery Barn ran a positive 5.8% comp in Q4 and a 14.9% on the full year. On a three-year basis, Pottery Barn generated a 54% comp Powder Barn's inspirational product offering and successful execution of its growth initiatives, like the accessible home, apartment, and marketplace, drove the performance. Also, our holiday offering was successful. As we look to the year ahead, the brand has a strong lineup of product offerings, including new products with great design and sharp price points. The Powder Barn children's business ran a positive 4% comp in Q4 and a positive 0.4% on the year. On a three-year basis, the children's business generated a 28.6% comp. Growth continued to be driven from baby and dorm. And another highlight is our successful introduction of our exclusive collaboration with a trending fashion brand, Love Shack Fancy, which is outperforming our expectations. Also, in both Powderburn Kids and Powderburn Teen, we're excited to have launched a new native shopping app. which brings enhanced functionality and provides customers with an easy-to-use interface. We've only been live with the app for a short time, but we are seeing positive response and will continue to read results to determine if we should launch apps for our other brands. In Q4, the children's business benefited from an improved in-stock position, which is critical to this life stage business and will continue to benefit us this year. The West Elm brand was most affected by the tough macro environment. In Q4, West Elm ran a negative 10.7% coming off very strong multi-year comps. On a full-year basis, West Elm ran a 2.5% comp and very strong operating margins. On a three-year basis, the West Elm brand generated a 50.8% comp. Looking ahead, we're very excited about the recent announcement of Day Corn Blues, as the new brand present effective April 3rd. Day has a proven track record and previous success growing home furnishings brands. She'll lead Westbound through its next chapter of growth with a focus on four areas. Industry-leading design and value, increased brand awareness and customer acquisition, expanding into product white space, and leveraging channel growth opportunity. Given the cautious consumer, we continue to see short-term softness. But with Day Corn Blue leading this brand, the total addressable market opportunity, and the focus on those four areas, we continue to be very optimistic about the long-term growth trajectory of West Elm. Finally, the Williams-Sonoma brand had a successful holiday season, but ran a negative 2.5% comp in Q4, largely driven by softness in January. On the full year, the brand ran a negative 1.7% comp. On a three-year basis, Williams-Sonoma generated a 32.6% comp. And while the housewares market has become extremely promotional, the Williams-Sonoma team remains focused on increasing product exclusivity, innovation, relevant content, and full price selling. We have a pipeline of innovative product launches and chef collaborations planned throughout the year, and we see new opportunities from the integration of the Williams-Sonoma Home Furnishings assortment into our kitchen business. Looking ahead, we recognize that with a weak housing market, layoffs, and a possible recession, there's a lot of uncertainty with the consumer. Nevertheless, we remain confident. With our key differentiators and our growth initiatives, we're confident in our top line. With our focus on reducing costs and managing inventory levels, we're confident on our bottom line. And with the home furnishings market, remaining large and fragmented, including the B2B market at an estimated 80 billion TAM, we're confident that we will continue to gain market share. With our relentless focus on compelling product, customer service, and profitable growth, and its inflation and costs, including shipping, come down, we're confident that we'll drive operating margins of more than 14%, as Jeff will discuss in more detail. Looking even further out, We remain confident in our long-term growth algorithm. I believe we're going to get through the coming environment better than any of our peers. We are going to keep delivering profitable growth, and we believe we can deliver mid to high single-digit top-line growth and sustain our operating margin of at least 15% once the external environment improves. This is a great company with great brands, and with our culture of innovation and talent, our values, and the strength of our team, we're moving ahead with our vision to furnish our customers everywhere. As we do, we're confident that we will continue to outperform our peers and deliver for all of our customers, employees, and shareholders. And with that, I'll turn it over to Jeff.