Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma, Inc. First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in 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 first quarter earnings call. Before we get started, 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 our updated guidance for fiscal 24 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 to publicly update, or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, for the first quarter of last year, 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 detailed reconciliation of non-GAAP measures to the most directly comparable GAAP measure appears in Exhibit 1 to the press release we issued earlier this morning. Also, for the first quarter of this year, we will refer to our GAAP results both with and without the benefit of an out-of-period adjustment that we recorded during the first quarter. We believe providing these disclosures is useful to understanding our quarterly financial results. Jeff will share the details of this adjustment later in his prepared remarks. This call should also be considered in conjunction with our filings with the SEC. And 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.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. Before we review our Q1 results, I want to take a moment to thank all of our teams around the globe for their consistent contributions to our company. We could not continue to produce strong earnings without their cross-functional collaboration and dedication. We are pleased to deliver strong results in the first quarter of 2024, driven by an improving top-line trend and continued strength in our profitability. In Q1, our comp came in above expectations at negative 4.9%. And we exceeded profitability estimates with an operating margin of 19.5% and earnings per share of $4.07. It is important to note that the results of the first quarter include a benefit of $49 million resulting from the reversal of freight-related accruals that we determined were not required, which contributed 290 basis points to our operating margin and 59 cents to our EPS. Jeff will walk you through this in more detail, but it is worth noting that even without the impact of this benefit, we significantly exceeded profitability expectations. As a result of our outperformance, we are raising our outlook on operating margins to now be in the range of 17.6% to 18% or 17% to 17.4% when excluding the impact of the freight accrual reversal. The strong results of the quarter are a result of our focus on our three key priorities in 2024, returning to growth, elevating our world-class customer service, and driving margins. I'll start first with returning to growth. We are pleased with the improvement in our top line trends and our market share gains in Q1. We are keenly focused on innovation in our product line across brands and our unique in-house design capabilities and vertically integrated sourcing organization allows us to offer this high quality design innovation at compelling price points. Another key component of our return to growth strategy is our marketing capabilities. Our in-house digital marketing optimization, backed by our world-class customer analytics and our first-party data collection, serves as a competitive advantage for our company. In the quarter, we increased our ad spend and invested in both our paid marketing and our proven social strategy. This investment allowed us to drive sales improvement, to acquire new customers, and to gain market share. Additionally, we are continuing to improve our online experience through our investment in a proprietary e-commerce technology. From product discovery and selection, to personalization, to concept, to customer care, and to the final mile, our team is constantly thinking about how we can improve our best in class e-commerce experience. And one way we do this is through AI. We believe our leadership in AI will be yet another competitive advantage. And it's important to not forget that as focused as we are on our digital capabilities, we are passionate about our service and our best-in-class retail business. We've improved our in-store experience with inspirational products, improved in-stock inventory levels, and next-level in-store services. Our teams are the best in retail, and our retail optimization efforts are transforming our fleet to be positioned in the most profitable, inspiring, and strategic locations. Moving to our second and third key priorities in 2024, which are inextricably intertwined, we continue to make progress improving our world-class customer service and driving margin. The customer is at the center of everything we do, and their satisfaction is key to our operating performance. We are pleased with our high net promoter scores, both in-store and in-home, but we see more opportunity to improve We know that providing our associates with new tools and training has a direct impact on our customer experience. And we are thrilled to bring back our annual store manager conference in Q2 of this year. This multi-day offsite meeting is an opportunity for all of our store managers to participate in strategic training. The improvement in customer service also comes from supply chain efficiencies. We are reducing costs by limiting out of market and multiple shipments fewer customer accommodations, lower returns and damages, and reduced replacements. These improvements will continue to contribute meaningfully to our profitability in 2024 and beyond. And our ongoing commitment to not running site-wide promotions and the reduction of our promotional offerings have also improved margins. We are focused on delivering a compelling value equation to our customers. which in turn maximizes our full price selling. Now I'd like to update you on the performance of our brands. Pottery Barn ran a negative 10.8% comp in Q1. We continue to see softness in higher ticket furniture sales in Pottery Barn, but we've seen quarter over quarter improvement. We're having success in our proprietary print and pattern across textiles, and easy decorating updates continue to drive sales. Highlights include newness in our bloom shop, frames, and decor. Our strength in seasonal celebrations also continues to resonate with our customers. In March, we launched our first-ever global collaboration with international icon Deepika Padukone. Her popularity drove one billion impressions for the Paduran brand. Customers also embraced the launch of our coastal lookbook, and they positively engaged with our newly developed app. In the back half of this year, We're excited to introduce new innovation, both in-store with compelling new floor sets and online with improved digital shopping experience. The Pot of Run Children's business ran a positive 2.8% comp in Q1. Across these life stage businesses, we drove widespread comp trend improvement in the business. We've seen excellent customer response to our new product introductions, with collaborations being a particular highlight. Our recent launches with partners such as Love Shack Fancy and Lily Pulsar have driven sales and attracted new customers by tapping into relevant fashion and home decor trends. In Baby, we're seeing double-digit registry growth and excellent customer response to our expanded essentials and gifting. In Dorm, we recently launched our biggest collection to date with expanded XL twin bedding options, new no-nails wall decor, and innovative storage solutions. In addition to the expanded assortment, we are excited to roll out improved dorm product selection functionality. And customers can also ship dorm products to any one of our company-owned stores near their college campus. Moving to West Elm. In Q1, West Elm drove sequential improvement in its top-line trend, running a negative 4.1% comp in the quarter. We're encouraged to see improvement in West Elm's demand trend, even as we materially pull back on promotions. We are seeing strength in our new product sales with our spring newness driving positive comp to last year with particularly strong performance out of furniture, kits, and decorative accessories. Summer newness is also off to a great start with double and triple digit newness comps. Given the positive trends in newness, we have a sizable opportunity in West Elm as it rebalances more inventory into these new products. The Williams-Sonoma brand ran a positive 0.9% comp in Q1. This is the second consecutive quarter the Williams-Sonoma brand ran a positive comp, with the Williams-Sonoma kitchen business running a positive comp for the fourth consecutive quarter. During Q1, we inspired customers with exclusive and innovative products. We benefited from new introductions of Williams-Sonoma branded products in categories like bakeware, cutlery, and food. The favorable customer response to these items continues to reinforce the opportunity we have for the Williams-Sonoma branded business. In March, our co-branded collaborations drove media attention and results. Our popular collaboration with Aaron Lauder was expanded to include new items for both Williams-Sonoma and Williams-Sonoma Home. We also partnered with Trisha Yearwood to make our best-selling cocktail collaboration the official drink of her new 55,000-square-foot bar and restaurant in Nashville. that she built with her husband, Garth Brooks. Now I'd like to update you on our other initiatives. Business to business grew 10% in Q1, driving record-breaking demand in the quarter. We saw improvement in our trade business, running a positive 6% on the quarter, along with continued momentum in our contract business, which represents about a third of the B2B business up 18%. We're encouraged by our diverse book of businesses, ranging from sofas for UC San Diego dorms to corporate gifting for Pebble Beach Company. We also saw continued growth for our existing large project customers, such as Marriott, Dave & Buster's, and Jamestown Properties. Now I'd like to talk about our global business. Despite ongoing macroeconomic pressures impacting our global business, we're pleased with the performance in key markets, including India, Canada, and Mexico. In India, we are continuing to see strong growth from increased marketing and brand awareness campaigns across the brands. In Canada, our business is thriving in both the retail and direct-to-consumer channels, driven by enhanced omnichannel strategies, wider product selection, and the expansion of our business-to-business program across all brands in the market. And in Mexico, the market shows strength driven by a focus on the design business and expanded assortment fueled by our improved stock position. We will continue to leverage the knowledge gained from these markets to enhance the global customer experience in our new and emerging markets. Lastly, I'd like to update you on emerging brands. Rejuvenation delivered another double-digit quarter. We saw all categories drive growth and continue to see success, with both consumer and trade customers. The brand remains focused on delivering high quality products that support your home remodel and refresh projects. The strongest performance comes from bath, hardware, and lighting, while we also see strength in several of our new growth categories like textiles, organization, window hardware, and outdoor. Customers continue to update their homes, specifically in the kitchen and bath spaces, and add the finishing touches with rejuvenation. We're excited by the momentum in this brand and the growth potential this year and beyond. Mark and Graham, our monogram gifting business, also drove a double-digit comp growth in Q1. The brand is increasingly recognized as an inspirational lifestyle brand, experiencing continued growth as a go-to destination for gifts, including graduations and weddings. Q2 has started strong with a positive reception to the brand's Mother's Day and Father's Day gift selections. And finally, Green Row, our newest brand, continues to grow and expand its assortment of vintage-inspired, colorful furnishings that are sustainably sourced and designed to last. The second catalog dropped this month with a focus on print and pattern. We are seeing a very positive response to its unique offerings in the market, and look forward to seeing additional assortment expansions and partnerships in the coming months. These successful and exciting emerging brands demonstrate our ability to develop new businesses that expand our portfolio and address white space in the market. In summary, we are extremely proud of our results. During the last few years, we as a company have navigated, learned, optimized, and built all in preparation for our next chapter of growth. We have a strong omnichannel platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity. We recognize that there is continued uncertainty with the environment and the consumer, but because we operate in a highly fragmented market, we will continue to gain share by inspiring and servicing our customers. We remain committed to driving our three key priorities in 2024. One, returning to growth. Two, elevating our world-class customer service. And three, driving margins. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.