Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma, Inc. Second Quarter 2024 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 second 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 revised 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, 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. 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 Elberg, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. Before we review our Q2 results, I want to take a minute to recognize our team for their continued contributions. We recently held our General Managers Conference in Arizona. It was our first leadership conference since the pandemic, and all of us have been inspired by the level of passion, dedication, and talent of our storage management and field teams. Today, we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved top line trends, market share gains, and continued delivery on our commitment to profitability. In Q2, our comp came in at negative 3.3%, and we exceeded profitability estimates with an operating margin of 16.2% and earnings per share of $1.74, reflecting the two-for-one stock split we completed in July. We are pleased with our strong operating results and the operational improvements that produced these results. We continue to demonstrate the strength of our margin profile, even in a difficult market. There is no doubt that the home furnishings market is challenged due to the uncertainty in the economy coupled with slow housing. This leads us to believe that we may not see the back half acceleration that we expected despite all of the hard work we've done to improve our product offer and our customer experience. Therefore, we believe it is prudent to reduce our top line outlook for the balance of the year while continuing to deliver on our commitment to profitability and, in fact, we are raising our bottom line guidance. We are now expecting full-year revenues to come in at range of down four to down 1.5, but we are raising our guidance on operating margin to be in the range of 17.4% to 17.8%. Now let me review progress on our three key priorities that we outlined with you back in March. First, returning to growth. Second, elevating our world-class customer service. And third, driving margin. I'll start with an update on returning to growth Our improved top line trend outperformed the industry decline in the second quarter, and we maintained our commitment to not offering site-wide promotions. A key element of our return to growth strategy is our focus on innovation on our product lines across brands, including substantially more newness across our assortments. 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. The next key component of our return to growth strategy is our commitment to improving our channel experiences. Our investment in our proprietary e-commerce technology serves as a competitive advantage versus our peers. From product discovery and selection to personalization, content, customer care, and the final mile, our team is constantly thinking about how to elevate and evolve our best-in-class e-commerce experience. In the quarter, we've been focused on expanding our online content and providing more inspiration in the shop path to drive conversion. And of course, we cannot forget our best-in-class retail business. We have continued to improve our in-store experience with inspirational new products, improved in-stock inventory levels, and next-level design services, including our new design tool that allows for 3D rendering. As our teams reminded us at our general manager's conference this year, we really do have the best team in retail. And our retail optimization efforts continue transforming our store fleet to be positioned in the most profitable, inspiring, and strategic locations. Now let's talk through progress on our second and third key priorities, which go hand in hand. We continue to make progress improving our world-class customer service and driving margins contributing significantly to the operating margin we reported today. One of the foundational principles upon which this company is built is that the customer is at the center of everything we do, and their satisfaction is key to our operating performance. Without our customers, truly nothing else matters. And in Q2, we continue to make meaningful improvements in our customer service metrics. The supply chain team continues to reduce costs by limiting out-of-market and multiple shipments, fewer customer accommodations, lower returns and damages, and reduced replacements. And our ongoing commitment to not running site-wide promotions and the reduction of our promotional offerings have 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 7.1% comp in Q2. Improvements in trends were driven by our compelling product assortments in coastal decorating and entertaining and seasonal holidays. We saw success in our new summer furniture launches and are optimistic about our fall furniture newness with a focus on proprietary finishes and design. Looking ahead to the back half, we have a strong holiday lineup that is off to a great start. There is no one else like us in the market with the incredible assortment of seasonal decorating for Halloween, Thanksgiving, Christmas, and Hanukkah, and we are building on successful new programs that we have launched. The Powderborn children's business ran a positive 1.5% comp in Q2, a continuation of our positive comp trend in the first quarter of the year. Innovation across our product offering and improvement in the Shockey experience have been key to delivering this growth. And these life-stage brands back to school was a highlight, with dorm driving double-digit growth. In this space, we continue to attract new customers with our market-leading design, excellent quality, and sustainability promise. We have bolstered the shopping experience with a suite of digital shopping tools and expanded in-store services, including free dorm design services and convenient shipping options to any of our stores near campuses. Product collaborations also continue to drive sales with existing and new customers. We're especially pleased with our recent collaboration with Roller Rabbit, and we are seeing continued success with Love Shack Fancy. Now let's review West Zone, which ran a negative 4.8% comp in Q2. The brand continues to see success in new product introductions with both summer and fall newness driving double-digit positive comp to last year. And this month, we are thrilled to drop our first catalog in the brand since holiday 2021. Additionally, Westome launched a very exciting second collaboration with the fashion brand, Rode, following a successful debut last year. This new collection features 120 pieces, including a relaunch of past favorites, combined with new textiles, tabletop, lighting, decorative accessories, bath rugs, and a collection of items designed for college dorms. This collaboration is on track to do more than double the initial launch last year. Given the positive trends in newness and exciting collaborations in the pipeline, we have a sizable opportunity in West Elm as it rebalances more inventory into these new products. The Williams-Sonoma brand ran a negative 0.8% comp in Q2. In the quarter, we benefited from the performance of our new and exclusive product offset by some tough compares in electrics. Sales from summer newness were up double digits to last year, and we're seeing strength in new and premium products found only at Williams-Sonoma. The strategy to offer our customers quality product they can't find anywhere else is working, and we are excited about our robust second half lineup of in-house design products and exclusives. The Williams-Sonoma brand remains focused on delivering immersive culinary experiences in-store, online, and at key events across the country. In-store, we've inspired thousands of customers through our Sunday skills series and demos teaching customers from how to sous vide to how to make ice cream. Our Tools for Change campaign, supporting No Kid Hungry, celebrated its 10th anniversary this July. To date, we're proud to have raised over $16 million to help No Kid Hungry and end childhood hunger in America. We're grateful to all the chefs and celebrities that have contributed designs to our spatulas over the years. As we look to the second half, we will continue inspiring our customers to cook, host, and entertain for the holidays. This fall, the brand will launch the Art of Entertaining, where customers can benefit from expert advice on everything from setting a table to hosting a dinner party to floral arranging techniques and to napkin-folding tricks. We believe this focus on holidays and celebrations will not just drive volume in key categories, but will also cement the brand as the ultimate celebration destination in retail for new and existing customers. And lastly, we're excited by the momentum of our Williamson of a Home business, which ran a slight positive comp in Q2. Now I'd like to update you on our other initiatives. Business to Business continued its momentum in Q2, growing 11.5%, with record quarterly contract volume growing 21.6%, while trade grew 7.1%. The hospitality space remains strong, with notable wins at the Sheraton Boston, the Hilton Beverly Hills, Renaissance Las Vegas, and under canvas for the Yosemite location. We have launched a new brand standard program with IHG's Hotel Indigo brand, being named the preferred vendor for lighting and upholstery categories We're also seeing strong momentum in the multifamily space, including growing partnerships with Corman Community and the Discovery Land Company. And we're thrilled to partner with St. Jude to develop custom beds and nightstands for their Ranch for Children project in Nevada. Now I'd like to talk about our global business. While we continue to navigate global macroeconomic pressures, our strategic initiatives are delivering positive results across key strategic markets including India, Canada, and Mexico. The Canadian market continues to show strength, driven by growth from enhanced design services, emerging brands, and omni-channel services. In Mexico, we are optimistic about our brand's performance in the market, with strength driven by all brands, with the most significant contribution coming from PDKids. We'll be opening two new stores by the end of the year and three more set to open in early 2025. And finally, India remains a key area of growth for us. We're excited to expand the West Zone brand with two additional locations in new markets by the end of the year. Overall, our assortment market and service strategies are the differentiators for continued growth in our global markets. Lastly, I'd like to update you on our emerging brands. Rejuvenation delivered another double-digit quarter. We're very optimistic about Rejuvenation's performance with four consecutive quarters of positive comps. Their unwavering focus on delivering the highest quality products has allowed them to gain market share. The trend of home updates, particularly in kitchens and bathrooms, continues with notable growth in cabinet and bath hardware and lighting. Additionally, our growth categories, including window hardware, textiles, home furnishings, and organization solutions also performed well, providing our customers with the perfect finishing touches to complete their spaces. Mark and Graham, our monogrammed gifting business, also drove a high double-digit growth in Q2. They saw success with their coastal and beach products for the home and on the go and had strong gifting sales in golf and personalized games. They've recently launched the Monogram Wedding Shop, as well as Marking Gram Kids, which will be an exciting incremental growth strategy for the brand. And finally, GreenRow, our newest brand, continues to grow and expand its assortment of vintage-inspired, colorful furnishings that are sustainably sourced and designed to last. This month, GreenRow launched a new collection of thoughtfully made products, over 150 new items, and a new catalog The brand continues to innovate and create unique and differentiated products that fill a void in the market. We look forward to continued growth and exciting new products and partnerships in the coming months for GreenRaw. In summary, we are pleased with our strong operating results. Our revised outlook today reflects our prudent view of the top line and the confidence we have in our profitability profile. Despite the macro uncertainty, we remain focused on our key priorities for 2024 that are driving the results we announced today. 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. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.