Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma, Inc. Third 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 Third Quarter Earnings Call. I'm here this morning with Laura Albert, our President and Chief Executive Officer. Jeff Howey, our Chief Financial Officer, and Samir Hassan, our Chief Digital and Technology Officer. 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 in financial performance, including our RAISE 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 gap measure, it 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.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. At Williams-Sonoma Inc., we continue to have strong performance exceeding both top and bottom line expectations. The third quarter was driven by continued improvement in our sales trend, market share gains, and strong profit. Our comp came in at down 2.9% with an operating margin of 17.8%, delivering a 7% increase in earnings per share to $1.96. Also, we bought back $533 million of our stock this quarter. and have purchased 4% of our shares outstanding so far this year. Our operating results reflect the operational improvements that we have been focused on all year and the strength of our margin profile. Even in a difficult environment, our initiatives continue to gain momentum and we are optimistic and confident about our business. As a result, we are raising our full-year guidance. We now expect full-year revenues come in at a range of down 3% to down 1.5%. And we are raising our guidance on operating margin 40 basis points to be in the range of 17.8% to 18.2%. And due to our confidence in our business model and our ability to perform in almost any environment, our board has approved an additional $1 billion stock repurchase authorization. We continue to be focused on our three key priorities. First, returning to growth. Second, elevating our world-class customer service. And third, driving earnings. Let's start first with returning to growth. Our top line trend improved over Q2, and even though we ran negative in Q3, we outperformed the industry decline of 7% this quarter. Our better than industry performance is a result of our focus on innovation from our products to our design services. We set ourselves apart from the competition with our unique in-house design capabilities and vertically integrated sourcing organization, which gives us the ability to offer high quality products at compelling price points. It is this price value balance that allows us to continue to significantly reduce our promotional activity. On the design front, we have been innovating and preparing for the next generation of design services. The new tools that we have launched assist our customers with developing design plans for any size or style of home. In October, we also launched our Shop by Style and design boards in Potterdorn, allowing customers to create and share mood boards online. The next key component of our return to growth strategy is our commitment to improving our channel experiences. We are continuously investing in our proprietary e-commerce technology. We are actively incorporating AI into our capabilities in areas like personalized emails and home pages, and supply chain decision making. 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. And we are pleased with the strong performance in our retail stores. We have continued to improve our in-store experience with inspiring new products improved in-stock inventory levels, and next-level design services and events. Our retail optimization strategy is working. Our new store locations and designs are driving good ROI, and we see continued opportunities to transform our store fleet to be positioned in the most profitable and inspiring locations. Now let's talk through progress on our second and third key priorities. We continue to make progress improving our world-class customer service, which in turn drives earnings and contributes to our strong operating results. Our customer service metrics have improved since Q2 and are all-time record levels. Our supply chain team continues to reduce costs by limiting out-of-market and multiple shipments, reducing customer accommodations, lowering returns and damages, and reducing replacements. And despite the progress we have already made, we see more margin opportunity ahead as we continue to drill down on areas for additional optimization and efficiency. Now I'd like to update you on the performance of our brands. Pottery Barn ran a negative 7.5% comp in Q3. In the brand, we saw improved furniture performance during the quarter. Also, fall new launches were up to last year driven by the strength of our new furniture offerings and few additions to core. Also, the brand continues to see strength in proprietary seasonal offerings. In Q3, we launched Thanksgiving and Holiday, representing the biggest offer of seasonal products this year, and we are pleased with early reads. The customer is responding to innovation and newness in key collections and our easy decorating updates for the home. We believe there are no lifestyle brands in the market that have seasonal decorating and entertaining offerings like ours. This is a competitive advantage for Powder Garden that is highly relevant and uniquely positions us in the industry, especially in the fourth quarter. The Powder Garden children's business ran a 3.8% comp in Q3, marking its third consecutive quarter of positive comps. We saw widespread comp improvement in the quarter with all divisions of the business delivering positive comps with particular strength in the areas of textile and decor. Innovation across our product offering has been key to delivering growth in our kids' business. In the quarter, compelling new product introductions in our fall and holiday assortments drove a significant portion of our comp growth. We are seeing success with new furniture, fresh bedding, and kid-friendly products to celebrate the holidays. One particular highlight was our success with product collaborations, which has been a strategic focus. We have grown our collections with key partners and are delighted to expand our successful Chris Loves Julia line to span all of the Pottery Barn brands. We also see continued strength in our trending Love Shack Fancy partnership. As we look to holiday and the quarters ahead, We have a robust pipeline of new products, exciting partnerships, and channel innovations to fuel continued growth. Now let's review West Elm. West Elm ran a negative 3.5% comp in Q3, a significant improvement from Q2. While macroeconomic factors continue to impact overall consumer demand for furniture, West Elm is proving that good, innovative products will always resonate. fall newness drove double-digit positive comps, and furniture newness in particular was strong. Holiday, which is West Elm's biggest season of new product intros this year, is also off to a strong start, with double-digit positive comps in seasonal textiles, kids, and furniture. Additionally, West Elm launched a very exciting kids collaboration with fashion tastemaker and children's book author, Eva Chen, in September. The collection's bright fashion colors, multifunctional furniture, and novelty pieces are driving sales. This collab has secured articles in publications like Vogue.com, Architectural Digest, Forbes, and New York Magazine. The brand also launched a Halloween capsule collection with Christina Ricci. It was popular with press, our customers, and the actress's large social following. We are thrilled with the momentum we're seeing in the West Elm business, especially the positive trends in newness and exciting collaborations. Now let's talk about Williams-Sonoma. The Williams-Sonoma brand was essentially flat in Q3. The brand continues to focus on new, exclusive, and innovative product offerings. Drinks continues in high-ticket items and electrics, especially espresso machines and stand mixers. Also, tabletop is strong. At the Williams-Simma brand, we celebrate great design and quality. We are thrilled to see the consumer and media response to the launch of the new Evergreen KitchenAid mixer. Our customers were quick to embrace the new green base and wood bowl design evolution of the KitchenAid mixer, an item iconic to the Williams-Simma brand. The business also benefited from several key collaboration launches in Q3, including the launch of new cookware additions to the popular Stanley Tucci for green pan collection, a food collaboration with the world-famous chef Jean-Georges, and the launch of our Thanksgiving partnership with Ina Garten. Ina is on the cover of this year's Thanksgiving catalog, which features an exclusive look at our Thanksgiving menu, recipes, and hosting tips. Our team is also proud to be supporting Ina as the exclusive bookseller on a five-city book tour. In addition to her tour, Williams-Sonoma held more than 50 cookbook signings and events in Q3, hosting top chefs, influencers, and popular celebrities like Bobby Flay, Al Roker, and Eva Longoria in our stores. As I said, the tabletop business was also strong in Q3 as people were gearing up for the holiday season and prioritizing eating at home. Williams-Sonoma has launched a robust art of entertaining content marketing campaign designed to drive growth by teaching our customers how to set a table, stock a bar, and host a party. We are also encouraged by the improvement of the Williams-Sonoma home business with expanded products across categories. We recently launched a collaboration with artist and designer Josh Young, whose beautiful collection for Williams-Sonoma Home features products inspired by popular original art. Now I'd like to update you on our other initiatives. Business to Business continued its momentum, delivering its largest quarter history to date. The business grew 9% in Q3, with contract growing 17%, while trade grew 4%. The contract business represented 36% of the B2B business in the quarter. Project and partner wins this quarter include JW Marriott Las Vegas, Ritz-Carlton Papagayo, Office Projects for Google and Sony, along with our continued work with Sunrise, Tenure Living, Related Companies, Hanover, and Spring Health Suites. As we move into Q4, we are excited to be ramping up our corporate gifting program, along with focusing on our strategic growth opportunities and pipeline development to support our continued growth moving into FY25 and beyond. Now I'd like to talk about our global business. We're pleased to report strong results across key markets, including Canada, Mexico, and India. In Canada, our strong performance across all brands was driven in our design business, B2B, and successful Thanksgiving season. In Mexico, our brands continue to gain market share due to our unique product and service offering, and we are well positioned for a strong holiday season. We're excited to expand our presence with four new store openings in Mexico for West Elm, Powder Garn, and Powder Garn Kids in early 2025. Our business in India is also growing, demonstrating strength in our design services and an increase in decorating during the festive season. We'll be opening two additional West Elm stores in India during the first quarter of 2025. In the UK, we have renewed our partnership with John Lewis for the West Elm and Pottery Barn Kids brand, and we're also proud to be selling Williams-Sonoma products inside Fortnum & Mason this holiday season. Initial sales are promising, and we look forward to the opportunities these partnerships present for enhancing our marketing and brand awareness in this market and around the globe. Lastly, I'd like to update you on our emerging brands. Rejuvenation continued to have strong performance with another quarter of double-digit growth. We are seeing success with both consumer and trade customers. The brand offers high-quality, exclusively designed products your home remodel or refresh and the trend of home updates particularly in kitchen and bathrooms continues and we have increased our assortments and in-store presence of these categories we're also seeing success in furniture and textiles at rejuvenation at mark and graham we launched two new incremental businesses in the fall season mark and graham kids and mark and graham wedding shops both of which our customers responded well to. Also, the brand just launched their holiday gifting collection with many new in-house designed gifts. And we are thrilled to roll out our new collection, Bark and Gram, for all of our pet lovers. Please go online and check it out. And finally, Green Row, our newest brand, continues to show strong growth with its unique collection of thoughtfully sourced, vintage-inspired furnishings. In October, Green Row launched its first holiday collection with handcrafted and upcycled gifts and decor. The brand continues to inspire with its innovative use of materials and bright, optimistic colors. We're excited to continue to grow Green Row and look forward to new products and partnerships in the coming months. In summary, we're proud of our continued strong results and outperformance at Williams-Sonoma, Inc. Our strategy of focusing on returning to growth, enhancing our world-class customer service, and driving earnings is working. As we head into the last quarter of the year, we are optimistic and confident. Our stores are set, the music is on, the lights are twinkling, and you can smell the aroma of the holidays. This is the time of year when we shine, and we welcome you to come visit us at any location. And we sincerely wish you and your family a very happy Thanksgiving next week. Before I hand it over to Jeff, I also want to take a minute to say thank you to our team, our vendors, and all of our partners for their continued dedication and contributions to our company's performance. We are grateful for all of you. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.