Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma Inc. Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the conclusions and 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. 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 annual guidance for fiscal 25 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 Elbert, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I'm excited to talk to you about our results today. Before we get into our results, I'd like to acknowledge the accomplishments of the entire team at Williams-Sonoma, Inc. The results we are about to share with you today reflect their creativity, focus, and hard work. We are proud with our strong finish to 2024. In Q4, our comp came in above expectations at positive 3.1%. Also in the quarter, we exceeded profitability estimates with an operating margin of 21.5% and earnings per share of $3.28. In Q4, we saw acceleration in our comp trend despite no material improvement in the housing market. After many quarters of running negative comps, our total comp was positive. And I want to say it again, our total comp was positive 3.1% in Q4. And we outperformed the industry decline of 2% in the quarter. This outperformance was driven by a strong seasonal assortment, effective collaborations, and improvement in furniture sales, and strong performance in both retail and online. Turning to the full year, our comp ran down 1.6%, with a five-year comp at 34% positive. In 2024, we delivered a record annual operating margin of 17.9%, with full-year earnings per share of $8.50. We hit our 2024 annual guidance, which we raised twice in 2024, and we beat Wall Street estimates on both the top and bottom lines. This performance was due to the strength of our operating model, our supply chain efficiencies, our focus on full price selling, and cost control from our company-wide financial discipline. As we enter 2025, we are confident that we've laid the foundation for growth and profitability. Even though there are significant macro and geopolitical uncertainties, we are focused on our strategies to deliver in 2025 and beyond. Now let's talk about what those strategies include. First, we believe we will deliver core brand growth due to increased levels of newness and exciting innovation. We are able to differentiate ourselves competitively through our in-house design capabilities and vertically integrated sourcing organization. These differentiators give us a unique ability to offer high quality products at compelling price points. Also, we recognize housing may not improve this year. And therefore, a key component of our growth strategy is our robust non-furniture assortment that includes inspirational seasonal and decorative accessories, textiles, and housewares. We believe this puts us in a much better competitive position than our peers who are overly dependent on furniture. A key part of our strategy is our outside partnerships and collaborations. These exciting partnerships, like Monique Lillier in Potter Barn, Love Shack Fancy in our children's business, Stanley Tucci in our Williams-Sonoma kitchen business, and Marcus Samuelson in West Elm, attract new customers and drive sales with our current customers. Next, B2B is an important growth driver. B2B leverages our strength in design and commercial-grade product offerings. And we have built an incredible book of business the last few years in the commercial space and several industry verticals. Our exclusive offering of design to delivery services is a competitive advantage as we continue to build our project pipeline. And we are off to a strong start with new customers this year. Another component of our growth will come from expansion of our emerging brands, Rejuvenation, Green Row, Williams-Sonoma Home, and Mark & Graham. We have the in-house competency and ability incubate and build new brands. And let me remind you that all of our brands, even our largest, Pottery Barn, were once emerging brands. In addition to these growth strategies, we are focused on offering the best channel experiences. A key investment we are making is in our next generation of design services. The new tools we have launched online and in stores assist our customers in developing design plans for any style or size of home. And we continue to improve these tools. For example, in Q4, we launched our proprietary Shop by Style functionality, which we'll be rolling out across all of our brands. We are also incorporating AI into our digital capabilities, like personalized emails and customized homepages. We believe we'll be a leader in the use of AI in our operations and in our industry, and the AI will be a key component in driving record sales and margin. Also, we are continuing to see improved performance in our stores. Our positive comp in Q4 was primarily driven by retail as a result of our enhanced in-store experience with inspiring new products, improved in-stock inventory levels, and next level design services and events. We continue to unlock the power of our omni-channel services, and this is another area where we are using AI to optimize sales, cost, and delivery speed. In 2025, we will also continue our progress in delivering world-class customer service. The perfect order, damage-free, on time, every time. Even with metrics better than before the pandemic, and in some cases record-breaking, our supply chain team continues to challenge the status quo and come up with new ways to reduce costs. In 2025, we will continue to limit out of market and multiple shipments, to reduce customer accommodations, to lower returns and damages, and to reduce replacements. This part of retail execution is often overlooked, but it's the key to profitability and customer satisfaction. We believe 2025 will be a year of additional optimization and efficiency, particularly in our new distribution center in Arizona, where we have more to go in terms of unlocking the benefits of cost efficiencies and faster, more automated deliveries. Moving to other earnings drivers will be tight unemployment in 2025 with a focus on using AI to offset headcount growth. Also, in marketing, there is opportunity this year to leverage spend by using efficiencies in our in-house marketing program. In total, we are optimistic for 2025. We are focused on driving positive comps and expanding operational improvements. Even in a difficult environment, our initiatives are gaining momentum, and we are optimistic and confident about our business. Our focus will remain on our three key priorities, returning to growth, enhancing customer service, and driving earnings. Turning to guidance. Let's spend a minute talking about our assumptions. We aren't planning for any significant upside or downside from the external macro environment. Our guidance reflects what we know today, incorporating our initiatives and the current tariffs of China at 20%, Mexico and Canada at 25%, and the additional tariffs on metals and aluminum of 25%. Our guidance does not include any additional tariffs, nor does it include a housing recovery. For 2025, we are guiding our comps to be flat to a positive 3% with operating margin between 17.4% and 17.8%. Now let's review our brands. Potter Barn ran a negative 0.5 comp in Q4, substantially improving over Q3. On a five-year basis, the brand ran a positive 37.6% comp. In 2024, Pottery Barn significantly reduced promotional activity, improving margin and setting the groundwork for growth with new product introductions and increased collaborations. Looking to 2025, the brand has an exciting lineup of newness and noteworthy collaborations with industry leaders like Love Check Fancy that launches very soon. And we are building on our successful new furniture launches and have an expanded outdoor assortment. Also, we are uniquely positioned in the market with our leading products in seasonal decorating and entertaining and our innovation in textiles and our strength in print and pattern continues. In 2025, another competitive advantage for Potter Barn is to leverage our domestic upholstery capabilities located in the Southeastern United States. Our Sutter facilities offer high quality manufacturing with industry leading delivery times. Sutter services all of our brands but Potter Barn has the highest percent to total. Now I'd like to talk to you about our Potter Barn children's home furnishings brands, which ran a positive 3.5% comp in Q4 with a five-year comp of 24.6%. In 2024, kids and teens together ran positive comps every quarter. Success has been driven by our key growth drivers, dorm, baby, and collabs. In Q4, We saw record results from our expanded seasonal decor offering as customers came to our children's brands to celebrate the holidays, give gifts, and decorate nurseries and dorm rooms. Product collaborations were another highlight with particular strength in the Love Shack Fancy, Chris Loves Julia, and Rifle Paper collections. Looking to 2025, we have built a powerful pipeline of newness and newsworthy launches. We recently launched Modern Baby in Pottery Barn Kids, offering a fresh aesthetic to the brand. In the weeks ahead, our Pottery Barn dorm collection will also launch with new looks and a dramatically expanded assortment. Now let's review West Elm. We are thrilled to report a substantial improvement in comp to positive 4.2% in Q4. On a five-year basis, the brand ran a 21.7% comp, We have made strong progress against our four key pillars, product, brand heat, channel excellence, and operational efficiencies. In Q4, holiday newness drove double-digit positive comps with strength in both furniture newness and holiday seasonal textiles and decorative accessories and tabletop. We saw improvement in furniture as high-performing new collections came back in stock, also lighting was a particular strength for West Elm in Q4. Now let's review the Williams-Sonoma brand. We are thrilled to report a substantial improvement in comp to positive 5.7%. On a five-year basis, the brand ran a 35.5% comp. The Williams-Sonoma brand built on last year's success with another strong year driven by retail execution, product innovation, dynamic marketing, and collaboration. In Q4, the product assortment for Williams-Sonoma was stacked with great gifts and a complete offering for holiday hosting and entertaining. We saw strength in the cookware, cutlery, and electrics categories led by newness and the popularity of key core items. Our seasonal and decorative accessories also drove results for the bakeware, tabletop, housewares, food, and garden businesses. We continued to welcome customers into our stores with exciting events like celebrity chef book signings. The 100th book signing event of 2024 for Williams-Sonoma was held in Q4 at our Columbus Circle store, and it was coincidentally a sold-out launch party for Martha Stewart's 100th cookbook. Our team was also on-site managing the book sales at sold-out auditoriums across the country for Ina Garten's book tour, and we're excited for even more events with our amazing chef partners in 2025. In 2025, we'll continue to celebrate food from around the world. A great example is our Japanese-inspired tabletop collection currently in store along with our new food collaboration with celebrity chef Morimoto. Now I'd like to update you on B2B. Business to Business had an exciting and record-breaking year driving more than a billion in revenues with a 10 comp with both trade and contract growing in both Q4 and the full year. Q4 represented contract's largest quarter history to date, driving a 12% comp for the quarter. Our multi-channel program and our leading assortment of contract grade products have been key drivers in our accelerated large project growth. Key project wins include our first furniture order for a cruise ship Royal Caribbean's Utopia of the Seas, hospitality work for the Ritz Carlton, Kempton, W Hotels, and Sheraton, and continued momentum in the multifamily space with related companies and corpsman communities. We're excited about the opportunity that B2B has to disrupt an underserved and highly fragmented market. Lastly, I'd like to update you on our emerging brands. As I mentioned earlier, Williams-Sonoma has a long history of creating brands and building them into big businesses like we did with West Elm from a concept in 2002 to an almost $2 billion business today. We are pleased with the performance of our smaller emerging brands like Mark and Graham and Greenrow, which had strong positive comps in the quarter. But today I want to focus on rejuvenation. Our rejuvenation brand continues to exceed our expectations with another quarter of double-digit growth. In fact, in the last five years, Rejuvenation has driven positive comps in 17 of those 20 quarters, and the business has almost doubled since 2020. In 2024, Rejuvenation's growth was driven by innovative, domestically designed, and made products. Core categories, including cabinet hardware, bath hardware, and lighting, performed exceptionally well. And growth categories such as bath vanities, plumbing, window hardware, and organization delivered double-digit comps. Looking ahead to 2025 and beyond, Rejuvenation is well positioned for continued momentum. We currently have 11 stores and are actively looking for new locations. We believe Rejuvenation will be our next billion-dollar brand. We are also encouraged by the improvement of the Williams-Sonoma home business. We continue to expand products across categories with introductions of exclusive in-house designs in lighting, textiles, and accessories, as well as collaborations. We see an opportunity to disrupt the high-end home furnishings market where no key players offer prints and patterns like we do. Last, I'd like to talk about our global business. We continue to see strength in our key growth markets, including Canada, Mexico, and India. The Canada business continues to grow, fueled by our commitment to enhancing the customer experience both online and in retail. In Mexico, the holiday season saw continued growth in sales and market share, driven by our inspiring product assortments and personalized service. Our business in India continues to grow, driven by excellence in design services, for both retail and e-commerce. And our UK business continues to grow as we strengthen our partnerships with John Lewis for West Elm, Powderburn Kids, and Fortman Mason for Williams-Sonoma. In summary, we are proud of our strong execution and outperformance in 2024. Despite an uncertain backdrop, we have been and will continue to be focused on returning growth, enhancing our world-class customer service, and driving earnings We are innovators and operators, and we are set up for a great 2025. Before I hand it over to Jeff, I also want to take a minute to say thank you again to our associates, but also to our vendors and to you, our shareholders. Your continued dedication and support is appreciated. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.