Williams-Sonoma, Inc.

welcome to the williams simona inc third quarter fiscal 2025 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 third quarter earnings call i'm here today with laura elder our chief executive officer

Jeff Howey, our chief financial officer, and Samir Hassan, our chief technology and digital 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 and financial performance, including our updated 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. 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. I'm excited to talk to you about our third quarter. First, I'd like to take a moment to thank our team for their continued hard work. Everyone at Williams-Sonoma, Inc. has been focused on our key three priorities this year, which are returning to growth, elevating customer service, and driving earnings. And that focus continues to drive our results. We are proud to deliver strong results in the third quarter of 2025 with an accelerating positive top line comp and continued outperformance in our profitability. In Q3, our comp came in above expectations at 4%, driven by another quarter of positive comps across all of our brands. And we continue to deliver on the bottom line despite the substantial tariff headwinds. Our operating margin came in at 17%, expanding 10 basis points with earnings per share of $1.96, growing 5% year over year. We are encouraged by our continued strong year-to-date performance through Q3 and are confident in our outlook for Q4. And therefore, we are reiterating our outlook for the full year comparable brand revenue growth to be in the range of 2% to 5%. And we are raising Our bottom line guidance, 40 basis points to an operating margin of 17.8 to 18.1 versus 17.4 to 17.8. We drove this improvement in performance despite continued geopolitical uncertainty and no substantive improvement in the housing market. And we continue to gain market share and outperform the industry, which declined again in Q3. Our continued strong results reflect the power of our operating model industry-leading channel experiences, and strong portfolio of brands. We continue to see exceptional performance in our retail channel, which ran a positive 8.5 comp in Q3. Retail continues to benefit from an improved in-store experience with more inventory availability, enhanced design services and events, and the opening of 14 beautiful newly remodeled or repositioned stores so far this year, with seven more to come in Q4. This investment is paying off with almost all of them beating the performance of the prior location. Our stores serve as brand billboards, and we believe a refreshed store improves customer perception of our brands. As we move into the final quarter of 2025, I want to highlight the specific progress we've made on our three key priorities. Starting with growth, our core brands continue to deliver strong results from positive momentum in furniture. Our focus on innovation has driven strong and improving furniture comps. Additionally, we are focused on incremental growth categories like Pottery Barn Dorm and West Elm Kids. We're also broadening our reach through strategic collaborations. These initiatives attract new customers while keeping our brands fresh and relevant. Our B2B business also remains an important growth engine, up 9% this quarter, with strength in both trade and contracts. And our emerging brands, Rejuvenation, Mark & Graham, and Green Row, continue to perform exceptionally well. Together, they delivered a double-digit comp, and we're excited to have recently opened our 13th Rejuvenation store in Salt Lake City. This year, we're also very proud of our improvements in customer service. We are committed to flawless execution, delivering orders on time, damage-free, every time. And we're proud that this year we have record metrics We're focusing on furthering our improvements through fewer split shipments and faster fulfillment. Finally, our third key priority, driving earnings. Our focus on revenue growth, elevating customer service, and maintaining cost discipline has delivered strong earnings, with our year-to-date earnings per share growing 5% in a very tough tariff environment. Also in Q3, we used AI as a key business driver to accelerate our strategy. Across our portfolio, AI-powered chat experiences are now live for all brands, providing customer service, delivery support, and product guidance. These agents are improving speed, consistency, and satisfaction, and we are now resolving over 60% of chats without human assistance, reducing handle times from 23 minutes to just five. Another notable milestone this quarter was the launch of Alice, our new AI culinary and shopping companion, for the Williams-Sonoma brand. Olive helps customers plan, cook, and shop with confidence, combining our culinary authority with cutting edge technology to create a differentiated experience. What makes Williams-Sonoma Inc. unique is how AI can amplify our differentiated foundation with our proprietary data, our vertical integration from design to delivery, our multi-channel engagement and our expertise in home design in the culinary space. Our strong balance sheet coupled with our tech capabilities allows us to apply AI in ways that can drive real scalable impact for our business that others cannot. Looking ahead, we see opportunity to drive down costs and drive up sales with AI, and our early results are reinforcing that confidence. We're using AI to enhance what we do best, guiding customers through shopping and design decisions. Additionally, AI is driving improvements in productivity and empowering associates with tools to amplify their creativity and expertise. Now I'd like to update you on tariffs. Since we last spoke, there have been notable changes in tariffs, such as a new tariff on some furniture, including imported upholstery, kitchen cabinets, and bath vanities. The 20% additional China tariffs are down from 30%. Net-net these changes are a push to our current estimated impact. As we look forward to the future, predictability in the tariff environment and a reduction in the India tariff would certainly be a positive for us. In the meantime, we continue to be actively and aggressively mitigating what we can with our previously discussed six-point plan. To remind you, first, we are obtaining cost concessions from our vendors. Second, we are resourcing goods to get the best cost for our customers. Third, we're identifying further supply chain efficiency. Fourth, we are controlling cost. Fifth, we are expanding our Made in the USA assortment, production, and partnerships. And last, we are taking select price increases with a focus on maintaining competitive pricing. Now let's review our brands. Powder Barn ran a positive 1.3% comp in Q3. We are pleased with the improvement we saw in large ticket, including furniture, upholstery, and lighting. Our Powder Barn stores continue to outperform, led by our standout design crew services and our increased take it home today assortment. Our strategy of focusing on improving retail inventory availability, refreshing product assortments, and enhancing design services is working. We have opened six beautiful, new remodeled or repositioned potter barn stores so far this year with three more to come in q4 finally across the brand we continue a major change that we have made all year which is to substantially reduce promotions in potter barn now i'd like to talk to you about our potter barn children's business which ran a 4.4 percent comp in q3 we saw acceleration in furniture fueled by successful new product launches, continued growth in collaborations and back to school and dorm was a particular highlight in the quarter. In fact, back to school delivered double digit growth and acceleration from Q2. Our brands have become a destination for high quality study solutions, durable backpacks, and on trend dorm decor. Additionally, our enhanced dorm design tools and pick up near campus options have been important for gaining share in a very fragmented market. Now let's review West Elm. West Elm ran a positive 3.3% comp in Q3. We continue to make progress against the brand's four key pillars, product, brand heat, channel excellence, and operational efficiency. Throughout the year, West Elm has brought in new successful collections in both furniture and non-furniture where the brand was previously underdeveloped. West Elm has significantly shifted the composition of their sales towards new products, and the cumulative effect of new introductions since the fall of last year continues to produce results. Retail in West Elm was also a highlight due to improved in-stocks and more new furniture and more new fabrics displayed on the retail floor. And we've opened two beautiful new remodeled or repositioned West Elm stores so far this year, with one more to come in Q4. To remind everyone, we have 119 stores in West Elm, and based on results, we are looking forward to returning to retail unit growth in this brand. As you can hear, we are quite excited by the momentum at West Elm. Now let's review the Williams-Sonoma brand, which continues to fire on all fronts and ran a positive 7.3% comp in Q3. Williamson remains focused on premium quality products that are expertly crafted, combining style and functionality. In Q3, we celebrated many successful culinary stories from the food and flavors of Spain to authentic Indian flavors through a collaboration with Palak Patel, founder of the Chutney Life. We also recently launched a Wicked collection featuring limited edition Le Creuset Dutch ovens inspired by Elphaba and Glinda. And as we continue to connect our customers to the world's best chefs and products, we are seeing great traction with in-store events. Across the country, we hosted 42 in-store book signing events in Q3. We welcome the fans of celebrities and celebrity chefs like Neil Patrick Harris, Dave Burka, and Melissa King into our stores for amazing cooking demos and cookbook signings. Finally, we've opened six beautiful new remodeled repositioned Williams-Sonoma stores so far this year, with two more to come in Q4. Now I'd like to update you on B2B, which grew 9% in Q3, with both trade and contract delivering strong comps. Leveraging our design expertise and commercial-grade product assortment, we've built a strong and growing client base across multiple industries. Our B2B offering remains a powerful differentiator and we are seeing continued momentum. Our biggest success story in Q3 was an increase in commercial workspace wins, including projects with Google, WeWork, TurboTax, and PayPal. Q4 brings the ramp up of our growing corporate gifting program, including our leading assortment of quality giftables that can be customized with logos and company branding. We're also a destination for seasonal favorites that make the perfect client and employee holiday gift if any of you need help. Now I'd like to update you on our emerging brand. With our proven ability to incubate and scale brands in-house, we are confident in the continued growth of our concepts and their ability to deliver profitability to our results. Rejuvenation delivered strong double-digit comps in the quarter, continuing an upward trajectory fueled by product innovation and category expansion. Our high-quality product offer and proprietary designs are resonating with customers. Both channels are performing well, and we continue to open new retail locations to drive brand awareness. This quarter, we expanded our rejuvenation store count to 13, with the opening of two new storefronts, one in Nashville and one in Salt Lake City. The brand also saw a strong performance from its first ever lighting collaboration. Mark and Graham delivered its best Q3 in brand history, driven by successful new categories, M&G Kids and Bark and Graham, as well as continued growth in personalized corporate gifting. As we head into the peak gifting season, the brand is well positioned with thoughtful, personalized gifts for all occasions. I'm also excited to talk about our newest brand, GreenRow, which delivered strong growth this quarter. In Q3, we launched the largest holiday collection to date with handcrafted decor and gifts made from upcycled and natural materials. The brand's colorful and unique products have had a great response, and the product line is incredibly beautiful in person. Therefore, we believe retail stores are the next leg of growth at GreenRow and are looking to test a few store locations as soon as possible. Finally, I'd like to share one highlight in our global business. In the UK, we've broadened our brand presence to the launch of Potter Barn Online and the opening of a pop-up store in our West Elm Tottenham Court Road in London. And so far, we're quite pleased with the performance of Potter Barn in this new market. In summary, we're pleased with our execution and continued outperformance in Q3, marked by accelerating positive comps and strong profitability. Across the company, we remain dedicated to enhancing our channel experiences and strengthening our brand. Each and every day, we prioritize innovation, product design, and exceptional customer service. These are the qualities that set us apart in a fragmented industry and position us to capture additional market share. We see tremendous opportunity to continue to lead our industry as we execute on our vision to own the home and the places where our customers work, stay, and play. As we enter the final quarter of the year, we're filled with optimism for a strong finish. This holiday season, we're ready to showcase our best across our stores and online. From all of us, we wish you and your family a joyful Thanksgiving next week and a happy holiday season. Before I hand things over to Jeff, I want to take another minute to express our thanks to our team, our vendors, and all of our partners. for their ongoing dedication and contributions to our company's success. We appreciate everything they do. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.