Williams-Sonoma, Inc.

Welcome to the Williams-Sonoma, Inc. Second Quarter Fiscal 2026 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 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 updated annual guidance for fiscal 26 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances that 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 our Q2 results on a non-GAAP basis, which excludes the recognition of income from tariff refunds and other tariff-related adjustments. The amounts in detail of these adjustments, along with a reconciliation of our GAAP to non-GAAP results, appears in Exhibit 1 to the press release we issued earlier this morning. Our non-GAAP results 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 Alber, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. We had a very strong second quarter. Our comp for Q2 came in at 6.2%, with total revenue growth of 6.7%. This performance reflects strong execution by all of our brands across all of our channels and the hard work of our dedicated teams. I'd like to thank everyone at the company for their commitment to our continued success. We are pleased that our strategies are continuing to gain momentum. Every brand delivered strong results in Q2. We saw significant improvement in Potter Barn. which had a 5.1% comp. Our Williams Sonoma brand had a 7.6% comp and West Elm continued its strong performance with a 6.4% comp. Our children's businesses delivered 3.5% and our powerful emerging brands contributed double digit growth. And B2B grew 14.5% in Q2 with record breaking demand in the quarter. As you can tell, these results were broad-based. We had strength in both DTC and retail, and positive comps in both furniture and non-furniture, with an even stronger furniture comp than in Q1. Newness and innovation delivered, supported by our product pipeline strategy. Collaborations were again a key contributor, and as a result, we gained market share in the quarter, and we continued to outperform the industry. Our strategies are driving our success and they continue to differentiate us from the competition. Across all of our brands, we have prioritized incremental newness, innovative, higher quality product lines, and more inspiring photography, floor sets, and storytelling, all of which drive full price selling. In terms of profitability, we delivered an operating margin of 17.3%. Earnings per share, were $2.10. We delivered this profitability while continuing to manage through a volatile environment, which includes war, ever-changing tariffs, rising interest rates, and broader macro uncertainty. We continue to compound results quarter after quarter despite the stagnant housing market and the other uncertain macroeconomic events of today. We believe our strong brands Our execution and our focus on customer service is why we are delivering and why we will continue to deliver in the balance of 2026 and over the long term. We have always been known for our high touch customer service model, and we're excited that technology that we are using can take it to the next level. We are improving the customer journey, we are strengthening product discovery, and we are scaling personalization. We're also continuing to advance our design tools and improve the checkout experience to drive conversion. And we have recently launched our next AI-powered shopping assistant, Otto, across the Potter Barn family. Otto begins to bring the agentic discovery experience we're building with Williams-Sonoma's Olive to the furniture brands. Both Olive and Otto are helping our customers with product recommendations and they are increasing consumer engagement with our content design tools and free design service offerings. AI is an accelerator to our strategy and our productivity. We're using it to drive sales, improve service, and make our teams more effective. So many aspects of our tactile and taste-driven business cannot be replaced by AI, but our processes can certainly be enhanced by it, especially in supply chain and inventory management and therefore customer service. On the supply chain front, we are pleased to see improvements in our metrics. Our transportation team has done a very good job at mitigating increasing supply chain costs. There is never a dull moment in the logistics world today, and the whole team has been committed to minimizing the costs of war and fuel pressures by finding offsets, all whilst maintaining our high level of service. Now, before we turn to the guidance, let's talk about tariff refunds. were pleased to have received a refund of $200 million. I want to thank the Williams-Sonoma, Inc. team and our vendor community for all of their hard work navigating the tariff environment. The results that we have discussed so far exclude income of $174 million that we recognized in Q2 from tariff refunds. We are excited to be able to reimburse a total of $47 million to many of our vendors for the discounts they gave us to mitigate the tariff pressures and another $10 million to our associates to their 401ks for all their work during this difficult time. Now, let's discuss guidance. We are proud to be raising our annual outlook on both the top and bottom lines. We now expect comparable brand revenue growth of 4% to 6.5% and an operating margin in the range of 17.8% to 18.2%. Our raised guidance reflects the success of our current initiatives and our confidence in our ability to execute and also what we know today about the environment. Now let's review our brands. Potter Barn delivered another quarter of significant improvement with a 5.1 comp in Q2. We're encouraged by the continued acceleration in the brand. Customers responded to our merchandising strategy and the brand saw strength across key categories, including furniture, lighting, and textiles. The quarter reflected Potter Barn's continued focus on newness, product innovation, and improving the customer experience across channels. Customers responded to expanded assortments, new product introductions, and compelling collaborations. At the channel level, DTC, as we enhanced the digital shopping experience and made it easier for customers to discover and shop the assortment. Retail remains strong with customers continuing to engage with our stores, design services, and the in-person shopping experience. Looking ahead, we're excited about Pottery Barn's fall collection and the pipeline of differentiated new products the brand will introduce throughout the back half of the year. We believe Pottery Barn's focus on compelling product, Strong Storytelling and Discipline Execution positions the brand for growth. Now let's turn to our Potter Barn children's business, which delivered another strong quarter with a 3.5% comp in Q2. Growth was driven by product innovation, life stage leadership and differentiated collaborations. Love Shack Fancy and Chris Loves Julia remained strong drivers and newer partnerships, including Pink Pom Puff and our exclusive Nuna and Love Shack Fancy collection generated a very strong customer response. The brand also saw continued momentum in Baby, supported by product innovation and expanded nursery assortments. Across categories, furniture built on its momentum from earlier in the year and textiles delivered continued strength. In Durham, the customer response has also been strong with complete room solutions, exclusive collaborations, and enhanced shopping experience. And we are very pleased with our relaunch of Dormify. This new brand is extending our reach with differentiated functional style driven solutions. Now let's review West Elm. West Elm delivered a positive 6.4% comp in quarter two. The brand continued to make progress across product, brand heat, and Channel Excellence. And the results are compounding. New introductions in both furniture and non-furniture fueled growth with summer and fall newness each delivering double digit comps. The strength of newness combined with promotional discipline drove full price selling. And this strong performance was broad based across both retail and direct to customer. Collaborations continue to be a big part of the West Elm strategy. In Q2, West Elm launched its second Pearson Ward collection with an expanded assortment following the success of last year's debut. Strategic marketing targeted both repeat and new customers, drove higher social engagement and earned strong press coverage. The Emma Chamberlain collection also continues to be one of the brand's most successful collaborations, exceeding expectations and attracting younger customers. Overall, we are thrilled with the momentum at West Elm. The brand is executing and we feel good about the opportunity to build on this progress. Now let's review the Williams-Sonoma brand. Williams-Sonoma continued its strong performance delivering a 7.6% comp in Q2. The brand saw strength throughout the assortment across categories and price points. Our summer assortment was strong with exciting exclusive collaborations including Aaron Sanderson and the newly launched collaboration with Hill House for both Williams-Sonoma and Williams-Sonoma Home. Beyond product, our team remains committed to bringing the Williams-Sonoma brand to life through experiences that deepen customer engagement and extend our reach. We continue to engage customers through culinary events, book signings, and our skills series classes, all of which create meaningful ways for customers to experience our brands and our products in person. Q2 also marked the launch of our 2026 No Kid Hungry campaign featuring celebrity design spatulas from Cher, Shania Twain, and leading food creators. The annual campaign increases awareness of childhood hunger in America. And together, our customers, vendors, and associates have helped us raise almost $23 million in support of the cause from its inception of the program in 2010. The Williams-Sonoma brand continues to demonstrate its strength and relevance with sustained momentum across the business. through differentiated and exclusive products, compelling collaborations, engaging brand experience, and continued investment in stores and marketing, we are creating more reasons for customers to shop with Williams-Sonoma than ever before. Now I'd like to update you on B2B. B2B had another record-breaking quarter growing 14.5% with strength in both contract and trade. The team had an active quarter participating in many new marketing events and trade shows. We continue to expand into underserved but high growth markets, including cruise ships, senior living, and student housing. Notable projects that closed during the quarter included the Virgin Hotel in New York City, Signature Aviation's Miami Executive Airport, the Hardin House at the University of Texas at Austin, Napa's Carneros Inn, and a strong group of multifamily apartment and restaurant projects throughout the country. We're encouraged by the strength of our project pipeline across industry segments and remain confident in the momentum our B2B team is building as we head and more. Rejuvenation delivered another outstanding quarter with a double-digit comp and strong profitability. We saw continued strength across project-led categories including cabinet hardware, bath, lighting, utility and mirrors. Customer acquisition accelerated and we had strong engagement from both consumer and trade customers and we saw continued momentum across DTC and retail. High quality and product innovation continues to differentiate this brand. Cab hardware, bath and lighting all reached record levels in the quarter with customers responding to innovative finishes, expanded assortments and design forward collections across the home. Rejuvenation continues to strengthen its leadership in whole home renovation by combining premium craftsmanship, customizable solutions, timeless design, and meaningful product innovation. Mark and Graham also delivered another strong quarter of double digit growth with momentum across their key categories. Our new product offerings and corporate gifting strategies were strong. The brand built upon its reputation for beautiful personalized gifts for important occasions. And we saw strong growth in wedding and a successful launch of Mark and Graham dorm. And last but not least, Green Row. We continue to be excited by the growth in Green Row, which also delivered double digit growth in the quarter. And in May, the brand launched its first collaboration with the New York Botanical Garden, a beautiful collection of textiles, decor, and Furniture, which was inspired by the archives of this historic garden. Finally, I'd like to talk about our global business. In Q2, we delivered growth across our priority markets led by Canada, Mexico and the UK. Performance was supported by continued DTC momentum, expansion of our brands in the UK and further growth in our design and trade businesses abroad. In summary, we delivered a very strong second quarter. We drove strong top line growth, including 6.2 comp and total revenue growth of 6.7% with every brand positive comping. We gained market share and we continued to outperform the industry. We delivered operating margin ahead of expectations while managing through a volatile environment. And finally, we raised our annual outlook. This quarter reflected the power of our strategy and execution. We saw strength across brands, channels, furniture, and non-furniture, B2B, and emerging brands. We saw significant improvement in Potterburn, continued strength in West Elm and the Williams-Sonoma brand, and strong momentum across our children's business. Our business is broad and diverse. A strong national real estate market with more turnover would certainly be a tailwind for us. But I believe that we have now proven that our business can succeed regardless of the housing market. Our goal is to continue to execute and build on the current strength of our business quarter after quarter and year after year. We're also continuing to invest in the customer experience using technology and AI to support our strong teams. Thank you so much for joining us. And with that, I want to thank our teams again for their hard work and their commitment. And I also want to thank our vendors and our shareholders for their partnership and support. And finally, a huge thank you to all of our customers for shopping our brands. And now I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.