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Williams-Sonoma, Inc. Announces Third Quarter 2013 Results Revenues Grow 11%, EPS Increases 18% to $0.58 Raises Financial Guidance for Fiscal Year 2013

Wednesday, November 20, 2013

Williams-Sonoma, Inc. Announces Third Quarter 2013 Results Revenues Grow 11%, EPS Increases 18% to $0.58 Raises Financial Guidance for Fiscal Year 2013

16:10 EST Wednesday, November 20, 2013

SAN FRANCISCO (Business Wire) -- Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the 13 weeks ended November 3, 2013 (“Q3 13”) versus the 13 weeks ended October 28, 2012 (“Q3 12”).

Q3 13 Results

  • Net revenues grew 11.3% to $1.052 billion versus $945 million in Q3 12 with comparable brand revenue growth of 8.2%.
  • Operating margin increased to 8.8% from 8.4% in Q3 12.
  • Diluted earnings per share (“EPS”) grew 18.4% to $0.58 compared to $0.49 in Q3 12.
  • Cash returned to stockholders totaled $115 million comprising $85 million in stock repurchases and $30 million in dividends.

Laura Alber, President and Chief Executive Officer commented, “Our strong third quarter and our performance year-to-date illustrate the power of our business model and the relevancy of our brands. We delivered an 11% increase in revenue and EPS growth in excess of 18%. Importantly, we delivered this revenue growth and accompanying operating margin expansion while simultaneously investing in our multi-faceted growth initiatives.”

Alber continued, “We believe we are well-positioned heading into the holiday season and will continue to execute our key strategies to deliver an exceptional experience for our customers. We are focused on generating top-line results in conjunction with operational and capital discipline to deliver long-term shareholder value.”

Alber concluded, “Given our year-to-date results, and our confidence in the fourth quarter, we are raising our fiscal year 2013 revenue and EPS guidance to reflect our outperformance in the third quarter. We are now guiding fiscal year 2013 revenue to a range of $4.290 billion to $4.350 billion and our non-GAAP diluted EPS guidance to a range of $2.76 to $2.83.”

Comparable brand revenue growth in Q3 13 increased 8.2% on top of 8.5% in Q3 12 as shown in the table below:

Third Quarter Comparable Brand Revenue Growth by Concept*

       
  Q3 13   Q3 12
Pottery Barn 8 .4% 11 .1%
Williams-Sonoma 1 .4% 0 .8%
Pottery Barn Kids 3 .9% 10 .1%
West Elm 22 .2% 13 .0%
PBteen 16 .7% 2 .0%
Total 8 .2% 8 .5%
*   See the company's 10-K and 10-Q filings for the definition of comparable brand revenue growth.
 

Direct-to-customer (“DTC”) net revenues in Q3 13 increased 14.5% to $512 million from $447 million in Q3 12, with growth across all brands, primarily driven by Pottery Barn and West Elm. DTC net revenues generated 49% of total company net revenues in Q3 13, compared to 47% in Q3 12.

Retail net revenues in Q3 13 increased 8.5% to $540 million from $497 million in Q3 12, primarily driven by Pottery Barn and West Elm. Including five net new stores within Q3 13, retail leased square footage increased 1.6% from the end of Q3 12.

Operating margin in Q3 13 was 8.8% compared to 8.4% in Q3 12:

  • Gross margin was 38.6% versus 39.0% in Q3 12.
  • Selling, general and administrative (“SG&A”) expenses were $313 million or 29.8% of net revenues versus $289 million or 30.6% in Q3 12.

EPS in Q3 13 increased 18.4% to $0.58 from $0.49 in Q3 12.

Merchandise inventories increased 30.5% to $899 million versus $688 million at the end of Q3 12. Excluding the impact of additional inventory in transit due to taking ownership of our inventory earlier in the supply chain in Q3 13 versus Q3 12, merchandise inventories increased 18.5% on a comparable basis.

STOCK REPURCHASE PROGRAM

During Q3 13, we repurchased 1.5 million shares of common stock at an average cost of $55.89 per share and a total cost of approximately $85 million. As of November 3, 2013, $534 million remained under the three-year $750 million stock repurchase program announced in March 2013.

FY 13 FINANCIAL GUIDANCE

  • Fourth Quarter 2013 Guidance (13 weeks)
  • Net revenues in the fourth quarter of fiscal 2013 (“Q4 13”) are expected to be in the range of $1.370 billion to $1.430 billion.
  • Comparable brand revenue growth in Q4 13 is expected to be in the range of 3% to 6%.
  • Diluted EPS in Q4 13 is expected to be in the range of $1.30 to $1.37.
  • Fiscal Year 2013 Guidance (52 weeks)
   
  FY 13

GUID

Total Net Revenues (millions) $4,290 - $4,350

Comparable Brand Revenue Growth
(52-week vs. 52-week)

5 - 7 %
Operating Margin 10.1 - 10.3 %
Non-GAAP Diluted EPS $2.76 - $2.83
Income Tax Rate 38.0 - 38.5 %
Capital Spending (millions) $200 - $220
Depreciation and Amortization (millions) $150 - $160
 
  • Fiscal Year 2013 Store Opening and Closing Guidance by Retail Concept
       
FY 12

ACT

  FY 13

GUID

  Total

 New 

  Close  

 End 

Williams-Sonoma 253 7 (15) 245
Pottery Barn 192 6 (5) 193
Pottery Barn Kids 84 4 (8) 80
West Elm 48 11 (1) 58
Rejuvenation 4 -

4
Total 581 28 (29) 580
 

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 20, 2013, at 2:00 P.M. (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, will be open to the general public via live webcast and can be accessed at www.williams-sonomainc.com/webcast. A replay of the webcast will be available at www.williams-sonomainc.com/webcast.

SEC REGULATION G -- NON-GAAP INFORMATION

This press release includes non-GAAP diluted EPS. This non-GAAP financial measure excludes the impact of employee separation charges. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure in Exhibit 1. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our diluted EPS results and guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements relating to: our expectations for the holiday season; execution of our key strategies; our future financial guidance, including Q4 13 and fiscal year 2013 guidance; our three-year stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q3 13; recent changes in general economic conditions, and the impact on consumer confidence and consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; and other risks and uncertainties described more fully in our public announcements, reports to stockholders and other documents filed with or furnished to the SEC, including our Annual Report on Form 10-K for the fiscal year ended February 3, 2013 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma (cookware and wedding registry), Pottery Barn (furniture and wedding registry), Pottery Barn Kids (kids' furniture and baby registry), PBteen (girls' bedding and boys' bedding), West Elm (modern furniture and room decor), Williams-Sonoma Home (luxury furniture and decorative accessories), Rejuvenation (lighting and hardware) and Mark and Graham (personalized gifts and gifts for the home) – are marketed through e-commerce websites, direct mail catalogs and 595 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada and Australia, offers international shipping to customers worldwide, and has an unaffiliated franchisee that operates 27 stores in the Middle East.

 

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THIRTEEN WEEKS ENDED NOVEMBER 3, 2013 AND OCTOBER 28, 2012
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       
THIRD QUARTER

2013
(13 Weeks)

2012
(13 Weeks)

$ % of
Revenues
$ % of
Revenues
 
Direct-to-customer net revenues

511,874 48.7

 % 

447,115 47.3

 %

Retail net revenues   539,674   51.3   497,439   52.7

 

Net revenues 1,051,548 100.0 944,554 100.0
 
Cost of goods sold   646,160   61.4   576,556   61.0
 
Gross margin 405,388 38.6 367,998 39.0
 
Selling, general and administrative expenses   312,894   29.8   288,702   30.6
 
Operating income 92,494 8.8 79,296 8.4
Interest (income), net  

(103

) -   (173 ) -
 
Earnings before income taxes

92,597

8.8 79,469 8.4
Income taxes  

35,878

  3.4   30,569   3.2
 
Net earnings

56,719   5.4

 % 

48,900   5.2

 %

 
Earnings per share:
Basic

0.59

0.50
Diluted

0.58

0.49
 
Shares used in calculation of earnings per share:
Basic 95,453 98,444
Diluted 97,863 100,418
 
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2013 AND OCTOBER 28, 2012
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
       
YEAR-TO-DATE

2013
(39 Weeks)

2012
(39 Weeks)

$ % of
Revenues
$ % of
Revenues
 
Direct-to-customer net revenues

1,408,615 48.2

 % 

1,235,883 46.9

 %

Retail net revenues   1,512,950   51.8   1,400,568   53.1
Net revenues 2,921,565 100.0 2,636,451 100.0
 
Cost of goods sold   1,813,068   62.1   1,624,707   61.6
 
Gross margin 1,108,497 37.9 1,011,744 38.4
 
Selling, general and administrative expenses   874,134   29.9   813,022   30.8
 
Operating income 234,363 8.0 198,722 7.5
Interest (income), net  

(417

) -   (532 ) -
 
Earnings before income taxes

234,780

8.0 199,254 7.6
Income taxes  

89,676

  3.1   76,258   2.9
 
Net earnings

145,104   5.0

 % 

122,996   4.7

 %

 
Earnings per share:
Basic

1.49

1.24
Diluted

1.46

1.21
 
Shares used in calculation of earnings per share:
Basic 97,080 99,528
Diluted 99,075 101,285
 

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)

           

      November 3,
2013

      February 3,
2013

      October 28,
2012

Assets
Current assets
Cash and cash equivalents $ 128,759 $ 424,555 $ 262,484
Restricted cash 14,283 16,055 16,049
Accounts receivable, net 74,886 62,985 59,562
Merchandise inventories, net 898,625 640,024 688,437
Prepaid catalog expenses 40,613 37,231 44,452
Prepaid expenses 49,317 26,339 34,370
Deferred income taxes, net 99,003 99,764 91,718
Other assets   11,698   9,819   9,741
Total current assets 1,317,184 1,316,772 1,206,813
 
Property and equipment, net 843,563 812,037 763,576
Non-current deferred income taxes, net 10,931 12,398 13,691
Other assets, net   54,764   46,472   39,342
Total assets $ 2,226,442 $ 2,187,679 $ 2,023,422
 
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 433,926 $ 259,162 $ 236,562
Accrued salaries, benefits and other 110,116 120,632 96,534
Customer deposits 244,609 207,415 208,239
Income taxes payable 2,897 41,849 1,467
Current portion of long-term debt 1,793 1,724 1,753
Other liabilities   36,137   26,345   28,734
Total current liabilities 829,478 657,127 573,289
 
Deferred rent and lease incentives 165,445 171,198 177,912
Long-term debt 1,968 3,753 3,755
Other long-term obligations   59,506   46,463   50,609
Total liabilities 1,056,397 878,541 805,565
 
Stockholders' equity   1,170,045   1,309,138   1,217,857
Total liabilities and stockholders' equity $ 2,226,442 $ 2,187,679 $ 2,023,422
 
ADDITIONAL INFORMATION
  Store Count   Average Leased Square
Footage Per Store

Retail Concept

August 4,
2013
  Openings   Closings   November 3,
2013
  October 28,
2012
November 3,
2013
  October 28,
2012
Williams-Sonoma 253 3 - 256 259 6,600 6,600
Pottery Barn 196 1

(1)

196 193 13,800 13,900
Pottery Barn Kids 86 -

(2)

84 83 8,000 8,100
West Elm 51 4 - 55 45 14,300 15,600
Rejuvenation 4 -

-

4 4 13,200 13,200
Total 590 8

(3)

595 584 9,900 10,000
          Total Store Square Footage

    August 4,
2013

     

 November 3,
2013

     

  October 28,
2012

Total store selling square footage 3,600,000 3,632,000 3,566,000
Total store leased square footage 5,863,000 5,908,000 5,813,000
 

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2013 AND OCTOBER 28, 2012
(DOLLARS IN THOUSANDS)

   
YEAR-TO-DATE

2013

2012

(39 Weeks) (39 Weeks)
Cash flows from operating activities
Net earnings $ 145,104 $ 122,996
 
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 111,412 98,653
Loss on sale/disposal of assets 1,737 1,567
Amortization of deferred lease incentives (19,055 ) (19,785 )
Deferred income taxes (10,722 ) (8,767 )
Tax benefit from exercise of stock-based awards 14,393 14,497
Excess tax benefit from exercise of stock-based awards (6,617 ) (7,399 )
Stock-based compensation expense 28,440 22,778
Changes in:
Accounts receivable (13,498 ) (13,045 )
Merchandise inventories (258,876 ) (134,545 )
Prepaid catalog expenses (3,382 ) (10,157 )
Prepaid expenses and other assets (28,251 ) (12,883 )
Accounts payable 163,592 4,832
Accrued salaries, benefits and other current and long-term liabilities 12,017 (9,069 )
Customer deposits 37,519 17,773
Deferred rent and lease incentives 13,833 15,866
Income taxes payable   (38,971 )   (20,929 )
Net cash provided by operating activities   148,675     62,383  
 
Cash flows from investing activities:
Purchases of property and equipment (145,236 ) (116,398 )
Restricted cash deposits 1,772 (1,317 )
Proceeds from insurance reimbursement 1,418 -
Other   45     (231 )
Net cash used in investing activities   (142,001 )   (117,946 )
 
Cash flows from financing activities:
Repurchase of common stock (216,369 ) (124,293 )
Payment of dividends (82,030 ) (66,185 )
Repayments of long-term obligations (1,716 ) (1,765 )
Proceeds from exercise of stock-based awards 6,541 12,009
Tax withholdings related to stock-based awards (14,162 ) (12,327 )
Excess tax benefit from exercise of stock-based awards 6,617 7,399
Other   (42 )   (405 )
Net cash used in financing activities   (301,161 )   (185,567 )
 
Effect of exchange rates on cash and cash equivalents (1,309 ) 857
Net decrease in cash and cash equivalents (295,796 ) (240,273 )
Cash and cash equivalents at beginning of period   424,555     502,757  
Cash and cash equivalents at end of period $ 128,759   $ 262,484  
 

Exhibit 1

 
Operating Margin By Segment*
(Dollars in thousands)
               
DTC   RETAIL   UNALLOCATED   TOTAL
  Q3 13   Q3 12 Q3 13   Q3 12 Q3 13   Q3 12 Q3 13   Q3 12
Net Revenues

$

511,874

$ 447,115

$

539,674

$ 497,439 $ - $ - $ 1,051,548 $ 944,554
Operating Income/(Expense)   117,086   100,769   49,300   44,003   (73,892)   (65,476)   92,494   79,296
Operating Margin   22.9%   22.5%   9.1%   8.8%   (7.0%)   (6.9%)   8.8%   8.4%
*   See the company's 10-K and 10-Q filings for additional information on segment reporting and for the definition of Operating Income/(Expense) and Operating Margin.
 

Reconciliation of FY 13 Guidance and FY 12 Actual GAAP to Non-GAAP

Diluted Earnings Per Share*

(Totals rounded to the nearest cent per diluted share)

                       
 

Q1 13
ACT
(13 Weeks)

 

Q2 13
ACT
(13 Weeks)

 

Q3 13
ACT
(13 Weeks)

 

Q4 13
GUID
(13 Weeks)

 

Weighted
Share
Effect

 

FY 13
GUID
(52 Weeks)

2013 GAAP Diluted EPS $0.40 $0.49 $0.58 $1.30 - $1.37 ($0.02) $2.74 - $2.81
Impact of Employee Separation Charges (Note 1) $0.02 - - - - $0.02

2013 Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 3)**

$0.41 $0.49 $0.58 $1.30 - $1.37 ($0.02) $2.76 - $2.83
                     
 

Q1 12
ACT
(13 Weeks)

Q2 12
ACT
(13 Weeks)

Q3 12
ACT
(13 Weeks)

Q4 12
ACT
(14 Weeks)

Weighted
Share
Effect

FY 12
ACT
(53 Weeks)

2012 GAAP Diluted EPS $0.30 $0.43 $0.49 $1.34 ($0.02) $2.54
Impact of Employee Separation Charges (Note 2) $0.04 - - - - $0.04

2012 Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 3)

$0.34 $0.43 $0.49 $1.34 ($0.02) $2.58

*

 

Due to the differences between quarterly share counts and the year-to-date weighted average share count calculations and the effect of quarterly rounding to the nearest cent per diluted share, the year-to-date calculation of GAAP and non-GAAP diluted EPS may not equal the sum of the quarters.

 

**

Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.

 
Note 1: Impact of Employee Separation Charges – During Q1 13, we incurred charges of approximately $0.02 per diluted share associated with the previously announced retirement of the former President of the Williams-Sonoma brand. These charges were recorded within the unallocated segment.
 
Note 2: Impact of Employee Separation Charges – During Q1 12 and FY 12, we incurred charges of approximately $0.04 per diluted share primarily associated with the previously announced retirement of our former Executive Vice President, Chief Operating and Chief Financial Officer. These charges were recorded within the unallocated segment.
 
Note 3: SEC Regulation G – Non-GAAP Information – This table includes Non-GAAP Diluted EPS Excluding Unusual Business Events. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our diluted EPS results and guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

WILLIAMS-SONOMA, INC.
Julie P. Whalen, 415-616-8524
EVP, Chief Financial Officer
-or-
Gabrielle L. Rabinovitch, 415-616-7727
Director, Investor Relations

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