Williams-Sonoma's fiscal Q1 earnings climb 28.5% from a year ago to US$39.5M as sales grow 8.6% to US$888M; results were best Q1 in company's history, exceeding expectations for operating margin, diluted EPS, says CEO

SAN FRANCISCO , May 24, 2013 (press release) – Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the 13 weeks ended May 5, 2013 (“Q1 13”) versus the 13 weeks ended April 29, 2012 (“Q1 12”). Q1 13 Results

  • Net revenues grew 8.6% to $888 million versus $818 million in Q1 12 with comparable brand revenue growth of 7.2%.
  • Operating margin increased to 7.2% from 6.0% in Q1 12. Excluding unusual business events, non-GAAP operating margin increased to 7.5% from 6.9% in Q1 12 (see Exhibit 1).
  • Diluted earnings per share (“EPS”) grew 33% to $0.40. Excluding unusual business events, non-GAAP EPS increased 21% to $0.41 (see Exhibit 1).
  • Cash returned to stockholders totaled $63 million comprising $41 million in stock repurchases and $22 million in dividends.

Laura Alber, President and Chief Executive Officer commented, “Our first quarter 2013 financial results represent our best first quarter in the company’s history, exceeding our expectations for both operating margin and diluted EPS, on revenue growth of 9%. We delivered these results while simultaneously investing in our future growth strategies.”

Alber continued, “Based on our results to date and our continued confidence in the full year, we are raising our FY 2013 revenues to a range of $4.22 billion to $4.30 billion and our non-GAAP EPS to a range of $2.67 to $2.77.”

Alber remarked, “In the first quarter, we reached an important new milestone with the launch of our first company-owned stores and e-commerce sites in Australia. We also announced today our further global expansion into the United Kingdom later this year, and we are excited about the opportunities we see to grow our brands globally.”

Comparable brand revenue growth in Q1 13 increased 7.2% on top of 5.4% in Q1 12 as shown in the table below:

First Quarter Comparable Brand Revenue Growth by Concept*

         
    Q1 13   Q1 12
Pottery Barn   7.6 %   9.1 %
Williams-Sonoma   1.9 %   (4.3 %)
Pottery Barn Kids   6.9 %   (0.8 %)
West Elm   11.8 %   22.1 %
PBteen   16.1 %   (6.0 %)
Total   7.2 %   5.4 %
*     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 Q1 13 increased 11.9% to $419 million from $374 million in Q1 12 with increases across all brands. This growth was primarily led by Pottery Barn, West Elm, Williams-Sonoma and Pottery Barn Kids. DTC net revenues generated 47% of total company net revenues in Q1 13 versus 46% in Q1 12.

Retail net revenues in Q1 13 increased 5.8% to $469 million from $443 million in Q1 12, driven primarily by our international franchise operations, Pottery Barn and West Elm, partially offset by a decrease in Williams-Sonoma. Including six net new stores within Q1 13, retail leased square footage increased 2.0% from the end of Q1 12.

Operating margin, including unusual business events, in Q1 13 was 7.2% versus 6.0% in Q1 12. Excluding unusual business events, non-GAAP operating margin in Q1 13 was 7.5% versus 6.9% last year:

  • Gross margin decreased 20 basis points to 37.6% from 37.8% in Q1 12.
  • Selling, general and administrative (“SG&A”) expenses were $270 million or 30.5% of net revenues versus $260 million or 31.8% in Q1 12. Excluding the 40 basis point impact related to unusual business events in Q1 13 and the 90 basis point impact related to unusual business events in Q1 12, non-GAAP SG&A expenses were $267 million or 30.1% in Q1 13 versus $253 million or 30.9% in Q1 12.

EPS in Q1 13 increased 33% to $0.40 from $0.30 in Q1 12. Excluding unusual business events, non-GAAP EPS in Q1 13 increased 21% to $0.41 from $0.34 in Q1 12.

Merchandise inventories at the end of Q1 13 increased 12.8% to $662 million versus $586 million at the end of Q1 12.

STOCK REPURCHASE PROGRAM

During Q1 13, we repurchased 800,882 shares of common stock at an average cost of $51.41 per share and a total cost of approximately $41 million. As of May 5, 2013, there was $709 million remaining under the three-year $750 million stock repurchase program announced in March 2013.

FY 13 FINANCIAL GUIDANCE

  • Second Quarter 2013 Guidance (13 weeks)
  • Net revenues in the second quarter of fiscal 2013 (“Q2 13”) are expected to be in the range of $920 million to $940 million.
  • Comparable brand revenue growth in Q2 13 is expected to be in the range of 4% to 6%.
  • Diluted EPS in Q2 13 is expected to be in the range of $0.43 to $0.46.
  • Fiscal Year 2013 Guidance (52 weeks)
     
    FY 13

GUID

Total Net Revenues (millions)   $4,220 - $4,300
Comparable Brand Revenue Growth

(52-week vs. 52-week)

  4 - 6 %
Operating Margin   10.0 - 10.3 %
Diluted EPS   $2.67 - $2.77
Income Tax Rate   38.2 - 38.6 %
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

     
Retail Concept   Total   New   Close   End
Williams-Sonoma  

253

 

7

 

  (15 )   245
Pottery Barn   192   6     (4 )   194
Pottery Barn Kids   84   4     (5 )   83
West Elm   48   11     (1 )   58
Rejuvenation   4   -     -     4
Total   581   28     (25 )   584
                     

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 23, 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 SG&A, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of employee separation charges. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our quarterly diluted EPS actual results and FY 13 guidance on a comparable basis with our quarterly and FY 12 results. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP measures 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 growth potential; our growth strategies; our global expansion; our future financial guidance, including Q2 13 and fiscal year 2013 guidance; our three year stock repurchase program; our proposed store openings and closures; and our beliefs regarding non-GAAP financial measures.

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 Q1 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 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 587 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 24 stores in the Middle East.

 

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THIRTEEN WEEKS ENDED MAY 5, 2013 AND APRIL 29, 2012
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                     
    FIRST QUARTER  
   

2013

   

2012

 
    (13 Weeks)     (13 Weeks)  
    $   % of
Revenues
    $   % of
Revenues
 
                     
Direct-to-customer net revenues   $

 419,084

    47.2

 % 

  $

 374,407

    45.8

 %

Retail net revenues     468,724     52.8       443,207     54.2  
Net revenues     887,808     100.0       817,614     100.0  
                     
Cost of goods sold     553,623     62.4       508,348     62.2  
                     
Gross margin     334,185     37.6       309,266     37.8  
                     
Selling, general and administrative expenses     270,402     30.5       259,943     31.8  
                     
Operating income     63,783     7.2       49,323     6.0  
Interest (income), net     (189 )   -       (191 )   -  
                     
Earnings before income taxes     63,972     7.2       49,514     6.1  
Income taxes     24,506     2.8       18,798     2.3  
                     
Net earnings   $ 39,466     4.4

 % 

  $ 30,716     3.8

 %

                     
Earnings per share:                    
Basic   $ 0.40           $ 0.31        
Diluted   $ 0.40           $ 0.30        
                     
Shares used in calculation of earnings per share:                    
Basic     97,704             100,172        
Diluted     99,515             101,956        
                             
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
                                                       
                 

          May 5,
2013

               

   February 3,
2013

               

       April 29,
2012

Assets                                                      
Current assets                                                      
Cash and cash equivalents                 $ 252,536                 $ 424,555                 $ 376,464
Restricted cash                   16,061                   16,055                   14,737
Accounts receivable, net                   60,667                   62,985                   47,688
Merchandise inventories, net                   661,541                   640,024                   586,270
Prepaid catalog expenses                   36,407                   37,231                   34,308
Prepaid expenses                   52,695                   26,339                   32,975
Deferred income taxes, net                   99,739                   99,764                   91,774
Other assets                   9,434                   9,819                   8,606
Total current assets                   1,189,080                   1,316,772                   1,192,822
                                                       
Property and equipment, net                   817,249                   812,037                   726,133
Non-current deferred income taxes, net                   10,738                   12,398                   11,764
Other assets, net                   46,152                   46,472                   38,847
Total assets                 $ 2,063,219                 $ 2,187,679                 $ 1,969,566
                                                       
Liabilities and stockholders' equity                                                      
Current liabilities                                                      
Accounts payable                 $ 211,086                 $ 259,162                 $ 189,660
Accrued salaries, benefits and other                   84,886                   120,632                   77,732
Customer deposits                   222,018                   207,415                   197,347
Income taxes payable                   13,377                   41,849                   30,805
Current portion of long-term debt                   1,696                   1,724                   1,652
Other liabilities                   27,207                   26,345                   23,510
Total current liabilities                   560,270                   657,127                   520,706
                                                       
Deferred rent and lease incentives                   172,312                   171,198                   179,064
Long-term debt                   3,753                   3,753                   5,450
Other long-term obligations                   44,666                   46,463                   48,112
Total liabilities                   781,001                   878,541                   753,332
                                                       
Stockholders' equity                   1,282,218                   1,309,138                   1,216,234
Total liabilities and stockholders' equity                 $ 2,063,219                 $ 2,187,679                 $ 1,969,566

ADDITIONAL INFORMATION

    Store Count   Average Leased Square
Footage Per Store

Retail Concept

  February 3,
2013
  Openings   Closings   May 5,
2013
  April 29,
2012
  May 5,
2013
  April 29,
2012
Williams-Sonoma   253   4   (3)   254   259   6,600   6,500
Pottery Barn   192   4   (1)   195   193   13,800   13,900
Pottery Barn Kids   84   2   (1)   85   82   8,100   8,200
West Elm   48   1   -   49   38   14,800   16,600
Rejuvenation   4   -   -   4   3   13,200   17,200
Total   581   11   (5)   587   575   9,900   10,000
         
    Total Store Square Footage    
    February 3,
2013
          May 5,
2013
  April 29,
2012
   
Total store selling square footage   3,548,000           3,586,000   3,522,000    
Total store leased square footage   5,778,000           5,840,000   5,725,000    
                         

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEKS ENDED MAY 5, 2013 AND APRIL 29, 2012
(DOLLARS IN THOUSANDS)

         
    YEAR-TO-DATE
   

2013

 

2012

    (13 Weeks)   (13 Weeks)
Cash flows from operating activities        
Net earnings   $ 39,466     $ 30,716  
         
Adjustments to reconcile net earnings to net cash        
provided by (used in) operating activities:        
Depreciation and amortization    

36,609

      32,794  
Loss on sale/disposal of assets    

360

      362  
Amortization of deferred lease incentives     (6,353 )     (6,563 )
Deferred income taxes     (3,431 )     (3,172 )
Tax benefit from exercise of stock-based awards     9,186       7,668  
Excess tax benefit from exercise of stock-based awards     (4,047 )     (4,152 )
Stock-based compensation expense     8,991       7,993  
Changes in:        
Accounts receivable     1,512       (1,627 )
Merchandise inventories    

(21,537

)     (32,571 )
Prepaid catalog expenses     824       (14 )
Prepaid expenses and other assets     (25,863 )     (9,695 )
Accounts payable    

(52,345

)     (25,317 )
Accrued salaries, benefits and other current and long-term liabilities    

(37,028

)     (36,135 )
Customer deposits     14,691       6,827  
Deferred rent and lease incentives    

7,613

      3,783  
Income taxes payable     (28,470 )     8,366  
Net cash used in operating activities    

(59,822

)     (20,737 )
         
Cash flows from investing activities:        
Purchases of property and equipment     (47,444 )     (27,819 )
Proceeds from insurance reimbursement     760       -  
Other     26       34  
Net cash used in investing activities     (46,658 )     (27,785 )
         
Cash flows from financing activities:        
Repurchase of common stock     (41,174 )     (61,733 )
Payment of dividends     (21,985 )     (22,136 )
Repayments of long-term obligations    

(28

)     (171 )
Proceeds from exercise of stock-based awards     3,767       8,275  
Tax withholdings related to stock-based awards     (9,384 )     (6,866 )
Excess tax benefit from exercise of stock-based awards     4,047       4,152  
Net cash used in financing activities    

(64,757

)     (78,479 )
         
Effect of exchange rates on cash and cash equivalents    

(782

)     708  
Net decrease in cash and cash equivalents     (172,019 )     (126,293 )
Cash and cash equivalents at beginning of period     424,555       502,757  
Cash and cash equivalents at end of period   $ 252,536     $ 376,464  
                 

Exhibit 1

Reconciliation of Q1 13 and Q1 12 Actual GAAP to Non-GAAP

Operating Margin By Segment*

(Dollars in thousands)
                 
    DTC   RETAIL   UNALLOCATED   TOTAL
    Q1 13   Q1 12   Q1 13   Q1 12   Q1 13   Q1 12   Q1 13   Q1 12
Net Revenues   $ 419,084   $ 374,407   $ 468,724   $ 443,207   $ -   $ -   $ 887,808   $ 817,614
GAAP Operating Income/(Expense)     95,941     77,955     34,016     34,353     (66,174)     (62,985)     63,783     49,323
GAAP Operating Margin     22.9%     20.8%     7.3%     7.8%     (7.5%)     (7.7%)     7.2%     6.0%
Unusual Business Events (Notes 1 and 2)     -     -     -     -     2,936     6,990     2,936     6,990
Non-GAAP Operating Income/(Expense) Excluding Unusual Business Events   $ 95,941   $ 77,955   $ 34,016   $ 34,353   $ (63,238)   $ (55,995)   $ 66,719   $ 56,313
Non-GAAP Operating Margin (Note 3)     22.9%     20.8%     7.3%     7.8%     (7.1%)     (6.8%)     7.5%     6.9%
*     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

  Q2 13

GUID

  FY 13

GUID

    (13 Weeks)   (13 Weeks)   (52 Weeks)
2013 GAAP Diluted EPS   $0.40   $0.43 - $0.46   $2.66 - $2.76
Impact of Employee Separation Charges (Note 1)   $0.02   -   $0.02
2013 Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 3)**   $0.41   $0.43 - $0.46   $2.67 - $2.77
             
    Q1 12

ACT

  Q2 12

ACT

  FY 12

ACT

    (13 Weeks)   (13 Weeks)   (53 Weeks)
2012 GAAP Diluted EPS   $0.30   $0.43   $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   $2.58

*

   

Due to the differences between quarterly share counts 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 – These tables include non-GAAP financial measures, Non-GAAP Operating Margin and Diluted EPS Excluding Unusual Business Events. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our quarterly and FY 13 operating margin and diluted EPS actual results and guidance on a comparable basis with our quarterly and FY 12 actual results. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

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