WILLIAMS-SONOMA INC.

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Williams-Sonoma, Inc. announces first quarter 2023 results

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the first quarter ended April 30, 2023 versus the first quarter ended May 1, 2022.

“Despite a challenging macro backdrop, we delivered another solid quarter of earnings. With our focus on compelling product, customer service, and profitability, we achieved our financial expectations,” said Laura Alber, President and Chief Executive Officer.

Alber concluded, “We have a culture of innovation and an experienced team who knows how to increase operational efficiencies, control costs, deliver world-class customer service, and drive new growth opportunities. We are confident that we will continue to deliver on our commitment to our customers, our employees, and our shareholders.”

FIRST QUARTER 2023 HIGHLIGHTS

Comparable brand revenue declined 6.0% with a 2-year comp growth of 3.5% and a 4-year comp growth of 46.5%.

Delivered a gross margin of 38.5%, or 38.6% on a non-GAAP basis, deleveraging 520bps on a non-GAAP basis, primarily driven by higher inbound and outbound shipping and freight costs with occupancy deleverage of 170bps. Occupancy costs increased 8.7% to $203 million, or increased 8.6% to $202 million on a non-GAAP basis.

SG&A as a percentage of revenues was 27.1%, or 25.7% on a non-GAAP basis, leveraging 100bps on a non-GAAP basis driven by advertising leverage with employment rate flat.

Delivered operating income of $199 million, with an operating margin of 11.4%, on a GAAP basis; or $226 million, with an operating margin of 12.9%, on a non-GAAP basis.

Delivered GAAP diluted EPS of $2.35 per share, or $2.64 per share on a non-GAAP basis.

Maintained strong liquidity position of $297 million in cash at the end of the quarter, with no borrowings outstanding, and $343 million in operating cash flow enabling the company to deliver strong returns to stockholders of $358 million through stock repurchases of $300 million and dividends of $58 million.

Recorded a non-recurring charge of $26.2 million for (i) exit costs associated with our West Coast manufacturing facility of $9.3 million, (ii) exit costs associated with Aperture of $8.6 million, and (iii) company-wide reduction-in-force actions of $8.3 million, right-sizing our teams domestically and internationally, primarily focused on corporate non-customer facing positions. Combined, we expect these changes will result in a pre-tax, annualized savings of $40 million.

OUTLOOK

We are reiterating our fiscal 2023 and long-term guidance.

In fiscal 2023, we expect net revenue growth in the range of -3% to +3% with an operating margin between 14% to 15%.

In the long-term, we expect mid-to-high single-digit annual net revenue growth with operating margin above 15%.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 23, 2023, at 7:00 A.M. (PT). The call will be open to the general public via live webcast and can be accessed at http://ir.williams-sonomainc.com/events. A replay of the webcast will be available at http://ir.williams-sonomainc.com/events.

SEC REGULATION G — NON-GAAP INFORMATION

This press release includes non-GAAP financial measures. Exhibit 1 provides reconciliations of these non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential variability and limited visibility of excluded items; these excluded items include exit costs associated with the closure of our West Coast manufacturing facility and the exiting of Aperture, a division of our Outward, Inc. subsidiary, as well as costs related to reduction-in-force initiatives. We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance on a comparable basis with prior periods. 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. In addition, certain other items may be excluded from non-GAAP financial measures when the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for or superior to the GAAP financial measures presented in this press release and our financial statements and other publicly filed reports. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

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 are proven incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, among other things, statements in the quotes of our President and Chief Executive Officer, our fiscal year 2023 outlook and long-term financial targets, and statements regarding our growth strategies and reduction-in-force initiatives and anticipated cost savings.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; the continuing impact of inflation and measures to control inflation, including raising interest rates, on consumer spending; the continuing impact of the coronavirus, war in Ukraine, and shortages of various raw materials on our global supply chain, retail store operations and customer demand; labor and material shortages; the outcome of our growth initiatives; 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; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy, supply chain, product, transportation 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; the impact of current and potential future tariffs and our ability to mitigate impacts; the potential for increased corporate income taxes; 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 January 29, 2023 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. We have not filed our Form 10-Q for the quarter ended April 30, 2023. As a result, all financial results described here should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates that are identified prior to the time we file the Form 10-Q. 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 the world’s largest digital-first, design-led and sustainable home retailer. The company’s products, representing distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, Mark and Graham and GreenRow — are marketed through e-commerce websites, direct-mail catalogs and retail stores. These brands are also part of The Key Rewards, our loyalty and credit card program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, offer international shipping to customers worldwide, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico, South Korea and India, as well as e-commerce websites in certain locations. We are also proud to be a leader in our industry with our Environmental, Social and Governance (“ESG”) efforts. Our company is Good By Design — we’ve deeply ingrained sustainability into our business. From our factories to your home, we’re united in a shared purpose to care for our people and our planet.

For more information on our ESG efforts, please visit: https://sustainability.williams-sonomainc.com/

WSM-IR

Condensed Consolidated Statements of Earnings (unaudited)

	For the Thirteen Weeks Ended
	April 30, 2023					May 1, 2022
(In thousands, except per share amounts)	$			% of Revenues		$			% of Revenues
Net revenues	$	1,755,451		100.0	%	$	1,891,227		100.0	%
Cost of goods sold		1,080,392		61.5			1,062,679		56.2
Gross profit		675,059		38.5			828,548		43.8
Selling, general and administrative expenses		475,582		27.1			505,067		26.7
Operating income		199,477		11.4			323,481		17.1
Interest income, net		(5,498	)	(0.3	)		(163	)	—
Earnings before income taxes		204,975		11.7			323,644		17.1
Income taxes		48,444		2.8			69,531		3.7
Net earnings	$	156,531		8.9	%	$	254,113		13.4	%
Earnings per share (EPS):
Basic	$	2.38				$	3.59
Diluted	$	2.35				$	3.50
Shares used in calculation of EPS:
Basic		65,849					70,851
Diluted		66,696					72,652

1st Quarter Net Revenues and Comparable Brand Revenue Growth (Decline)¹

	Net Revenues				Comparable Brand Revenue Growth (Decline)
(In millions, except percentages)	Q1 23		Q1 22		Q1 23		Q1 22
Pottery Barn	$	768	$	775	(0.4	) %	14.6	%
West Elm		452		536	(15.8	)	12.8
Williams Sonoma		239		252	(4.4	)	(2.2	)
Pottery Barn Kids and Teen		216		227	(3.3	)	(3.1	)
Other²		80		101	N/A		N/A
Total	$	1,755	$	1,891	(6.0	) %	9.5	%
See the Company’s 10-K and 10-Q for the definition of comparable brand revenue, which is calculated on a 13-week basis, and includes business-to-business revenues. Primarily consists of net revenues from Rejuvenation, our international franchise operations, and Mark and Graham.

Condensed Consolidated Balance Sheets (unaudited)

	As of
(In thousands, except per share amounts)	April 30, 2023			January 29, 2023			May 1, 2022
Assets
Current assets
Cash and cash equivalents	$	297,291		$	367,344		$	324,835
Accounts receivable, net		109,203			115,685			122,946
Merchandise inventories, net		1,401,616			1,456,123			1,396,135
Prepaid expenses		62,723			64,961			60,997
Other current assets		27,993			31,967			23,939
Total current assets		1,898,826			2,036,080			1,928,852
Property and equipment, net		1,050,026			1,065,381			942,460
Operating lease right-of-use assets		1,258,599			1,286,452			1,102,056
Deferred income taxes, net		70,758			81,389			48,737
Goodwill		77,330			77,307			85,298
Other long-term assets, net		115,498			116,407			103,310
Total assets	$	4,471,037		$	4,663,016		$	4,210,713
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	629,561		$	508,321		$	642,619
Accrued expenses		205,175			247,594			183,729
Gift card and other deferred revenue		452,505			479,229			490,821
Income taxes payable		87,680			61,204			126,270
Operating lease liabilities		229,751			231,965			211,614
Other current liabilities		97,144			108,138			88,587
Total current liabilities		1,701,816			1,636,451			1,743,640
Long-term operating lease liabilities		1,186,231			1,211,693			1,038,249
Other long-term liabilities		116,165			113,821			119,080
Total liabilities		3,004,212			2,961,965			2,900,969
Stockholders' equity
Preferred stock: $0.01 par value; 7,500 shares authorized, none issued		—			—			—
Common stock: $0.01 par value; 253,125 shares authorized; 64,222, 66,226, and 69,219 shares issued and outstanding at April 30, 2023, January 29, 2023 and May 1, 2022, respectively		643			663			693
Additional paid-in capital		531,940			573,117			532,205
Retained earnings		951,926			1,141,819			789,852
Accumulated other comprehensive loss		(16,258	)		(13,809	)		(12,267	)
Treasury stock, at cost		(1,426	)		(739	)		(739	)
Total stockholders' equity		1,466,825			1,701,051			1,309,744
Total liabilities and stockholders' equity	$	4,471,037		$	4,663,016		$	4,210,713

Retail Store Data (unaudited)

	Beginning of quarter				End of quarter	As of
	January 29, 2023	Openings	Closings		April 30, 2023	May 1, 2022
Pottery Barn	188	—	—		188	188
Williams Sonoma	165	2	(2	)	165	175
West Elm	122	1	—		123	121
Pottery Barn Kids	46	—	—		46	52
Rejuvenation	9	—	—		9	9
Total	530	3	(2	)	531	545

Condensed Consolidated Statements of Cash Flows (unaudited)

	For the Thirteen Weeks Ended
(In thousands)	April 30, 2023			May 1, 2022
Cash flows from operating activities:
Net earnings	$	156,531		$	254,113
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		55,602			50,251
Loss on disposal/impairment of assets		10,374			159
Non-cash lease expense		64,173			54,338
Deferred income taxes		(1,656	)		(2,725	)
Tax benefit related to stock-based awards		11,802			10,522
Stock-based compensation expense		23,446			28,542
Other		(822	)		(801	)
Changes in:
Accounts receivable		6,256			8,741
Merchandise inventories		52,819			(149,470	)
Prepaid expenses and other assets		6,668			13,517
Accounts payable		118,525			25,559
Accrued expenses and other liabilities		(92,858	)		(139,883	)
Gift card and other deferred revenue		(26,315	)		42,924
Operating lease liabilities		(68,497	)		(58,025	)
Income taxes payable		26,478			46,757
Net cash provided by operating activities		342,526			184,519
Cash flows from investing activities:
Purchases of property and equipment		(50,029	)		(71,186	)
Other		148			86
Net cash used in investing activities		(49,881	)		(71,100	)
Cash flows from financing activities:
Repurchases of common stock		(300,000	)		(501,075	)
Payment of dividends		(58,079	)		(58,150	)
Tax withholdings related to stock-based awards		(4,348	)		(78,508	)
Net cash used in financing activities		(362,427	)		(637,733	)
Effect of exchange rates on cash and cash equivalents		(271	)		(1,189	)
Net decrease in cash and cash equivalents		(70,053	)		(525,503	)
Cash and cash equivalents at beginning of period		367,344			850,338
Cash and cash equivalents at end of period	$	297,291		$	324,835

Exhibit 1
	1st Quarter GAAP to Non-GAAP Reconciliation (unaudited)

		For the Thirteen Weeks Ended
		April 30, 2023					May 1, 2022
	(In thousands, except per share data)	$			% of revenues		$		% of revenues
	Occupancy costs	$	202,612		11.5	%	$	186,406	9.9	%
	Exit Costs¹		(239	)				—
	Non-GAAP occupancy costs	$	202,373		11.5	%	$	186,406	9.9	%


	Gross profit	$	675,059		38.5	%	$	828,548	43.8	%
	Exit Costs¹		2,141					—
	Non-GAAP gross profit	$	677,200		38.6	%	$	828,548	43.8	%


	Selling, general and administrative expenses	$	475,582		27.1	%	$	505,067	26.7	%
	Exit Costs¹		(15,790	)				—
	Reduction-in-force Initiatives²		(8,316	)				—
	Non-GAAP selling, general and administrative expenses	$	451,476		25.7	%	$	505,067	26.7	%


	Operating income	$	199,477		11.4	%	$	323,481	17.1	%
	Exit Costs¹		17,931					—
	Reduction-in-force Initiatives²		8,316					—
	Non-GAAP operating income	$	225,724		12.9	%	$	323,481	17.1	%

		$			Tax rate		$		Tax rate
	Income taxes	$	48,444		23.6	%	$	69,531	21.5	%
	Exit Costs¹		4,690					—
	Reduction-in-force Initiatives²		2,174					—
	Non-GAAP income taxes	$	55,308		23.9	%	$	69,531	21.5	%


	Diluted EPS	$	2.35				$	3.50
	Exit Costs¹		0.20					—
	Reduction-in-force Initiatives²		0.09					—
	Non-GAAP diluted EPS³	$	2.64				$	3.50
	During Q1 2023, we incurred exit costs of $17.9 million, including $9.3 million associated with the closure of our West Coast manufacturing facility and $8.6 million associated with the exiting of Aperture, a division of our Outward, Inc. subsidiary. During Q1 2023, we incurred costs related to reduction-in-force initiatives of $8.3 million primarily in our corporate functions. Per share amounts may not sum due to rounding to the nearest cent per diluted share.

SEC Regulation G – Non-GAAP Information

These tables include non-GAAP occupancy costs, gross profit, gross margin, selling, general and administrative expense, operating income, operating margin, income taxes, effective tax rate and diluted EPS. 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 actual results on a comparable basis with prior periods. 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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