WILLIAMS SONOMA INC - FORM 8-K - EX-99.1

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8-K - 8-K - WILLIAMS SONOMA INC	d823037d8k.htm

Exhibit 99.1

WILLIAMS-SONOMA, INC.

3250 Van Ness Avenue

San Francisco, CA 94109


						CONTACT:
						Julie P. Whalen
						EVP, Chief Financial Officer
						(415) 616-8524

						Gabrielle L. Rabinovitch
						Vice President, Investor Relations
						(415) 616-7727

PRESS RELEASE

Williams-Sonoma, Inc. announces third quarter 2014 results

Net revenues grow 8.7%, operating margin expands to 9.2%

EPS increases 17.2% to $0.68

Raises financial guidance for fiscal year 2014

San Francisco, CA, November 19, 2014 – Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the third fiscal quarter ended November 2, 2014 (“Q3 14”) versus the third fiscal quarter ended November 3, 2013 (“Q3 13”).

3^rd QUARTER 2014 RESULTS

•

Q3 14 net revenues grew 8.7% to $1.143 billion versus $1.052 billion in Q3 13 with comparable brand revenue growth of 8.7%.

•

Q3 14 operating margin increased to 9.2% versus 8.8% in Q3 13.

•

Q3 14 diluted earnings per share (“EPS”) grew 17.2% to $0.68 from $0.58 in Q3 13.

•

Cash returned to stockholders totaled $114 million, comprising $83 million in stock repurchases and $31 million in dividends.

Laura Alber, President and Chief Executive Officer, commented, “Solid performance across our brands allowed us to deliver these results with revenue growth of 8.7%, operating margin expansion, and earnings per share growth of 17.2%. These achievements reflect our product leadership, lifestyle merchandising, iconic brands and strong execution. We also believe that this third quarter further demonstrates that our multi-channel model, with more than 51% of revenues now coming from the e-commerce channel, represents a distinct competitive advantage. We continue to focus on serving our customers and investing for sustainable long-term growth.”

Alber concluded, “This holiday season, we believe we have a strong lineup of beautiful gifts, entertaining and decorating collections across all of our brands, and most importantly, we are ready to provide the best service to our customers across all channels.”

Comparable brand revenue growth in Q3 14 increased 8.7% on top of 8.2% in Q3 13 as shown in the table below:



3^rd Quarter Comparable Brand Revenue Growth by Concept*

	Q3 14		Q3 13

Pottery Barn		7.0%	8.4%
Williams-Sonoma		4.3%	1.4%
Pottery Barn Kids		8.6%	3.9%
West Elm		17.4%	22.2%
PBteen		11.7%	16.7%

Total		8.7%	8.2%

* See the Company’s 10-K and 10-Q filings for the definition of comparable brand revenue growth.

E-commerce (formerly direct-to-customer) net revenues in Q3 14 increased 14.7% to $587 million from $512 million in Q3 13, with increases in all brands, primarily driven by Pottery Barn and West Elm. E-commerce net revenues generated 51% of total company net revenues in Q3 14, compared to 49% in Q3 13.

Retail net revenues in Q3 14 increased 3.1% to $556 million from $540 million in Q3 13, primarily driven by West Elm and Pottery Barn, partially offset by a decrease in Williams-Sonoma due to eight fewer stores in Q3 14.

Operating margin in Q3 14 increased to 9.2% compared to 8.8% in Q3 13:

•

Gross margin was 37.7% versus 38.6% in Q3 13.

•

Selling, general and administrative (“SG&A”) expenses were $327 million, or 28.6% of net revenues, versus $313 million, or 29.8% of net revenues, in Q3 13.

EPS in Q3 14 increased 17.2% to $0.68 from $0.58 in Q3 13.

Merchandise inventories at the end of Q3 14 increased 9.0% to $980 million from $899 million at the end of Q3 13.

STOCK REPURCHASE PROGRAM

During Q3 14, we repurchased approximately 1.2 million shares of common stock at an average cost of $66.70 per share and a total cost of approximately $83 million. As of November 2, 2014, there was approximately $316 million remaining under the $750 million stock repurchase program announced in March 2013.

AMENDED AND RESTATED CREDIT AGREEMENT

Today, we entered into our Sixth Amended and Restated Credit Agreement, which increases our unsecured revolving line of credit from $300 million to $500 million and extends the maturity date to November 19, 2019. For additional information, see our Form 8-K filed today with the Securities and Exchange Commission.

FISCAL YEAR 2014 FINANCIAL GUIDANCE

4^th Quarter 2014 Guidance

•

Net revenues in the fourth quarter of fiscal 2014 (“Q4 14”) are expected to be in the range of $1.525 billion to $1.575 billion.

•

Comparable brand revenue growth in Q4 14 is expected to be in the range of 4% to 6%.

•

Diluted EPS in Q4 14 is expected to be in the range of $1.42 to $1.50.

Fiscal Year 2014 Guidance



		Financial Highlights
		Total Net Revenues (millions)		$4,680 – $4,730
		Comparable Brand Revenue Growth		5 – 7%
		Operating Margin		10.2 – 10.4%
		Diluted EPS		$3.11 – $3.19
		Income Tax Rate		38.3 – 38.8%
		Capital Spending (millions)		$200 – $220
		Depreciation and Amortization (millions)		$160 – $170



Store Opening and Closing Guidance by Retail Concept*
	FY 2013 ACT		FY 2014 GUID

	Total			New		Close			End

Williams-Sonoma		248			5		(14	)	239
Pottery Barn		194			7		(5	)	196
Pottery Barn Kids		81			9		(5	)	85
West Elm		58			11		-		69
Rejuvenation		4			1		-		5

Total		585			33		(24	)	594

* Included in the FY 13 store count are five stores in Australia and one store in the UK. FY 14 guidance includes eight additional Australian stores.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 19, 2014, at 2:00 PM (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 in Q1 13 and FY 13. 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 quarterly FY 14 actual results and FY 14 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 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 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 statements relating to: our competitive advantages; the execution of our growth initiatives; our future financial guidance, including Q4 14 and FY 2014 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 14; continuing 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; 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 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 2, 2014, 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, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 603 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines.

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Earnings (unaudited)

Thirteen weeks ended November 2, 2014 and November 3, 2013

(Dollars and shares in thousands, except per share amounts)


	3^rd Quarter
	2014					2013
			% of						% of
	$		Revenues			$			Revenues
E-commerce* net revenues	$	586,976		51.3	%	$	511,874			48.7	%
Retail net revenues		556,186		48.7			539,674			51.3

Net revenues		1,143,162		100.0			1,051,548			100.0
Cost of goods sold		711,755		62.3			646,160			61.4

Gross profit		431,407		37.7			405,388			38.6
Selling, general and administrative expenses		326,687		28.6			312,894			29.8

Operating income		104,720		9.2			92,494			8.8
Interest (income) expense, net		117		—			(103	)		—

Earnings before income taxes		104,603		9.2			92,597			8.8
Income taxes		39,695		3.5			35,878			3.4

Net earnings	$	64,908		5.7	%	$	56,719			5.4	%

Earnings per share (EPS):
Basic	$	0.70				$	0.59
Diluted	$	0.68				$	0.58
Shares used in calculation of EPS:
Basic		93,067					95,453
Diluted		94,920					97,863

*	Prior to Q3 14, we referred to the e-commerce channel as the direct-to-customer channel.

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Earnings (unaudited)

Thirty-nine weeks ended November 2, 2014 and November 3, 2013

(Dollars and shares in thousands, except per share amounts)


	Year-to-Date
	2014					2013
	$		% of Revenues			$			% of Revenues
E-commerce* net revenues	$	1,600,854		50.7	%	$	1,408,615			48.2	%
Retail net revenues		1,555,740		49.3			1,512,950			51.8

Net revenues		3,156,594		100.0			2,921,565			100.0
Cost of goods sold		1,974,681		62.6			1,813,068			62.1

Gross profit		1,181,913		37.4			1,108,497			37.9
Selling, general and administrative expenses		917,531		29.1			874,134			29.9

Operating income		264,382		8.4			234,363			8.0
Interest (income) expense, net		88		—			(417	)		—

Earnings before income taxes		264,294		8.4			234,780			8.0
Income taxes		102,477		3.2			89,676			3.1

Net earnings	$	161,817		5.1	%	$	145,104			5.0	%

Earnings per share (EPS):
Basic	$	1.72				$	1.49
Diluted	$	1.69				$	1.46
Shares used in calculation of EPS:
Basic		93,862					97,080
Diluted		95,603					99,075

*	Prior to Q3 14, we referred to the e-commerce channel as the direct-to-customer channel.

Williams-Sonoma, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(Dollars and shares in thousands, except per share amounts)


	Nov. 2, 2014			Feb. 2, 2014			Nov. 3, 2013
Assets
Current assets
Cash and cash equivalents	$	107,703		$	330,121		$	128,759
Restricted cash		-			14,289			14,283
Accounts receivable, net		63,664			60,330			74,886
Merchandise inventories, net		979,719			813,160			898,625
Prepaid catalog expenses		39,116			33,556			40,613
Prepaid expenses		56,517			35,309			49,317
Deferred income taxes, net		121,380			121,486			99,003
Other assets		14,816			10,852			11,698

Total current assets		1,382,915			1,419,103			1,317,184

Property and equipment, net		866,670			849,293			843,563
Non-current deferred income taxes, net		4,142			13,824			10,931
Other assets, net		50,220			54,514			54,764

Total assets	$	2,303,947		$	2,336,734		$	2,226,442

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	411,232		$	404,791		$	433,926
Accrued salaries, benefits and other		117,410			138,181			110,116
Customer deposits		265,058			228,193			244,609
Borrowings under revolving line of credit		90,000			-			-
Income taxes payable		4,750			49,365			2,897
Current portion of long-term debt		1,968			1,785			1,793
Other liabilities		46,134			38,781			36,137

Total current liabilities		936,552			861,096			829,478

Deferred rent and lease incentives		168,078			157,856			165,445
Long-term debt		-			1,968			1,968
Other long-term obligations		62,942			59,812			59,506

Total liabilities		1,167,572			1,080,732			1,056,397

Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued		-			-			-
Common stock: $.01 par value; 253,125 shares authorized; 92,219, 94,049 and 94,379 shares issued and outstanding at November 2, 2014, February 2, 2014 and November 3, 2013, respectively		923			941			944
Additional paid-in capital		519,783			522,595			515,463
Retained earnings		612,611			729,043			646,450
Accumulated other comprehensive income		5,203			6,524			10,289
Treasury stock, at cost		(2,145	)		(3,101	)		(3,101	)

Total stockholders’ equity		1,136,375			1,256,002			1,170,045

Total liabilities and stockholders’ equity	$	2,303,947		$	2,336,734		$	2,226,442

Williams-Sonoma, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

Thirty-nine weeks ended November 2, 2014 and November 3, 2013

(Dollars in thousands)


	Year-to-Date
	2014			2013
Cash flows from operating activities
Net earnings	$	161,817		$	145,104
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		121,135			111,412
Loss on sale/disposal/impairment of assets		1,581			1,737
Amortization of deferred lease incentives		(18,577	)		(19,055	)
Deferred income taxes		(13,031	)		(10,722	)
Tax benefit related to stock-based awards		49,451			14,393
Excess tax benefit related to stock-based awards		(24,408	)		(6,617	)
Stock-based compensation expense		34,729			28,440
Other		352			-
Changes in:
Accounts receivable		(4,455	)		(13,498	)
Merchandise inventories		(165,839	)		(258,876	)
Prepaid catalog expenses		(5,560	)		(3,382	)
Prepaid expenses and other assets		(22,000	)		(28,251	)
Accounts payable		8,193			163,592
Accrued salaries, benefits and other current and long-term liabilities		(12,242	)		12,017
Customer deposits		36,897			37,519
Deferred rent and lease incentives		18,392			13,833
Income taxes payable		(44,634	)		(38,971	)

Net cash provided by operating activities		121,801			148,675


Cash flows from investing activities:
Purchases of property and equipment		(131,670	)		(145,236	)
Restricted cash receipts		14,289			1,772
Proceeds from insurance reimbursements		964			1,418
Other		241			45

Net cash used in investing activities		(116,176	)		(142,001	)


Cash flows from financing activities:
Repurchase of common stock		(195,235	)		(216,369	)
Payment of dividends		(95,267	)		(82,030	)
Borrowings under revolving line of credit		90,000			-
Tax withholdings related to stock-based awards		(53,440	)		(14,162	)
Excess tax benefit related to stock-based awards		24,408			6,617
Net proceeds related to stock-based awards		3,511			6,541
Repayments of long-term obligations		(1,785	)		(1,716	)
Other		(4	)		(42	)

Net cash used in financing activities		(227,812	)		(301,161	)


Effect of exchange rates on cash and cash equivalents		(231	)		(1,309	)
Net decrease in cash and cash equivalents		(222,418	)		(295,796	)
Cash and cash equivalents at beginning of period		330,121			424,555

Cash and cash equivalents at end of period	$	107,703		$	128,759

Exhibit 1

3^rd Quarter Operating Margin By Segment*

($ in thousands)


	E-commerce (formerly DTC)				Retail				Unallocated						Total
	Q3 14		Q3 13		Q3 14		Q3 13		Q3 14			Q3 13			Q3 14		Q3 13
Net Revenues	$	586,976	$	511,874	$	556,186	$	539,674	$	-		$	-		$	1,143,162	$1,051,548
Operating Income/(Expense)		136,617		117,086		49,973		49,300		(81,870	)		(73,892	)		104,720	92,494
Operating Margin		23.3%		22.9%		9.0%		9.1%		(7.2%	)		(7.0%	)		9.2%	8.8%

See the Company’s 10-K and 10-Q filings for additional information on segment reporting and the definition of Operating Income/(Expense) and Operating Margin.

Store Statistics


	Store Count											Avg. Leased Square Footage Per Store
	Aug. 3, 2014		Openings		Closings			Nov. 2, 2014		Nov. 3, 2013		Nov. 2, 2014		Nov. 3, 2013
Williams-Sonoma		247		3		(2	)		248		256		6,600		6,600
Pottery Barn		195		3		-			198		196		13,700		13,800
Pottery Barn Kids		84		2		(1	)		85		84		7,700		8,000
West Elm		59		9		-			68		55		13,800		14,300
Rejuvenation		4		-		-			4		4		13,200		13,200
Total		589		17		(3	)		603		595		9,900		9,900


	Aug. 3, 2014		Nov. 2, 2014		Nov. 3, 2013
Total store selling square footage		3,598,000		3,688,000		3,632,000
Total store leased square footage		5,843,000		5,988,000		5,908,000

Reconciliation of Quarterly and Fiscal Year Actual GAAP to Non-GAAP

Diluted Earnings Per Share**

(Totals rounded to the nearest cent per diluted share)

Q1 14

ACT

Q2 14

ACT

Q3 14

ACT

Q4 14

GUID

FY 14

GUID

2014 GAAP Diluted EPS

$0.48

$0.53

$0.68

$1.42 - $150

$3.11 - $3.19

Q1 13

ACT

Q2 13

ACT

Q3 13

ACT

Q4 13

ACT

FY 13

ACT

2013 GAAP Diluted EPS

$0.40

$0.49

$0.58

$1.38

$2.82

Impact of Employee Separation Charges ⁽¹⁾

0.02

2013 Non-GAAP Diluted EPS Excluding Employee Separation Charges ⁽²⁾

$0.41

$0.49

$0.58

$1.38

$2.84

Due to the differences between the quarterly and year-to-date weighted average share count calculations and rounding to the nearest cent per diluted share, totals may not equal the sum of the line items and fiscal year diluted EPS may not equal the sum of the quarters.

Notes:

(1)

Impact of Employee Separation Charges – During Q1 13 and FY 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.

(2)

SEC Regulation G – Non-GAAP Information – This table includes non-GAAP diluted EPS. 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 quarterly and FY 14 actual 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 - FORM 8-K - EX-99.1 - November 19, 2014

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