Williams-Sonoma, Inc. reports strong results for the first quarter of 2019

Comparable brand revenue growth of 3.5%
GAAP operating
margin of 6.0%; Non-GAAP operating margin expansion of 70bps to 7.0%
GAAP
diluted EPS of $0.66; Non-GAAP diluted EPS of $0.81, or a 21% increase
over Q1 18
Raises fiscal year 2019 EPS guidance

SAN FRANCISCO–(BUSINESS WIRE)–Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for
the first fiscal quarter (“Q1 19”) ended May 5, 2019 versus the first
fiscal quarter (“Q1 18”) ended April 29, 2018.

Laura Alber, President and Chief Executive Officer, commented,
“We have had a strong start to 2019 with comparable revenue growth of
3.5%, operating margin expansion and significant EPS growth. Customer
acquisition and engagement continued to grow as we delivered more
compelling and differentiated experiences to our customers. We also
reached a significant milestone for our company as we were named, for
the first time, to the Fortune 500 largest companies in the U.S. This
accomplishment speaks to the hard work and dedication of all our
associates, the ongoing support of our loyal customers and the power of
our highly differentiated platform in driving long-term, profitable
growth.”

Alber continued, “Given our strong start to the year and the strength we
are seeing early in the second quarter, we are raising our full-year EPS
guidance by $0.05. We believe we are uniquely positioned to capture the
significant opportunities we see in the home furnishings industry, and
we will continue to build on our strong momentum to achieve our goal of
maximizing growth and maintaining high profitability.”

FIRST QUARTER 2019

Net revenue growth of 3.2% to $1.241 billion
Comparable brand revenue growth of 3.5%, including double-digit
comparable growth for West Elm
GAAP operating margin of 6.0%; non-GAAP operating margin expansion of
70bps to 7.0%
GAAP diluted EPS of $0.66; non-GAAP diluted EPS $0.81, a 21% increase
compared to Q1 18

GUIDANCE

Raises fiscal year 2019 EPS guidance and reiterates long-term
financial targets

Fiscal Year 2019*

Total Net Revenues: $5.670 billion – $5.840 billion
Comparable Brand Revenue Growth: 2% – 5%
Non-GAAP Operating Margin: In-line with FY 18
Non-GAAP Diluted EPS: $4.55 – $4.75
Non-GAAP Income Tax Rate: 23% – 24%
Depreciation and Amortization: $185 million – $195 million
Net 30 store closures for a total store count of 595 by the end of FY19
Capital Spending: $200 million – $220 million
Return to Shareholders: quarterly cash dividend of $0.48 per share and
incremental share buybacks under our multi-year share repurchase
authorization of approximately $678 million.

Long-Term Financial Targets*

Total Net Revenues growth of mid to high single digits
Non-GAAP Operating Income growth in-line with revenue growth, driving
Operating Margin stability
Above-industry average ROIC

*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.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, May 30,
2019, 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 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 estimates related to the operations
of Outward, Inc. and employment-related expense. 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
statements relating to: our ability to capture significant opportunities
in the home furnishings industry; our ability to continue to improve
performance; our focus on operational excellence; our ability to improve
customers’ experience; our optimism about the future; our ability to
maximize growth and maintain high profitability; our FY 2019 and
long-term financial guidance; our stock repurchase program and dividend
expectations; 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: 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; the
impact of current and potential future tariffs and our ability to
mitigate impacts; 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, 2019 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 distinct merchandise
strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm,
Pottery Barn Teen, Williams Sonoma Home, Rejuvenation, and Mark and
Graham — are marketed through e-commerce websites, direct-mail catalogs
and retail stores. These brands are also part of The Key Rewards, our
free-to-join loyalty 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 and South Korea, as well as e-commerce websites in certain
locations. In 2017, we acquired Outward, Inc., a 3-D imaging and
augmented reality platform for the home furnishings and décor industry.


Condensed Consolidated Statements of Earnings (unaudited)

	Thirteen Weeks Ended
	May 5, 2019				April 29, 2018
In thousands, except per share amounts	$		% of Revenues		$		% of Revenues
Net revenues		1,241,132	100	%		1,203,000	100	%
Cost of goods sold		796,801	64.2	%		770,836	64.1	%
Gross profit		444,331	35.8	%		432,164	35.9	%
Selling, general and administrative expenses		370,199	29.8	%		365,614	30.4	%
Operating income		74,132	6.0	%		66,550	5.5	%
Interest expense, net		2,253	0.2	%		1,201	0.1	%
Earnings before income taxes		71,879	5.8	%		65,349	5.4	%
Income taxes		19,223	1.5	%		20,181	1.7	%
Net earnings	$	52,656	4.2	%		45,168	3.8	%
Earnings per share (EPS):
Basic	$	0.67			$	0.54
Diluted	$	0.66			$	0.54
Shares used in calculation of EPS:
Basic		78,683				83,392
Diluted		79,867				84,174


1^st Quarter Net Revenues and Comparable Brand Revenue Growth (Decline) by Concept*

	Net Revenues (Millions)		Comparable Brand Revenue Growth (Decline)
	Q1 19	Q1 18	Q1 19	Q1 18
Pottery Barn	$492	$490	1.5%	2.7%
West Elm	$309	$273	11.8%	9.0%
Williams Sonoma	$195	$201	(1.6%)	5.6%
Pottery Barn Kids and Teen	$177	$180	1.2%	5.3%
Other	$68	$59	N/A	N/A
Total	$1,241	$1,203	3.5%	5.5%

*See the Company’s 10-K filing for the definition of comparable brand revenue, which is calculated on a 13-week to 13-week basis for Q1 2019.


Condensed Consolidated Balance Sheets (unaudited)

In thousands, except per share amounts	May 5, 2019		Feb 3, 2019		April 29, 2018
ASSETS
Current assets
Cash and cash equivalents	$	107,683	$	338,954	$	290,244
Accounts receivable, net		102,195		107,102		102,630
Merchandise inventories, net		1,155,427		1,124,992		1,052,892
Prepaid expenses		98,213		101,356		56,333
Other current assets		22,128		21,939		21,118
Total current assets		1,485,646		1,694,343		1,523,217
Property and equipment, net		916,030		929,635		926,320
Operating lease right-of-use assets		1,200,972		—		—
Deferred income taxes, net		34,215		44,055		58,842
Goodwill		85,357		85,382		18,811
Other long-term assets, net		66,145		59,429		129,715
Total assets	$	3,788,365	$	2,812,844	$	2,656,905
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	385,646	$	526,702	$	393,025
Accrued expenses		109,169		163,559		99,823
Gift card and other deferred revenue		291,839		290,445		256,534
Income taxes payable		24,384		21,461		72,036
Current operating lease liabilities		227,427		—		—
Other current liabilities		75,750		72,645		61,403
Total current liabilities		1,114,215		1,074,812		882,821
Deferred rent and lease incentives		30,536		201,374		204,599
Long-term debt		299,670		299,620		299,472
Long-term operating lease liabilities		1,139,625		—		—
Other long-term liabilities		82,551		81,324		72,779
Total liabilities		2,666,597		1,657,130		1,459,671
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued		—		—		—
Common stock: $.01 par value; 253,125 shares authorized; 78,808, 78,813 and 83,222 shares issued and outstanding at May 5, 2019, February 3, 2019 and April 29, 2018, respectively		788		789		833
Additional paid-in capital		571,772		581,900		564,685
Retained earnings		564,127		584,333		638,774
Accumulated other comprehensive loss		(13,945)		(11,073)		(6,755)
Treasury stock, at cost		(974)		(235)		(303)
Total stockholders’ equity		1,121,768		1,155,714		1,197,234
Total liabilities and stockholders’ equity	$	3,788,365	$	2,812,844	$	2,656,905


Condensed Consolidated Statements of Cash Flows (unaudited)

	Thirteen Weeks Ended
In thousands	May 5, 2019		April 29, 2018
Cash flows from operating activities:
Net earnings	$	52,656	$	45,168
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		46,838		47,873
(Gain) loss on disposal/impairment of assets		(323)		414
Amortization of deferred lease incentives		(2,306)		(6,724	)
Non-cash lease expense		51,596		—
Deferred income taxes		(4,126)		(3,241	)
Tax benefit related to stock-based awards		14,898		6,126
Stock-based compensation expense		18,529		12,889
Other		69		64
Changes in:
Accounts receivable		4,684		(9,556	)
Merchandise inventories		(31,460)		2,388
Prepaid expenses and other assets		(4,914)		(4,399	)
Accounts payable		(144,399)		(76,823	)
Accrued expenses and other liabilities		(49,196)		(32,047	)
Gift card and other deferred revenue		1,558		4,815
Deferred rent and lease incentives		—		10,004
Operating lease liabilities		(55,099)		—
Income taxes payable		2,915		13,818
Net cash (used in) provided by operating activities		(98,080)		10,769
Cash flows from investing activities:
Purchases of property and equipment		(36,148)		(34,029	)
Other		107		120
Net cash used in investing activities		(36,041)		(33,909	)
Cash flows from financing activities:
Repurchases of common stock		(33,848)		(37,713	)
Payment of dividends		(36,868)		(34,081	)
Tax withholdings related to stock-based awards		(25,406)		(7,438	)
Net cash used in financing activities		(96,122)		(79,232	)
Effect of exchange rates on cash and cash equivalents		(1,028)		2,480
Net decrease in cash and cash equivalents		(231,271)		(99,892	)
Cash and cash equivalents at beginning of period		338,954		390,136
Cash and cash equivalents at end of period	$	107,683	$	290,244


Retail Store Data (unaudited)
	February 3, 2019	Openings	Closings	May 5, 2019	April 29, 2018
Williams Sonoma	220	2	(3)	219	224
Pottery Barn	205	—	—	205	203
West Elm	112	1	—	113	108
Pottery Barn Kids	78	—	—	78	84
Rejuvenation	10	—	—	10	8
Total	625	3	(3)	625	627


Exhibit 1
GAAP to Non-GAAP Reconciliation (unaudited)
(Dollars in thousands, except per share data)

	Thirteen Weeks Ended
	May 5, 2019					April 29, 2018
	$			% of revenues		$			% of revenues
Gross profit	$	444,331		35.8	%	$	432,164		35.9	%
Outward-related¹		535					582
Employment-related expense²		30

Non-GAAP gross profit	$	444,896		35.9	%	$	432,746		36.0	%


	$			% of revenues		$			% of revenues
Selling, general and administrative expenses	$	370,199		29.8	%	$	365,614		30.4	%
Outward-related¹		(5,877	)				(6,344	)
Employment-related expense²		(6,496	)				(1,702	)

Non-GAAP selling, general and administrative expenses	$	357,826		28.9	%	$	357,568		29.7	%


	$			% of revenues		$			% of revenues
Operating income	$	74,132		6.0	%	$	66,550		5.5	%
Outward-related¹		6,412					6,926
Employment-related expense²		6,526					1,702

Non-GAAP operating income	$	87,070		7.0	%	$	75,178		6.3	%


	$			Tax rate		$			Tax rate
Income taxes	$	19,223		26.7	%	$	20,181		30.9	%
Outward-related¹		1,428					1,467
Employment-related expense²		(289	)				402
Tax legislation³		–					(3,298	)
Impact of equity accounting rules⁴		–					(1,146	)

Non-GAAP income taxes	$	20,362		24.0	%	$	17,606		23.8	%


	$					$
Diluted EPS	$	0.66				$	0.54
Outward-related¹		0.06					0.06
Employment-related expense²		0.09					0.02
Tax legislation³		–					0.04
Impact of equity accounting rules⁴		–					0.01

Non-GAAP Diluted EPS*	$	0.81				$	0.67
*Per share amounts may not sum due to rounding to the nearest cent per diluted shares

SEC Regulation G – Non-GAAP Information

These tables include non-GAAP gross profit, 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.

Notes to Exhibit 1:

		1			During Q1 19 and Q1 18, we incurred approximately $6.4 million and $6.9 million, respectively, of expense, primarily associated with acquisition-related compensation expense and amortization of intangible assets, as well as the operations of Outward, Inc., of which $5.9 million and $6.3 million, respectively, were recorded within selling, general and administrative expenses.
		2			During Q1 19 and Q1 18, we incurred approximately $6.5 million and $1.7 million, respectively, of employment-related expense, recorded within selling, general and administrative expenses. In Q1 19, the expense was primarily associated with severance-related reorganization expenses.
		3			During Q1 18, we recorded income tax expense of approximately $3.3 million, primarily related to the measurement of the income tax effect of the Tax Cuts and Jobs Act enacted in Q4 17.
		4			During Q1 18, we recorded income tax expense of approximately $1.1 million associated with the adoption of accounting rules related to stock-based compensation.

Contacts

WILLIAMS-SONOMA, INC.
Julie Whalen, 415-616-8524
EVP, Chief
Financial Officer
-or-
Elise Wang, 415-616-8571
VP,
Investor Relations