Q4 2019 Earnings Call
Welcome to the Williams Sonoma incorporated fourth quarter 2019 earnings Conference call.
At this time, all participants are not listen only mode.
We will conduct a question and answer session. After the presentation.
This call is being recorded.
I would now like to turn the call over to release slate Vice President of Investor Relations to discuss non-GAAP financial measures and forward looking statements. Please go ahead.
Thank you.
Okay. That's cool should be considered in conjunction with a press release that we issued earlier today.
Unless indicated otherwise our discussion today relate to results and died and based on certain non-GAAP measure.
Reconciliation of the non-GAAP financial measure the most directly comparable GAAP financial measure.
Out the nation or why the non-GAAP financial measures may be useful are discussed in exhibit one all got gradually.
This call also contain forward looking statement within the meaning of the private Securities Litigation Reform Act of 1995, which address the financial condition results of operation business initiatives trends, what his plans and prospects of the company in fiscal year, 2020, and beyond and that's subject to.
Uncertainty that could cause actual results to differ materially from such forward looking statement.
Please refer to the company's carb actually an FCC filings, including the most recent 10-K for more information on these risks and uncertainties.
The company undertakes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
I'll now turn the conference call what about the Laura Alber, our President and Chief Executive Officer.
Ladies and good afternoon, everyone also on the call with me today, our Julie Whalen, our Chief Financial Officer deal, It's Scott Billeadeau, our Chief marketing officer, and Yasir onto our Chief Technology Officer.
Before I discuss our financial results from 2019, I want to start by addressing the rapidly evolving an unprecedented time. We are we are in any actions that we're taking at Williams Sonoma, Inc.
From a day this company with started over six years ago, taking care of our customers and I'm pleased to spend our top priority over the past few weeks all of our lives have been impacted by the spread at the credit virus and as a situation continues to evolve. We are following the recommendations a public health officials in government agencies to ensure that we are doing all this possible sorry.
Ladies and community to remain protected while continuing to serve our customers in creating a comfortable and functional home as they spend more time in their homes.
I'm so moved by our strong experienced an agile teams who are working in new ways to accomplish this.
I'm sure by now you Brad that our corporate associates in the San Francisco Bay area of working from home until April 7th as mandated by the sheltered place order that went into effect.
And across our other corporate offices and distribution centers. We are following the CDC guidelines and of course that increase sanitation measures in cleaning frequency and we've implemented a voluntary work from home option where situations allow.
As you know we also made it difficult decision to temporarily closed stores in North America, where the plant in Canada, where the plans every opened on April 2nd.
It also goes without saying that we are extremely focused on our financial health.
We believe we on a strong position without resilient balance sheet and strong liquidity, a flexible supply chain, a large DTC business. It over 56% of total revenue and an experienced team we're actively planning for multiple scenarios and taking aggressive actions to manage our business. This situation involved.
In our assumptions, we have factoring in the possibility of extended nationwide store closures and while we haven't seen a sizable impact on our ecommerce business and we believe that we will continue to stay strong. We are modeling near term softness that takes into account and overall decline in consumer demand.
To preserve liquidity, we're spending all capital expenditures that are non business critical and substantially reducing our inventory both immediately and throughout the year.
We're also aggressively cutting operating expenses throughout the company.
These measures will allow us to self Thunder business support our associates and continue to serve our customers. During this time of the men's changed and uncertainty.
We're also planning flexibility. So we are ready when this pandemic passive.
Given the highly dynamic nature of this outbreak we've made the decision to suspend Dr. SKO your guidance.
We are operating in a highly unpredictable environment, which makes it difficult to accurately quantify the financial impact at the current a virus on our fiscal year expectations at this moment.
We are following the developments very closely and we will promise to update you when we have more information.
The encouraging news its supply chain disruption, we saw as a result of the factory closures in China is abating and our Asia team.
Resuming operations.
Now I'd like to turn back to our financial results for the fourth quarter and fiscal year 2019.
It is important to celebrate our strong year in holiday season, as our success demonstrates the power of our digital first design led platform a strong brands.
And our high level of execution.
We outpaced the industry with comparable brand revenue growth of 7.6% in the fourth quarter.
West Elm outperformed the comp a 39, the part of our brands for Surgeons continue with a combined comp of seven one and the Williams Sonoma brand returned to a growth.
With a couple of 3.3%.
The drivers of our outperformance included an expanded more relevant product assortment, new customer acquisition and further innovations in our customer experience across ecommerce store and the supply chain.
Our cross brand initiatives business to business the key and in home design true also continue to scale and became more impactful accelerator of our gross.
For the full year, we achieved our goal maximizing growth and maintaining high profitability with top line. It dps growth at the end or above expectations and operating margin expansion.
It is clear from these results the dark continued evolution and innovation set us apart from the competition and that we have a winning combination.
I'd now like to discuss our brand performance in more detail, including our longer term growth strategy.
West Elm, our biggest growth opportunity continue to deliver stand out results driven by strong execution.
We ended the year with double digit comp growth at 13.9%.
Longer term, we remain hyper focused on driving incremental growth as we made progress towards our goal of 3 billion in revenues for the brand.
We will continue to execute on our proven growth strategies across 40, oxys, highlighting our design and values leadership as a competitive differentiator expanding into product white space.
Driving brand awareness.
And scaling growth opportunities across all customers all channels, including business to business.
In powerbar into the fourth quarter, we delivered comp growth of 6.7% with strength across multiple product categories.
Our digital transformation and brand revitalization strategy has continued to gain traction and we had accelerated growth and new customer acquisition growth.
Ecommerce letter performance with improving keep your eyes, including increases in traffic conversion and product engagement, resulting in double digit revenue growth.
Our growth initiatives also drove our strong topline performance.
The curated marketplace assortment provide our guests with more choice and our apartment assortment of smaller space solutions has converted new younger customers.
We also laying the foundation with increased assortment of contract graded furniture contributing towards our business to business growth initiatives.
Our party Burns children's business also delivered its stronger performance in recent years with a 7.9% comp in the fourth quarter.
We saw excellent results across our expanded offering agreed gold certified furniture and organic cotton betting.
Further solidifying our leadership in sustainable home products for kids.
And our expansion across life stages anesthetics continued to be key drivers of growth.
We are confident the over the longer term our strategies across product leadership digital growth and customer acquisition will continue to differentiate our children's home furnishing in the marketplace.
That's right accelerated growth in the brand.
In Williams Sonoma, we are so proud of our results in the fourth quarter, we drove a positive comp of 3.3% reversing the trend of the first three quarters.
We saw particular strength in electrics cutlery tools and food and our Williamson what brands. It an exclusive products continue to resonate with customers or made a key growth initiative in the years ahead.
We are encouraged execution against our transformation plan, including the introduction of new content rich experience is online as well as further reductions in inventory levels and low volume skews will drive profitable sales growth.
Our focus has been on implementing changes in the brand did drive profitability such as inventory optimization expand expense management and evolution of our real estate strategy.
Also focused on relevant inspiring content driven experiences.
Our emerging brands rejuvenation, and Mark and Graham ended the year with another quarter also a double digit comp growth as they continue to scale and attract new customers.
And our global business, we continue to stay strengthen our company owned candidate E Commerce and UK operation.
In addition to the success of our individual brands are cross brand programs also continue to scale.
We ended the year with over 9 million customers enrolled in our cross brand loyalty program. The key well are complementary to sign service design crew continued to be a significant revenue driver represented representing approximately half of our sales in our stores.
Together with our increasing efficiency in our digital advertising spend we drove double digit growth in E commerce traffic revenues and new customers for the fourth quarter.
And for the year, our ecommerce revenues reached another all time high at more than 56% of annual revenues.
This reflects our ability to innovate adapt and and lead in the retail landscape that's increasingly digitally last.
Our business the business Division also delivered another quarter of accelerating double digit growth.
In 2019.
We had several key wins that establish an important foundation for our future growth and show the appeal of our differentiated value proposition to corporate clients.
Looking ahead, we will continue to work towards realizing that 2 billion dollar revenue opportunity, we see the b to b market.
Critical to the success of our growth initiative is our continued focus on delivering a best in class experience for our customers.
In the fourth quarter, we improved our digital experience with more storytelling and selling content on a product information pages and further optimization of our site navigation.
Also in the quarter, we implemented more functional improvements to our outboard powered design crew room planner as we continue to see strong correlation between room planner usage and sales.
Looking ahead, we will continue to push forward a growth focused technology portfolio that further differentiates us in the market.
Our data and experimentation platform will enable us to be more agile and identifying and executing opportunities.
And our fast much maturing machine learning capabilities will drive hyper optimization and automation for our business.
In the supply chain, we drove more operational improvements, which contributed to another year of strong profitable growth and very importantly, better customer service.
Within our in home furniture delivery network, we made important strides in increasing customer visibility, which led to another year of improvement in our home delivery service rating to an average of 4.86 out of five stars.
In the years ahead, we'll continue to find opportunities across the supply chain to reduce cost and further improve the customer experience.
And now I'd like to update you on our sustainability initiatives, which are more important now than ever.
During the past year, we're proud to be recognized for the first <unk> third you're running as one of Barron's hundred most sustainable companies. We also made important progress in our social impact supply chain programs across our brands.
In the fourth quarter, we launched a new fair trade certified factory, bringing our total to 16 factories and expanded our worker well being programs offering vision screening and glasses for that factory workers in Vietnam and.
And pottery barn kids became our third brand to launch products with enough steel ethical handcraft.
We will continue to build sustainability and every corner of our company. So our continued financial success will enhance the lives of our many stakeholders the communities, where we have a business presence and the natural environment upon which we all rely.
In closing I would like to thank our associates for all their hard work and for their continued commitment to serving our customers as we navigate the challenging year ahead times like these remind us that community comes first as a lives change in remarkable ways. We are focused on maintaining the financial health of our business to support our associates.
As customers and communities during this unprecedented time.
For now we hope you and your families they safe and healthy and we'll keep you updated as we know more I'd now like to pass the call over to Julie Whalen.
Thank you Laura and good afternoon, everyone.
I want to start by discussing what our team is doing to navigate the challenges in the wake up the Corona virus outbreak as Lawrence said, we're making changes the way we operate to ensure that we maintain our strong financial health to continue to support our associates and customers. During this time of heightened uncertainty.
We are preparing all aspects of our business for a number of macro scenarios. We're cutting all non essential operating expenses for example in advertising, we're focusing only on high ROI initiatives that drive ecommerce traffic and conversion in technology, We're prioritizing business critical projects and deferring all other spend.
In the short term and in real estate, we are delaying store remodels and relocations and working with our landlord partners to reduce rent and other expenses. We have also eliminated all business travel and other discretionary spend for the foreseeable future.
To preserve our strong liquidity, we're working with our vendor partners to substantially cotton and push out our inventory purchases on the year. We're office of spending all capital expenditures that are non business critical in the short term with our current plan being to cut our capex by approximately half of what it was last year.
During this time of increasing volatility it it's hard to overstate the importance of our strong cash position resilient balance sheet and proven cost discipline with over 430 million a cash at yearend on our balance sheet and arc 500 million dollar line of credit. We believe we're in a strong position to address the short term challenges.
Go ahead.
At the same time, our financial strength and flexibility and enable us to opportunistically invest during a market recovery and emerge as a stronger and more resilient business just like we did in 2009.
Although we are faced with short term challenges, we believe that with our E. Commerce led business at more than 56% of total revenues and our strong value proposition in the home furnishing category, we will continue to outperform the longer term.
Now turning back to our performance last year 2019, with an outstanding year for our company. We ended the year on a high note as our growth strategy is a strong execution combined with our multi brand digital first model continued to drive our outperformance over the holiday season.
For the full year, our results were at or above expectation with strong topline growth operating margin expansion and EPS growth above the high end of our guidance range.
Before reviewing our fiscal year 2019 results in more detail I would like to remind you that our fiscal 2018 results included the financial impact about 50, Threerd week, which we estimated last year added approximately 85 million in net revenues and approximately 10 cents an earnings per share to the fourth quarter end the year.
For the fourth quarter, we generated net revenues of 1.844 billion, an accelerated comparable brand revenue growth of 7.6% our highest comp since 2014, driven by strong positive comp growth across all brands and strengthen ecommerce, which grew double digits and reached a record high or 57.
<unk> total revenues during the quarter.
By brand, we saw another quarter of break out performance in the West Elm brand with accomplish 13.9% on top of 11.1% last year.
The pottery barn brands continue to gain momentum accelerating significantly from last quarter with both pottery barn, and the kids and team business is close to doubling their comp rose, 6.7% and 7.9% respectively.
We're also encouraged to see the Williams Sonoma brand returned to growth in their biggest quarter of the year with the comp of 3.3% and our emerging brands rejuvenation, and Mark and Graham combined drove another quarter up double digit comp growth.
Gross margin for the fourth quarter was 37.6% compared to 38.7% last year.
The gross margins deleverage of 110 basis points was primarily driven by lower year over year occupancy leverage of approximately 60 basis points, resulting from one less week of sales this year.
Occupancy costs were essentially flat to last year at 181 million and 9.8% of revenues.
Excluding this occupancy impacts the remaining de leverage is due to selling margins, which were impacted by higher shipping costs from a greater mix of furniture and drop ship sales that are more expensive to ship as well as the impact from incremental lift for China tariffs in the fourth quarter.
We were however, pleased to see that as a result of higher merchandise margins. This quarter, we were able to whole year over year selling margin de leverage essentially flat to the third quarter, despite absorbing incremental China tariffs.
We also saw another quarter of strong SGN a leverage despite the impact from one less week of sales this year.
S.J. leverage 80 basis points to 26.1% of net revenues compared to 26.9% of revenues last year, primarily driven by employment and advertising leverage from higher sales and our continued cost savings initiatives across the business as well as our overall expense discipline.
We saw lower employment costs, primarily as a result of the reduction in force earlier this year as well as from other employment related cost savings.
We have also continue to shift our advertising spend from catalogs to more efficient digital advertising, which led to another quarter of advertising leverage.
This resulted in an operating margin of 11.6% and diluted earnings per share of $2 in 13 cents.
On the balance sheet, we ended the quarter, where the cash balance of 432 million versus 339 million last year. We generated 579, an operating cash flow during the fourth quarter, which we utilized to invest 65 million in the business and to return capital to shareholders any amount of 74 million through share repurchases of approximately 36 million.
Okay and dividend payments of approximately 38 million.
Moving down the balance sheet merchandise inventories were 1.101 billion for a decrease of over 2% compared to last year.
This reflects the ongoing success of our inventory initiatives, which include the expansion of our omni channel inventory fulfillment capabilities more in time frequent flow of inventory from our overseas vendors as well as the continued shift of our business more drop ship and made to order inventory.
As a result of these initiatives are back order create rates that inventory turns also reached the best levels we've ever seen.
Now moving onto some of our financial accomplishments for the full year. We delivered net revenues of almost 6 billion driven by comparable brand revenue growth of 6%, which was a significant acceleration on last year's growth of 3.7% and our highest comp since 2014.
As a digital led company our ecommerce revenues reached another all time high at 56.2% total revenues with growth accelerating 300 basis points to a 10.2% top for the year retail comp performance was also positive and accelerate over last year. Despite an approximate 500 basis point decline in national retail traffic.
By brand, we drove another year of positive comps across all brands led by a significant acceleration in the west Elm and pottery barn businesses.
Wes down our biggest growth initiatives continued its strong momentum driving its 10th consecutive year of double digit revenue growth, while comp growth accelerated nearly 500 basis points, 14.4% the highest cost for the brand in several years.
Pottery barn delivered a comp of 4.1%, which is more than three times higher than their comp last year on the highest cost since 2014.
The pottery barn children's business accelerated 170 basis points from last year with a comp of 4.5%.
Our branch transformation initiatives and the Williams Sonoma brand are gaining traction driving a positive comp 0.4% for the year. Despite negative comps for the brand in the first three quarters and our emerging brands rejuvenation, and Mark and Graham combined delivered another year of double digit growth.
Our global business grew 5.4% over 365 million driven by double digit increase in our franchise operations and strengthen our Canadian ecommerce business and company owned UK operations.
The strong topline performance along with the operational efficiencies, we drove across the business all year enabled us to generate operating income of over 500 million, an operating margin expansion to 8.6% from 8.5% last year.
As a result, our earnings per share outperformed the high end of our fiscal year guidance at $4, an 84 cents growing 8.5% or over 11%, excluding the tencent impact from the 50 Threerd week last year.
Furthermore, we were pleased to be able to increase our return on invested capital to 22.4%, which continues to be significantly above the industry average.
We also delivered another year of robust operating cash flow of 607 million, which allowed us to provide strong returns to shareholders of approximately 300 million, including 151 million of dividends and 149 million in share repurchases.
Moving onto our fiscal year 2020 outlook.
Given our outperformance in 2019, and our strong start to 2020, whereby prior to the escalation of the Corona virus for March 11th onwards, we were generating high single digit comps, including February at 9.7%. We had planned to provide guidance in line with our long term outlook.
Unfortunately, given the unpredictable effects of the krona virus on consumer behavior and economic activity in general we have made the decision to temporarily suspend our full year guidance, we believe as a prudent thing to do given the duration of the outbreak remain largely unknown.
Longer term based on our strong performance throughout 2019 and at the beginning of this year, we remain confident in our strategies to drive long term accelerated growth.
Therefore, we are maintaining our longer term financial outlook with revenue growth expected to be in the mid to high single digits and operating income growth in line with revenue growth.
Before I turn the call over for questions I want to thank our associates for their drives their commitments and their hard work. We're proud of what we've accomplished and the powerful platform that we have built to drive our future growth.
As we look ahead, we are confident that with our multi brand digital first model generating more than 56% and ecommerce revenues are strong operating cash flow and resilient balance sheet and a proven track record of strong financial discipline, we have a strong platform to address the challenges from the Corona virus outbreak in the short term and to deliver upon our.
Long term growth roadmap.
I would now like to open the call for questions. Thank you.
Thank you if he would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to a lot of your signaled to reach our equipment.
Please limit your questions to one question each again press star one to ask a question.
Well take our first question from Asia Fund Barclays.
Good afternoon, and let me, let me say great performance in the fourth quarter.
You know the momentum has been tremendous coming into this year. Laura My question is on the E commerce versus the this store channel. So 56% did any commerce and you talked about not yet seeing any impact to that does that include sort of I know you know in the past sort of five to 10 day.
Great and people have started to actually.
You know see demand impact in the impacted regions. If you can talk about that regionally and then Julie very quickly.
Would you be able to give us any color on I'm, sorry, the merchandise margin flow through of perhaps the lost sales and the way I'm, taking a look at it is we looked at your rent occupancy depreciation as reported in your 10-K that was about 12%. So there's one make sure we have that correct. That's.
Total rent occupancy and depreciation and then sort of adding that back to your gross margins. So we're getting to about 50% for a much larger just wonder if we're in the ballpark. Thank you very much.
Thanks, Adrian So let me clarify my comment about E commerce. So.
We had you know great Q4, and then February was just reppen throughout.
And you know pre Corona.
With what Ninesix, Julie and then.
So yeah nice other.
So you know when you look at it post Corona it came down.
But it's still you know.
Mid single digits positive and.
You know I'm sure that the teams have the information by market, but it's you know regardless of how you slice. It it's it's holding up and there's been some categories. You know people that wondered about our type of business in times like this and you know we know selling suffered Holmes our.
Our food business, obviously, as we up our cleaning business are you know baby business and.
You know, it's it's I think much more resilient than other types of industries and we happen to have a lot on line.
So.
No, it's not who knows what's going to happen in terms of where that consumer demand goes, but I think were in a pretty good position with the with the channel.
Split that we have and also the categories of business that we're in.
And then from a to answer your question on the merchandise margins, yes, that's the right way to look at it take out occupancy costs, which does include rent and depreciation and all those costs you less than you would get the selling margin, which we've talked about a path, but one thing I would would caveat. There. However, the selling margin includes.
Shifting costs do you have to come up we have not disclosed our actual shipping cost amount, but that would be one assumption you'd have to pull out which would get you to a higher mer target.
Great. Thank you very much and best of luck during the time. Thank you.
Yeah I did.
Well take our next question from Chuck Grom with Gordon Haskett.
Hey, Thanks, just a follow up on the on the piano geography. It just can you remind us how much of your.
Cost structure is it's fixed versus variable.
I think we've given that in the past obviously, you could probably take a look at that trajectory in the fourth quarter. When we have a lot more of the variable cost come into play and come up with an assumption on that but certainly you know there's the labor associated with retail sale.
If there was the advertising dollars that are variable.
And so those are probably the biggest buckets that I would just make sure though is that.
The assumption that.
Well, we're gonna have retail payroll, even if we don't have retail sales.
So it's not you can't you can't look at you know.
You can't use everything in the past as a proxy for that you know and we haven't made any decisions.
Pass the two weeks of what we're going to do but you know you. Just you can think about that and what and different models based on.
Extended closure, that's what we're doing.
Okay and just to clarify you said February was up 9.6, but to date, you're running up mid single digits and that includes both.
And our mine.
I said, none that I didn't that said, that's what ecommerce so total comp with stores and E Commerce listen nine seven and then what I said is E. Commerce hosts Corona has been strong and in the mid single digits. In my remarks, I said high single digits pre March a lot [laughter].
Sorry.
You know, we don't give all that detail, but we think you're going to get [laughter] will give US you said, Israel and you know I think it helps eliminate you know what's going on with our business at least.
Hi, Good business is there's various also just come over from far below so I'm a little bit late and then just lora just stepping back I mean, even.
The company for a long time, I mean, when it when it when it takes that back and think about the consumers' ability to recover from here.
How are you thinking about it how quickly do you think the consumer will come back where do you think the damage is going to take.
Some time here just curious when you think about 911, you think about away how do you think about today.
So you know I mean.
Asked me Nexstar I might have a different opinion. So therefore, we're running multiple scenarios. So we have you know scenario, one which was what our budget was gonna be what our guidance is gonna be and you know that beautiful scenario.
That's you know unlikely now, but that would be full recovery and the question then becomes when does that happen does happen.
This year next year.
When you look at a very severe short term scenario.
And then you can make a.
A decision about that recovery after that and then you look up you know prolonged recession.
And so we're looking at all of them, we're cutting the cost to the most serious scenario immediately.
So that we can we can be ready for the worst and then have the flexibility if things are better.
Patrick Good luck. Thank you.
Thanks. Thanks.
Well take our next question from Kate Mcshane with Goldman Sachs.
Hi, good afternoon. Thank for taking my question I. Just was curious if you could give anymore insight into the supply chain. If you knew how much was disrupted when the virus was more prevalent in that area of the world. What you are still seeing and how much of an impact do you think it has to your image.
Q1, and maybe into Q2.
Yeah, It's amazing I think how quickly they recovered.
The teams were very focused they had worked out work from home very quickly and we're very committed to our business and a we're seeing almost regular.
Operations there now.
We had a couple weeks of delay products you know that one point it was really scary about how long the delay would happen and how it affects back to school, but a lot of that has abated, though.
Thank you.
Thanks.
Well take our next question from Peter Benedict with Baird.
Oh, Hey, guys. Thanks for taking my question could that your business great for Q1, holding up reasonably well here as as you are starting to see some of the slowing is any any concentration regionally or <unk> or <unk> brand or product category to the extent that you're seeing this.
Start to set in what kind of color can you give give us I'm not worried showing up.
Yes, I think we're still early days number you know, we just closed Albert stores. So one thing you can that as we have no store sales.
So that's really we are going to where the stores where people can operate we're going to do some service to our customer because they may have to pick something up in store that was already previously shipped I'm. So we want to be careful we're going to do that in a very sanitary way.
To keep everyone safe, but that is something that we're going to provide through this time because people need things in our stores and so we can get them out in some areas right. Now. So that's the biggest you know impact everything else you know what I would tell you today could change tomorrow, So I'd say that.
No and it's been moving so quickly its <unk> you know I could if I told you what happened two days ago, it might not be the same for what happened yesterday.
But there are some categories that are extremely strong the ones I mentioned earlier, our I'm hesitant to go much further with detailed just because of competition. So I hope you can respect that but we are seeing some very interesting trends and they're not surprising trends. When you think about what's going on there it's relevant stuff.
People are.
Eating at home. So you know, they're going to be thinking about that space and how to have that be as pleasurable as possible. During these times.
Okay understood. Thanks, so much.
Thanks.
Well take our next question from behind Nagle with Oppenheimer.
Hi, good afternoon, let's stick my question.
First I'd like to gradually add my congratulations great wash your great start to this year, so perhaps you might show up.
The question I have always we look at this period now.
With the store closures in the stores closed and not knowing how long a couple house.
Maybe a two part question.
How much you if you look at the capacity.
The operation to pick up your online business, which is obviously very powerful how how much could got flex up to two so to say offset.
What.
I couldn't be very weak sales in stores and then second part is to what extent could you shift your marketing.
Just to go to Omar advertise to consumers that this new hopefully very temporary but you operate structure of your company was much more online brokers.
Yes sure.
So.
The stores are close right. So I just want to me [laughter] when you're modeling that they're close he can make assumptions based on your crystal ball in window open.
And that's what we've done we've done a few scenarios there and so of course online is is really important and it's our it's our key channel and I mean, let felix's actually I'm on the call into the marketing question.
Sure.
So two tier questions as Laura mentioned, we are aggressively cutting non it.
Central expenses.
Throughout the company, including a number of marketing line items that said you know some are up more obvious than others.
That said, we are still country continuing to invest in our DTC business, where we see strong results well how flexible are we as a reminder, over the past years.
He's built our own in house advertising cheap, which allows us to react quickly you changing dynamics in the market in consumer behavior and even during these times.
So we feel.
You know very confident of cutting back where we where we understand its not business critical and for investing where we see an efficient ROI.
Well. Thank you very much it's helpful. Appreciate it.
Well take our next question from Michael Lasser, but TB [laughter].
Good evening. Thanks for taking my question for fruit Bora would sign posts are you didn't you're looking for a real bring your store and second for jewelry. It looks like in 2000 and E U.
Do you experienced about a 45% decremental margin on the comp declines that you experience should we be using similar run rate for decremental margin as we as we model your business this year.
Thank you.
Signposts to reopen I think that the obvious ones you know.
Are we.
Are you know how do we feel about the safety and running stores and how to where people feel what are the malls doing you just saw that sign and announce small closures. Today. So it's also not totally in our control. It also could be that the government makes a decision. So there's you know there's my opinion.
But I think a lot of this is out of our control.
And I think for modeling obviously this is a difficult time to do models [laughter]. This is not necessarily exactly like away no nine.
You know we have a situation, obviously, where we got close stores here, which is relatively a unique. However, we also have a situation where we've got strong E commerce and were much bigger on E. Commerce site and you've got people that are staying at home. So and you know there there could be many different scenarios that come out I would simply model what all eight known.
Nine had from a flow through perspective.
So are you seeing it should be better or worse than that.
I mean that your your yeah, we're not your hands it but that's exactly why we're not giving guidance at this time.
Okay. Thank you very much and good luck.
Thank you.
Well take our next question from.
Hi, Curtis Nagle with Bank of America [noise].
Good afternoon. Thanks very much for taking my question is just a quick first one I guess on capital I'm sure you're couldn't meet the Capex a little bit mixture took the time being just by half.
Which makes sense.
Decisions on the buyback will not be.
No no door or perhaps throttled back.
At this time, we you know we're continually monitoring the situation to determine our best use of cash obviously, you know in light of increasing uncertainty from the crown and virus our priority in the short term is to maintain our strong liquidity for the need of our business operations. However, given the significant dislocate.
One of our stock price relative to our outperformance pre corona virus.
And our expected you know accelerated long term growth outlook of our business. We are prepared to opportunistically buyback our shares under our remaining 575 million share repurchase authorization when appropriate and when we have more certainty.
<unk> <unk> and then just a quick one on the business [laughter].
Specifically looking after the Sonoma Brent show, a really much tournament business.
And for Q2.
She got them fairly quick just looking you know the past few quarters. I know you guys have had a bunch initiatives in place to.
Accelerate the business, but could you, possibly or what drove that was it.
Predominantly a good internal measures, but does it fall back to competition.
Gifting season in or anything you could point too.
Yeah, I think we really the the big difference is really clarify that messaging and focused on fewer more important things and improved our constant stories and made them very relevant for the holiday season, I think we had a strong lineup of exclusive products. This holiday season, and you know people respond.
And well to strong merchandising I'm, so you know.
They also had a nice start to the year and.
Although they have a larger percentage in store than online and the other brands.
We expect to see resilience and Sonoma.
We saw a lot of resilience and Sonoma no way.
Uh huh. So it's an interesting it's an interesting dynamic for that brand as well.
Well take our next question from Marni Shapiro with retail traffic.
Hey, guys. Congratulations it was an outstanding holiday and I'm really strong start to spring and glad to hear about the people eating at home and.
Hopefully then they're going to bed and making babies that will buy pottery barn kids stuff in the future.
Could you talk a little bit about I know, it's hard to think about store openings and closings for next year, but the landlord seemed to be very.
I would say understanding at the moment is the best word there seems to be a lot of leverage here and could you remind us what percentage of your stores are in malls and what your plan is for openings and closings next year.
As of today.
Yeah, you know I do think in this time of heightened uncertainty it's important for us to work together with our business partner.
Well, we are fortunate we have put play a very high quality brands and you know the landlords I think they realize that you know not one person can shoulder the burden of this and so well be looking and working aggressively them to mitigate this retail store closure.
Because we'll be back [laughter] and <unk>.
And we're in great malls than we have great stores.
I'd say that we are.
Delaying remodels as much we can and we also delaying our relocations. So that we are also not doing that right now.
Freeing up where there any.
Were there any stores that were on that were scheduled to open say in the first quarter that you're still moving have weather in the second quarter, because they're pretty complete or are all openings enclosures for the year kinda on hold for now.
There are some that are almost on you know the not opening but the complete and then you know we're moving out as much as we can.
Okay fantastic. Thank you.
Dynamic situation.
Yes, so at least.
Well take our next question from Jonathan.
Yes, he with Jefferies.
Great. Thanks for taking my questions and nice quarter.
I appreciate the color on the February performance.
Imagine traffic was the primary driver of the comps slowdown.
Probably for the first a few weeks of March but any color in terms of.
Average ticket or units per transaction or anything like that basically trying to get a sense of you know whether the slow down for when the stores were opened was was was traffic driven or maybe basket related with the consumer uncertainty. Thanks.
Yeah sure so.
Pre corona everything with strong right. So I'm talking about you know when the outbreak really became clearly a crisis.
Which is about you know 311.
To some extent and they got the store closures that happened after that we saw a you know I'm.
Pretty serious reductions in store traffic, but in talking to other retailers. Our total sales were still you know the lot of value. There. It was a lot more than you would expect you know certainly wasn't positive or even close but it wasn't nothing either was that's why it was such a hard decision to close because we.
We're holding up pretty well.
Gotcha.
Helpful. And then just on the B to B business, that's been a nice contribution to two comps recently just update us on kind of your outreach effort a in kind of how that may be impacted in an environment with some of those channels.
In seen struggles in terms of hospitality or sporting venues and things like that.
You know just any update there would be helpful. Thanks.
You know people are still proceeding with projects and we have a lot of things in the pipeline haven't heard much displacement there yet I mean, new quote requests are actually way up and we're actively staying connect connected but if you look at the last recession actually the impact on the.
B to B market was minimal it was down less than 1% over 2008 2010, because some of their businesses. They have their needs their needs remain to buy furniture, and we have an aggressive plan to adapt and 60 to accelerate growth and gain market share in this market.
Thanks, so much.
Well take our next question from Seth Basham with Wedbush.
Thanks, a lot like that.
The question around your ability to cut costs, we've talked about playing to cut a lot of costs, but if you could provide a little bit more clarity that would be helpful. First of all in terms of your ripped retail employees I think I understood that you're paying members. These two weeks and you haven't decided what to do there after your stores closed.
Secondly, could look at the rest of your major estimate buckets beyond advertising how much cost you can pick up near term.
Sure you know I'm going to past the.
The plan over the Yasser Anwar to talk about how it's approaching our techxtend.
Hi.
So I think.
The good news is that we have been a proactive leave you had some time to be able to plan. Some scenarios for work African an expense reduction across the technology works throughout the company and as an image. It step we had aggressively reducing all the capital and expense.
Which is non essential and focusing on our customers on primarily E. Commerce website scares center supply chain to keep things flowing into business running and at the same time, we're gonna be balancing so that when we come out of this scenario and the communities backup VR going back to I wouldn't get off group that's up.
Then technology is doing your Peter a of any John Godyn financial model to be able to respond by week by month as needed to be able to work with the looks a little workforce, we haven't technology.
Thank you Yasser in terms of you know others I think we've talked about a the I'd costs are ready, we talked about a real estate approach the other areas inventory and while that's capital you have to receive it. When you you have to spend money on that when you bring it in and put it away and.
Well work with our vendor partners to delay a lot of the shipments that haven't left yet so we have a little break and have the appropriate amount for the sales demand that we think we'll see.
We're making good progress there.
Well take our next question from Oliver Wintermantel with Evercore ISI.
Hi, Thanks, guys.
Just a question regarding the fourth quarter again, if you could maybe give us the comp trend throughout the.
The quarter, if it accelerated into into the holidays.
And then and then secondly.
On your buy online pickup in store or buy online ship from store.
Well, we in that in that rollout and how has that impacted melaka to stores closed its a completely going away or do you still a ship from some of the stores. So people can pick it up thank you.
As far as the comp trends are actually pretty strong for every month during the quarter. So it was really really strong Q4 for us.
And in terms of BOPUS, we're still working this out we made the decision very recently, but our intention is to keep this running.
For as long as we can the BOPUS buy online pick up in store unless it's regulations that you can't operate.
Got it to be thanks, very much it'll be pick up as you would imagine outside curbside.
Got it thanks very much.
Well take our next question from Steven Forbes with Guggenheim Securities.
Good afternoon.
I wanted to revisit a prior question right regarding potential sales transfer between the channels you think about stores the E commerce.
During the next couple of weeks so.
Did we spoke about in the past, but can you remind us what the sales transfer has been when you permanently closed they location in the past any particular.
Region, and whether that sort of a good baseline expectation for us right as we begin to conceptualize and in model out this year.
So you know I think that I'll give you the information in the past, which is not much transferred but I don't know that that's.
As relevant now because it totally different situation.
So you know, we'll see if you know we become the best option to buy those products. There's no other store online I mean, there's no other store and there's no other sort of go to the difference was there was probably somewhere in the market. Another store you could go to and then there's convenience play of stores, but if all stores are close it totally changed.
The game.
So we'll see how well the consumer holds up I mean, my guess is we're going to get a lot of market share.
Out of this because of our strong ecommerce platform and our our brands in our cross brand work and that the relationship we have with our customers I think you know its times like these where a lot of loyalty is built and people are member how you treated them during tough times.
And that's what we're really focused on.
Thank you and best of luck.
Thank you. Thank you.
That concludes today's question and answer session.
Well. Thank you I appreciate the good questions and your support and your care and I really wish you the best with your families and your communities to stay healthy and strong and all in strong for everybody around here. We know these are very difficult times and I promise you will get through this.
Yes, and we will come out the other side learning a lot of things about how to run the business even better than before.
Thanks for that concludes today's presentation. Thank you for your participation you may now disconnect.
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