Q1 2020 Earnings Call
[music].
Good day welcome to the Williams Sonoma Inc. first quarter Twentytwenty earnings Conference call. At this time all participants are in a listen only mode. We will conduct a question answer session. After the presentation. This call is being recorded I would now like to trend decrease.
<unk> over to at least Wang Vice President of Investor Relations to discuss non-GAAP financial measures and forward looking statements. Please go ahead.
Thank you good afternoon.
It should be considered in conjunction with the press release that we issued earlier today unless indicated otherwise our discussion today will relate to results and guidance based on certain non-GAAP measures.
A reconciliation of non-GAAP financial measures and most directly comparable GAAP financial measures and out one nation wide and non-GAAP financial measures may be useful are discussed in exhibit one all that definitely.
This pool that contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 99 five.
Addressed the financial condition results of operation.
This initiative trend growth plans and prospects of the company in 2020 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements.
Please refer to the company's current press release and FCC filed.
Putting the most recent 10-K for more information on leasing and then.
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.
Now I'll turn the conference call or the to more Alba, our president and Chief Executive Officer.
Thank you Lisa.
Good afternoon, everyone. Thank you all for joining us I'm all phone calls me today are Julie will not chief Financial Officer, Phil It's kind of lead over our Chief marketing officer, and Yasir on where our Chief Technology Officer.
Before we get started on our Q1 results. We hope you and your families sincerely are safe and healthy during this time and our deep gratitude goes to all the people who are taking care of our communities in the fight against this pandemic I want to also thank all of our Williams Sonoma Inc. associates for their incredible agility commitment in partnership in responding to this crisis.
Our people are the heart of our company and we are inspired by how they've adapted to serve our customers in these times.
In the first quarter, we're proud to deliver an overall company comp growth of 2.6%. Despite having all of our 616 stores close from more than half the corridor.
Our teams maximized demand online leaning into new and innovative ways to engage and serve our customers virtually driving DTC comps over 31% in the first quarter.
These results reflect our powerful digital first platform and the relevance of our high quality sustainable products and superior customer service.
The strategic investors that we have made over the years give us a competitive advantage in the disrupted environment that favors digital.
Nothing makes me kind of though tend to have achieved our results while staying true to our company's core value of taking care of our people customers and communities.
From the onset of this pandemic safety and pay continuation for our people have been key priorities.
In mid March we acted swiftly to close our stores and institute work from home policies for corporate employees.
And we made the decision to provide pay and benefits to all of our store associates, who have been regularly working more than 12 hours weekly for the entire time our stores have been closed.
To support our local communities, we have donated food personal care kids and surgical mask healthcare workers on the front line.
We've also raised more than 800000 across our brands for the relief efforts have no Kid hungry.
We take our responsibility to all of our stakeholders very seriously and we feel fortunate to be in a position to take care of our people and our communities.
We're also very focused on our financial health.
In addition to maximizing ecommerce we have made aggressive cuts across the company in expenses inventory in capital expenditures and we'll continue to strengthen our financial position, while prioritizing investments and strategic priorities.
Julie will share with you in detailed actions, we've taken to bolster our balance sheet.
As we mentioned on our last call, we entered the new fiscal year and a strong position for the month of February through March 11th when the health crisis began to accelerate.
We delivered high single digit comp growth in line with a long term outlook.
After the outbreak escalated the closure of our retail stores went into effect on March 17, our E Commerce business had breakout comp growth and has continued to accelerate.
Total got comp growth, including the impact from our clothes stores was positive across nearly all brands with particular strength in our part of our children's business, which drove it was 8.5% comp.
And the land sub brand with a comp of 5.4%.
West Elm deliver comp of 3.3, while our emerging brands rejuvenation, and Mark and Graham drove a combined comp of 2.4.
Pottery barn ecommerce demand was extremely strong and gain momentum throughout the quarter. We also reduced our level promotions across our brands, which led to an improvement in our product margins for the quarter.
Our ability to grow our business and this time speaks to the power of our multichannel platform and our organizational agility rooted in a longstanding culture of innovation.
To maximize the NAND online we've enhanced our digital experience even further we've expanded our services online, including design chat virtual design appointment and ask the expert leveraging our outward inc. Threed visualization technology.
And we redeployed our retail associates to serve our customer in these new ways.
Steve Virtual services leverage the knowledge and expertise of our store associates, who are an important source of differentiation for our brands and enable them to connect with our customers and deliver superior experience online.
Also a key part of our success is our omni services, including Bottomline pick up in store, which we launched in early 2018.
We've also accelerate our speed to market in a number of digital innovation to enhance the convenience of shopping online.
These innovations include improvements and product discovery site merchandising and the search experience as well as email and site personalization and we have a faster checkout.
Okay.
With a pivotal digital gives me someone has to align on mute is I'm not sure who that is perhaps is the operator.
I'm, sorry, sorry, guys I'll keep going.
Well the Pedersen digital we've also deployed more resources to digital content creation.
As consumer spend increasingly more time on social media, while sheltering in place we're leaning into this trend by publishing more user generated content and campaigns and our social channels.
We're also producing more live events to engage in interact with our customers in real time.
These digital initiatives to have contributed to a dramatic acceleration in our online CPI, such as traffic conversion and customer growth across our brands.
We're particularly encouraged to see our new customer counts up substantially and previously retail only customers shopping with us online.
This gives us even more confidence in our DTC growth trajectory the balance of the year and our ability to continue to take share.
The majority of our first time online customers are now also members of the key our cross brand loyalty program.
We have always understood the importance of retention and cross brand shopping and the key is this a center of our strategy.
As an indication of the power of this program in driving incremental growth in the second half of the quarter online sales from existing key members nearly doubled compared to last year well. They also maintain their pre covered total sales growth levels Despite store closures.
We've also seen shopping across our brands increased as customers realize the breadth of our offering across our portfolio and are eager to earn rewards wherever they shop with us.
Our efforts to optimize our digital experience. During this time could not have been realized without the ingenuity and thoughtfulness of our brand and tech teams.
And then Williams Sonoma Graham we saw significant growth in nearly all merchandise categories with particular strength in electric.
Cookware food in housewares.
Our content strategy across our digital channels pivoted to relevant topics for more quality time at home such as recipes live demonstrations and family activities.
Our online growth was driven by change in our customer profile, which was dominated by new retail primary and cross channel customers.
We also achieved traffic and conversion rates there were similar to our peak holiday season.
Growth in pottery barn kids and team also accelerated even further this quarter.
As a business it's already predominantly online we are prime to meet the surge in demand for children's home furnishings as schools and childcare centers close nationwide and parents turned to us for study and playroom solutions.
We also saw continued strengthen our baby business and our offering of Green Guard gold certified furniture and organic cotton betting.
At a time when health and safety is more important than ever we are focused on further amplifying our leadership in the children's home furnishings market in offering sustainable products that are state for kids and good for the planet.
In West, though we also continued to see strong results.
Furniture continued to lead our growth in the first quarter with strong demand for our expanded outdoor assortment as well as home office furniture.
To meet the material acceleration in ecommerce growth, we have introduced new social engagement tools and enhance our editorial experiences and room inspiration content in our digital channels.
In the part of our brand we began the quarter was positive trends in all product divisions and channels.
Despite the retail closures, we saw demand accelerate materially through the quarter in our furniture offerings in home office outdoor bedding and functional accessories.
Our DTC oriented growth initiatives curated marketplace and apartment assortment also continue to contribute incrementally.
The quarter also benefited from our continuous optimization of our digital experience building improvements and product discovery and site merchandising.
As we look to the rest of the year, we're optimistic that there are significant lifestyle changes that favor our business.
However, there are also remains considerable uncertainty.
Some of the factors that we are modeling for include the prolonged economic impact. This pandemic could have an incremental cost of doing business in whatever form of reopening the economy takes for the rest of 2020 and the foreseeable future.
As a result, we're not issuing full year guidance today.
However, I would like to give you an update on second quarter to date.
We continue to see robust trends in E commerce and acceleration across all of our brands.
Since may 1st we have reopened a total of 364 stores.
Consistent with government regulations.
In these stores, we have in place strict safety protocols, such as frequent sanitization limitation on the number of customers and associates in store shopping by appointment and a supply of masks and gloves for associates.
We're also fulfilling customer orders through curbside pickup, which has now been launched in 475 of our retail locations nationwide.
Customer response has been strong so far to reopen stores driven by appointment only shopping.
However, with strict social distancing measures in place customer limits will continue to constrain sales in our stores.
Four locations, where retail restrictions have not been lifted.
We will keep those stores close through June 14th and continue to provide pay and benefits for this extended period of closure for associates, who had been regularly working more than 12 hours weekly.
Reflecting on the longer term.
This crisis has accelerated our industry shift to E commerce, and given rise to a new found appreciation for the home.
We believe that with our differentiated value proposition of high quality design led sustainable products and our large ecommerce business, we are well positioned.
Our resilience during these turbulent time exemplifies the advantage of our unique multi brand multichannel platform and our commitment to all of our stakeholders.
We will continue to invest to strengthen our digital first model enhancing the convenience of our online channels.
We also continue to prioritize the growth initiatives that we laid out at the beginning of the year, including West Elm in our cross brand initiatives, the key and business to business.
We entered this crisis and a strong financial position and with clear momentum across our brands.
It's moments like these that set us apart from the competition and reinforce our ability to outperform.
We're confident that we will emerge from this crisis, an even stronger company.
Thank you for your continued support I wish you and your families. The Beth and now I will turn this call or to Julie from more of the financial detail.
Thank you Laura and good afternoon, everyone. We delivered a solid performance in the first quarter, highlighting the strength and adaptability of our digital first model the agility and strong execution of our teams and the resilience of our fortress balance sheet. Most importantly, we're proud to achieve these results while maintaining an unwavering commitment to all of our stakeholders.
Before I go into our financial results in more detail I wanted to give you an update on how our team has been responding to the impact of the cobot 19 pandemic.
While our priority is always health and safety. We're also focused on maintaining our strong financial health in order to continue to support our associates and customers. During this period of heightened uncertainty.
From a financial perspective, we've been preparing our business for a number of possible macro scenarios and as part of our response strategy. We have caught all non essential business expenses, including the elimination of almost all business travel and other discretionary spend for the foreseeable future.
In real estate, we have delayed store remodels and relocations and have negotiated various rent reductions with our landlords and across the business. We have negotiated with our vendors various other expense reductions in technology in our supply chain and other professional services.
In advertising, we're only investing in those initiatives that drive the highest returns and ecommerce traffic and conversion.
And in technology, we're prioritizing business critical projects that will allow us to further improve our competitive positioning and continued to take market share.
These immediate steps we've taken have resulted in our ability to maintain strong profitability. Despite the incremental operating cost associated with cobot 19, and speaks to our culture of financial discipline.
To further bolster our financial flexibility. We have also increased our liquidity position. We now have over 860 million in cash as a result of our strong performance in our decision to draw down on our existing revolver.
With the support of our banking partners. We were also able to obtain an additional half a billion of liquidity through the extension of our 300 million dollar term loan to January 2022, and an additional 200 million in an unsecured 364 day revolving credit facility.
We believe our current liquidity position will allow us to not only support the operations of our business. During this global health crisis, but will also allow us to continue to invest in the business and emerge as an even stronger and more resilient business for the long term.
Now turning back to our first quarter performance net revenues in the first quarter were relatively in line with last year at 1.235 billion with total comp growth of 2.6%. Despite the impact of closing all of our stores for more than half of the quarter.
Growth was driven by both the strengthen our business prior to the acceleration of the Kobin 19 pandemic as well as the overall strength in our E Commerce business, which further accelerated while our stores were closed to end the quarter with a comp of 31.2%.
By brand Williams Sonoma, despite having a large number of stores across our fleet delivered a comp growth of 5.4%.
Our pottery barn children's home furnishings business accelerated sequentially to a comp growth of 8.5% compared to 7.9% last quarter.
West Elm drove a solid comp of 3.3% and while pottery barn had a negative 1.1% comp their ecommerce business has continued to significantly accelerate resulting in a positive comp in the second quarter to date.
Moving down the income statement gross margin for the first quarter was 34.5% compared to 35.9% last year. The gross margin de leverage of 140 basis points was primarily driven by higher shipping costs. As a result, as a substantial shift to E commerce sales in the quarter and higher furniture sales, which are more expensive to ship the.
Our over your impact from incremental China tariffs and occupancy deleverage from the closure of all of our stores along with the incremental cost to board up our stores and clean our facilities that are recorded within occupancy.
Their impact on gross margin was partially offset by higher merchandise margins from less promotions in the quarter, reflecting enduring appeal of our relevant sustainable and design led products.
Occupancy costs in the first quarter were approximately 174.9 million or 14.2% of total revenues and relatively flat to last year at a 173.4 million or 14% of total revenues.
SGN, a leveraged 80 basis points to 28.1% of net revenues compared to 28.9% of revenues last year, driven by advertising leverage from the ongoing shift in our advertising spend from catalog to more efficient digital initiatives as well as stronger returns on our advertising investments due to the power of our multichannel model. It also.
<unk> reflects the positive impact of the aggressive cost reductions across the business in response to the impact of Cobot 19. As previously mentioned, we acted early and quickly to maximize digital and to cut all non essential spend to ensure that we self fund our business and continued to support our associates customers and communities through this difficult time.
From a profitability perspective, we drove operating income of 79 million with an operating margin of 6.4% compared to 87 million or 7% last year.
This resulted in bottom line diluted earnings per share of 74 cents.
We're pleased to be able to achieve these levels of profitability, while continuing to pay our associates in occurring various incremental cost to help keep our associates and customers save during this pandemic, including providing protective gear and increased sanitation services across our operations.
On the balance sheet, we ended the quarter with a strong cash balance of 861 million compared to 108 million last year. This includes the precautionary measures we took to boost our liquidity during the quarter with a full draw down on our existing revolving credit facility of approximately 488 million. Excluding this drawdown we ended the quarter with over 373 million a cash.
Which was over 265 million higher than last year. This reflects the strength of our cash balance as we enter 2020, along with our strong Q1 performance, resulting in positive operating cash flow of almost 54 million.
In addition to funding the operations of the business. This cash balance also reflects investing 42 million in capital expenditures as well as returning over 39 million in the form of continued quarterly dividend payments to our shareholders.
Moving down the balance sheet merchandise inventories were 1.071 billion for a decrease of 7.3% compared to last year.
This reflects our efforts to cut and push out our inventory purchases to preserve our liquidity in response to covert 19, and the impact to the subsequent outperformance in our ecommerce business.
Now turning to our fiscal year outlook as Laura mentioned, given the uncertainty that exists regarding the impact at this global health crisis on future economic activity and customer demand, we're not providing full year guidance. Today. This is not a reflection of the current trends that we're seeing in our business, which continued to accelerate but rather the lack of visibility we have.
For economic impact of this pandemic and the wide range of outcomes. This could have for our business in the balance of the year.
Longer term, we believe this crisis has given rise to permit shifts in consumer behavior that will benefit our business E. Commerce adoption has accelerated in our category and consumers are accustomed to spending more time at home leading to a likely shift in discretionary spending to the home and home related categories such as cooking.
These trends combined with our digital first model and unique value proposition in the home category give us even more confidence in our ability to drive accelerated growth and gain market share in the long term.
With regards to capital allocation, while our balanced approach remains unchanged over the long term in the short term, we will continue to invest in strategic initiatives that fuel our future growth, while suspending capital expenditures that are non business critical we have also temporarily suspended stock buybacks until we have better visibility into the longer term impact from Kobin 19, but out.
The confidence we have in our business as well as our commitment to shareholder returns, we have announced today another quarterly cash dividend of 48 cents per share.
Going forward based on the strength, we continue to see in our business. We remain confident in our strategies to drive long term accelerated growth.
As a result, we're maintaining our longer term financial outlook with revenue growth expected to be in the mid to high single digits in operating income growth in line with revenue growth.
Before I turn the call over for questions I want to express my appreciation to our associates, who have risen to the challenges presented by this unprecedented crisis and up quickly adapted to serve our customers always with a commitment to health and safety. They are a key reason behind how resilient our business and financial performance has been during these challenging times.
Looking ahead, we will continue to manage our business for the long term staying focused on our competitive strengths investing in our strategic priorities and always keeping top of mind, our stakeholders, our associates, our customers our communities and our shareholders.
Our response to this crisis has demonstrated that with our multi brand digital first model the agility and dedication of our teams a proven track record of strong financial discipline and our fortress balance sheet, we will emerge as an even stronger company. Once this pandemic subsides.
I would now like to open the call for questions. Thank you.
Thank you if you'd like to ask a question to single by pressing star one on your telephone keypad. If you are using the speakerphone. Please make sure. Your mute function is turned to off to a larger signal to reach our equipment. Please do limit yourself to one question only for today's call again press Star one to ask a question and we will pause for just a moment to a lot over.
When an opportunity to signal for questions. So one moment please.
And we'll go ahead with the first question from Seth Basham of Wedbush. Please go ahead.
Thank you and good afternoon.
Good afternoon.
Congrats.
Good quarter my questions around.
Recent trends in particular, however, demand comps trended real sales and then secondly have you see things biking fulfillment challenges.
Sure it's Laura.
So demand has been stronger than that obviously.
We.
Are very happy to see accelerating.
Trends as I mentioned in our prepared remarks across all of our brands and we're adapting to how we continue to.
Stay very relevant insensitive during these times to what our customers are looking for and the right tone and giving them the things that are interesting to them, while they're at home.
The inventory and the world supply chain is.
Is it is a constant challenge in that.
A little self inflicted.
We pulled back on some receipts when this first happened because we didn't know what the outcome would be and we thought that was the right thing to do and.
Better to be chasing inventory than have too much but you know now with our long lead times, we are going to be chasing some inventory and so you're going to see us continue to pull back on promotions and balance that and do the right thing, but there's you know we've we've gone out our vendors are great partners are doing all that they can for us, but the demand trends event.
Quite robust and.
That will be the story, we'll have some longer lead times through the back half of the year.
We of course are pushing that the products that we have more stock on and we're seeing really strong results by doing that by showing what's in stock and I've seen.
More willing to move into this desk versus that when I ever have in the past I think customers really want our quality sustainable products and so they are more flexible about which one in particular right now than I've seen them in the past.
We have some we have some areas the world that are still really struggling to open and of course, we're supporting them as much as we can but theres. Some reality to some of these areas, where they're just not fully up and running most of it is now but theres. Some there's some pockets.
Thank you and good luck.
<unk>.
And we will now take our next question.
Please.
Once again, ladies and gentlemen, please star one for your questions. Please start one for your questions.
And Brian Nagel from Oppenheimer. Please go ahead.
Hi, good afternoon.
Thank you want to add my congratulations on a really nice quarter recovering barb.
Thank you.
The question I had.
Well I'll be we updated the comp numbers there was clearly a nice acceleration if youre on bike business as your stores closed in second half of Q1 of the more you mentioned that further acceleration here in Q2 can you help us understand better just the speaker.
Underlying trend there will be ecommerce business, it really without some sort of exit rate was coming out of Q1.
And then a registered opening or I guess is 364 stores so far.
As a tool either measures in place you back ends meet customers use those stores how held in those markets with stewards of open algorithm salespeople.
Transition if at all or is that it between online.
And in store. Thank you.
Yes, I don't.
I don't think I'm, giving you the last two weeks comps is relevant because it's so such a short window and I wouldn't want you to read too much into it it is significantly stronger I'd say that its across all brands. So that's good in terms of stores that are.
Reopen in the impact on E commerce.
Results really again, they vary by location and by brand. So it's a little early to draw conclusion conclusions, but you know we are seeing.
The total straight strength total demand strengthening.
And you know since since.
The pandemic started it just continues to strengthen.
Okay. Thank you very much.
Welcome.
And well take our next question from Bobby Griffin of Raymond James. Please go ahead.
Mr. Griffin. Your line is open you can ask your question.
Mr. Given if your line is muted please I'm yourself.
And Mr. Griffin you May ask your question. Please go ahead.
I think let's go to the next person if you don't mind operator.
Sure well take a Peter Benedict from Baird. Please go ahead.
Yeah, Good afternoon guides as Justin Kleber onto Pete Thanks for taking the question.
Just given how successful you were at recapturing sales with all the stores close.
Yeah, I mean does that change your view of the pace of future store closings in what may be the ultimate size.
The store fleet should look like in the future.
As such a good question you know for those of you who are new to our story newer we regularly review our store fleet. When they can just wants all the time, we have a very high bar for profitability, but as you know weve been careful and opening new stores. The stores do continue to be an important part of our company customers love to experience our brands and.
Products in person and our talented associates extremely helpful and making furnishings decisions with our customers. However, as you can see if my numbers. This pandemic has accelerated the shifted digital.
And we have half our fleet up for renewal over the next three years.
So we'll be looking at each lease that comes up carefully and we will renew where landlords have partnered with us during this crisis and where the economics makes sense.
In terms of this year pre covered we expected to close approximately 32 stores and we see that number being double now.
In the next three years as I said 293 stores come up for renewal and over the next five years 416 come up for renewal.
So we're going to be able to make a lot of decisions based on the malls what happens the partnership and the four wall.
That we have in each and every store not as a I think a very strong positioned to be.
Okay, Ladies and gentlemen, as a reminder, please press star one to ask your question again. Please press star one if you'd like to ask a question and we will take our next question from Oliver Wintermantel of Evercore ISI. Please go ahead.
Yes. Good afternoon. Congratulations also on the quarter in a in a tough time.
My other question regarding E Commerce Center sales.
Hi was that at the at the end of the quarter and then you mentioned you introduced curbside pickup and you had buy online pick up in store.
What percent of E. Commerce is now buy online pickup in store and it can you curbside. Thank you.
So as far as a percentage of total revenues. It jumped from me as you know we've been trending about a 54% of revenues free common it jumped to 71% in the in the first quarter.
And then we haven't.
Given how our boat BOPUS numbers yet.
So I prefer not to give them today.
Good thanks, good luck.
It's not a huge number I just this is probably lower than you think its a lot more than it used to be and we think it'll continue to trend as we open BOPUS and people get comfortable particularly with our safety measures will see BOPUS continue to grow that's it's a pretty small number still.
Okay. Thank you.
Yes.
Well now take our next question from Cristina Fernandez of Telsey Advisory Group. Please go ahead.
Hi, Thank you and also <unk> quarter I want to Oh, so on some of the trends Youre seeing.
Thanks, Tim <unk> money government stimulus, hoping youre [laughter] in can you talk about performance in urban markets that have been more impacted bush is perhaps a little bit is all about good.
Where there's more <unk>. Thank you.
Yeah, I mean, certainly the stimulus money helps everyone I'm I think the question really becomes you know how long can they continue to do to support you know so much unemployment, which I think it's a concern for all of US oxiclean retail that there's a lot of people who haven't been able to keep paying their teams and so.
You know that has been a good thing for the whole economy, how that affects our demographic specifically, it's harder to say we are I'm not seeing any specific trends urban versus suburban.
You know that's not that's not really I I keep looking at trying to glean something then you'd be surprised how some of their really you know shutdown places are doing I'm, just doing very very well that's still a lot of demand for our goods at least in their homes.
And we feel very fortunate to be able to fulfill those orders safely.
Okay, well now take our next question from Simeon Gutman of Morgan Stanley. Please go ahead.
Thanks, Hey, everyone and nice nice quarter, Oh, I may have missed this in prepared remarks, maybe for Julie first it did you quantify the absolute merch margin change or improvement and that just as part to what have you done with rents and I guess leases during the quarter or what you know stores were closed.
We did not quantify or the actual pure merge margin, but we did indicate that it was higher than last year, which helped with offsetting some of the you know the higher shipping costs and the incremental impact from the China tariffs that we had been in the quarter. So we're bringing intentionally less promotional and it's been a big a win for us within the gross.
Margin line.
And then turns of.
You know, how we're working with our landlord partners.
We have been working with them one by age to negotiate what is it fair solution during the times that our stores have been close.
And as the crisis unfolded, we expect the partnership Smile landlords to rent relief as we generated no revenues during the closures in our stores.
We're very pleased to see that many of our landlords are willing to do the right thing insurance financial impact.
And as far as how our route.
Payments have played out it really depends on the landlords and goes negotiation and you know they a lot of the really good ones. They realize that one party launch now bear the burden and we very much appreciate them I want to thank them on this call doing what's been a very difficult time for all of us.
And there's no doubt that this crisis has given rise to permanent shift and the customer.
Behavior and you know as we look at future decisions regarding openings relocations closures of our stores, you're going to take into account how by more than partnered with us during this crisis as well as whether the economics of the deal makes sense.
Thanks.
So I mean, we I think I answered your question, but I want to make sure.
That you weren't asking a different question.
No no you answered what I, yes, okay. Good thank you.
Thank you.
And ladies and gentlemen, if you have not yet been able to ask your question. Please press star one again on your telephone keypad. If you have not been able to ask your question. Please press star one and we will go ahead with Chuck Grom of Gordon.
Hack fit please go ahead.
Hey, I'm, just a couple of Neil and yesterday line, just wondering I understand that and you advertising efficiency going forward, how big is an opportunity that could be and Lori talked about more customer shopping across banners utilizing the key program. Just wondering if you could just its members behind that Youve got Plaza.
Yeah, No let's deal. It's currently don't answer that feeling.
Sure.
We are as Julie said.
Earlier, we aggressively manage expenses throughout the organization, including our marketing spend.
So you know that said, we still are investing where we see the greatest ROI and that includes as you know we look at metrics by channel by brand.
And we had just been based on customer behavior.
I think.
Well, we did see leverage there you know we're also incredibly pleased as more said with our new customer growth hitting an all time high.
So it's a reflection of the past 16 quarters or plus more than that.
Of increasing our marketing mix towards digital where we find the best payback.
You will see want to comment about the key.
Yeah, I think you know says Laura mentioned with the key had some incredible results.
Throughout the quarter and even with stores closing they maintained the same level really.
Over al why throughout the quarter and so another critical part of our marketing mix and the reason, we can be very efficient and profitable.
Is the number of shoppers who are purchased seen across our brands.
We know that's it on tapped opportunity. We're just now tapping into that opportunity. The key is at the foundation of that program, but we also have a number of events and promotions, where we combined our messaging focused around a particular theme.
We have our design crew to installs.
In customers with products from across our portfolio. So.
I think the other opportunity that we're thrilled about is to see the number of customers shopping during.
These times across our brands.
And shocking to see answer the question about about SGN, a generally I mean, certainly we do expect to continue to see advertising efficiencies. Obviously with these incredible cost cuts that we've done we do expect that to continue similar to where we'd been with US you know for awhile.
Okay, and what were going to take one more and you talked about the basic business arm significantly stronger here. So far in Q2, just wondering if that's going across banners and then within PB just anything on on bigger ticket items.
Good day that's.
Yeah sure yes, it is a crop.
And then secondly, or was the second question.
PV and train Oh, they took a big ticket yeah. It's one of those categories. It's been interesting lead picking up you know and Ah. So we're trying to touch whereas going but its its been very strong as I mentioned upholstery outdoor across the board you know really all of our big ticket.
The incredibly strong.
That's great that's why.
Thank you.
Mhm, ladies and gentlemen, if you are from money and from Shapiro can you. Please start I wonder if you ever question, if you're from Marni Shapiro with Shapiro. Please press star one.
And I will take our next question from Bobby Griffin of Raymond James Thank you.
Good afternoon, guys, everyone I Hope you hear me sorry border.
Oh, no matter, what my headset still.
But congrats on a a good quarter I guess my first question I wanted to US is when you think about the store openings if the commerce demand levels seen now continue at the strength.
That they are at what opportunities do you have to kind of scaled up slowly maybe keep some stores dark or reduce hours or labor or whatnot, just because the mix at the business would be vastly different still then full operational with store hours, assuming no health and safety requirements around all sorts, though bill I'm thinking more just down the road.
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You know right now we're seeing very strong results in our open stores, even with appointment only so you know we have some malls areas that we scaled back for different reasons I'm here in there and we love to stores make the decisions, but it's not to manage payroll remember we're paying them anyway.
They might it might have been working right, we've been paying them the whole time full though and so it's wonderful to happen there and you know I'm doing the things are doing a really getting incredible service. It gives us time to the sanitation really well and then get the you know we've been getting higher.
Mark smart customers than ever on our service right now, which is such a proud thing to see during this time and it's it's definitely.
You know, even if we weren't paying them all its I'm definitely worth having them open I'll say the stores are doing well are phenomenal or a couple as I said that our closing at the end of year. Their account those you know more than a couple that are close it in the or as a couple that we're closing.
Early and not reopening, though they were dark will depend on that and they were plan to close in January and why keep 'em dark didn't make sense to reopen those but that's a very small population.
Okay. That's helpful and I, just lastly, I'm on the B to B side of things can you maybe give a little more detail on kind of what you're hearing from those customers and how they're approaching no I mean coming out of a pandemic can kind of the opportunity. There. It was a pretty good success story heading into this fiscal year for you guys.
Yeah. So I mean as I do expect fell apart I need to be industry verticals than heavily impacted I eat hospitality and RV to be sales were impacted and were down in Q1. However, we're seeing them come back now and we're seeing the pipeline build pretty pretty.
Substantially and you know people are using this time to.
Good things ready and do some remodels and.
Bruce things up so we're getting a lot of current request them. We're also because we've been operating and we're able to fulfill better than a lot of our competition. We're picking up some of that volume from those who haven't been able to fulfill.
For whatever reason right now so we're picking up some other people's business as well.
Thank you Eric I appreciate the detail best to walk through the rest of second quarter.
The thing thank you.
Well take our question next question from Michael Lasser view B.S. Please go ahead.
Hi, Good evening. This is a place where young from Michael Lasser. Thanks, a lot for taking my questions.
So given can you, maybe well probably investing a lot in furniture and home furnishing says they showed good I told you see some of the strong trends that you saw in Williams, Sonoma and and Pbteen kids simply demand going forward that might not necessarily repeat going forward and ER and if that's the case, what do you expect comp so what you're going to open more stores.
I mean look anything can happen we learned that now you know you can't count anything I'd tell you I don't I don't I don't believe that you know if not all the realm of possibilities I think you know people when they learn how to think learn new skill they generally get pretty hooked not and cooking is one of those things.
It's wonderful to learn how to Cook and often you see people you. They they moved from a beginner chefs to someone who is a it's a real passion for and so it's wonderful that people have taken the cooking more at home and enjoying doing it and have been our brands you know along.
The way learning how to Cook on mine and joining all of our different virtual you know places online. So yeah. Both entertain but also be educated so I don't I don't see that you know these things don't.
Come and go that quickly I think people you know they have time now to think about their home.
We're seeing even you know I mentioned the high ticket for Wassa thing you know people want to do small decorating projects.
I think there's going to be a continued shift for a while on a travel on some of these other areas into the home and I think longer term, we have oh very very strong.
Roadmap and runway for growth that we had before this began I still believe it's.
It's very theory.
Positive future and I'd say, even more so now that many people are spending more time in their home.
And we will take our next question from Marni Shapiro of retail Trucker. Please go ahead.
Hey, guys congratulations on a really great quarter.
Well I do think what people are cooking I made bagels lets them now one I'd like to find my vehicles.
But they were [laughter], Bobby <unk>, they're always sold out [laughter], they were amazing and everybody loves them and then they want to me to make them again and I was sitting there while I was working in the real staring at me anyway, I'm curious Oh. This doors are opening can you just walk us through a lot.
I'll bet.
What does the productivity it looked like I was in one of your stores yesterday Williams Sonoma that was open I'm always quiets, it was a little bit harder to judge but.
It does feel like retail right now is a little bit like moving through molasses everything is taking a lot longer even just to check out to do anything is taking a lot longer so I'm curious.
As a source open even as you start to bring more people in is it just a slower process and then a follow up or sort of adjacent question is I'm curious what products like what items people feel compelled to come to your stores to buy 'cause your online experiences Barry.
Right and so I'm curious, what what the items, you're seeing people come into by versus them buying it online.
It's a really good question I asked that question. This morning, right what [laughter] I'd ask your office by the way [laughter] I mean, our stores are you got to scare our stores so I.
Our associates are amazing.
And there so you know proud to be Bakken, they're they're working with these customers I mean, I I'll tell you one little short term thing, you'll probably get until with it.
Yesterday, our open stores positive Comped total oh, so exciting.
So that is that is like.
No the power that people and yes, you wouldn't it doesn't look like it right. It looks very quiet, but those customers who are coming in they know what they want what they do tell me today will be POC, we're having another big store called Tomorrow.
Where we get the your older wonderful feedback and thank them more importantly, but the the thing is that people are coming in a shorter visits and there, but they're very focused in the conversion is extremely high.
So it's exciting you know appointment only is working for US I think you know, whereas different kind of business in other.
Or is that where are you you know you need a lot more traffic I think the question really becomes what happened during those times, if you're like holiday where traffic is really relevant you know for everybody now and that's why we we pause on getting too excited and we want to say you know careful about our expense structure and not take anything for granted but.
We're seeing some phenomenal results.
And our doors are they buying a close like are they looking are they coming into by a couch or is it more the bread makers and new sheets and towels.
Well, they I mean, the bread makers boy. They that's been as you can read in any you know yeah trade journals that Bad example, but yes, [laughter] gray category for everybody. So everybody wants the bread maker. They want an ice cream machine, there's those kinds of things that you know they.
There's not one skew ever that pops out for us they come in and depending on what they're looking for you know there there's a lot of variation and what they're looking for outdoor furniture is a big ones.
Oh, Yeah, you all know it's safer to be outside maybe the only way you can see someone other than your own family and so outdoor furniture that a big win for us.
Fantastic Best of luck with the summer.
They like to see things and person, so where they can goes doors for us they they're going.
Yes, I saw a than them all yesterday I people are like cold it'd be damn them going shopping and.
Got it people, who are very respectful, they're very patient when they're shopping day, we'll wait for somebody to finish at a display before going to the display but they don't they want to be there and every person in them all that's something bad.
Yeah, that's been our experience too that our customers are very respectful of our employees and smoked and they haven't ever it's a it's a very proud moment.
[noise] Congratulations best of luck for Salt for summer.
Thank you. Thank you.
Andrew I'll take our next question from Jonathan My Suzhou Ski of Jefferies. Please go ahead.
Hey, guys nice quarter. Thanks for taking my question you mention robust new customer growth in the DTC channel I'm, obviously, a strong acceleration there can you just comments on the profile of some of the new and maybe reactivated.
Customers, who has been shopping with you over the past few weeks how are they similar or different from your Ah Ah customer base creep a little bit any any.
Things, you're noticing in terms of demographic or a household income levels or anything like that would be a would be helpful. Thanks.
Sure I'm actually but Felix take that question.
Okay sure great.
Yeah, I will say for Q1, and I'll take that pre and post the.
The difference is after but in general for the quarter.
You know we are starting to see a younger customer shopping or brands more millennials more gen xers are becoming more familiar with our brands and our offerings and.
Or west Elm brands RPV apartment.
Offering in Williams Sonoma open kitchen kitchen. These are all initiatives that we put in place to capture the shift in the U.S. population, we're definitely starting to see that.
As it relates to.
The store closures in a in the acceleration of.
Customers online, they're very much similar to our core customer we did see more gen. Xers then.
We usually see which is not surprising because they're in the middle of household formation.
We did see a slightly more affluent customer come towards the end of the quarter and Ah you know I've seen regionally it looks like the west or after closures performed a little stronger online, but not not significant.
Not a anything dramatic but those are some of the demographics that we saw pre and post store closures that includes question.
Yeah, I'll just add to what you said still just say that you know we're in a highly fragmented industry Underpenetrated online you know, we're taking market share digitally as the industry shift online because of a marketing events investments our content rich brand presentation, our exclusive products.
Hi service value proposition, but also because of our sustainability and transparency that has become increasingly important today's customer. It's really you guys you cannot underestimate what a key differentiator. This is for us to why our customers choose us over our comp Comped competition and you can see it whether it's in our baby business and.
Across all of our brands you can see how important this is becoming and we are expanding our commitment to sustainably sourced material and our supply chain programs as you know like fair trade and worker wellbeing and so there's a lot of sins why they're coming to US now and its you know, it's very exciting to see it but it's not us.
It's not that surprising when you break down the advantages that we built over the years and why they would come to our brands versus going elsewhere.
It's really helpful. Thanks for the color.
And then once again, ladies and gentlemen, if you have any questions. Please press star one on your telephone keypad again. It is star one for questions and we will now take her next question from Adrian you have Barclays. Please go ahead.
Hello, everybody and let me add my congratulations to tough environment and you are performing exceptionally well Laura I was intrigued by the commentary that you made about promotions, obviously merch margin up and as you move through the quarter less and less need for the promotions, obviously, a higher income customer coming to you.
As we go to the back habit sounds like you're gonna be chasing that inventory what specific categories or is it broad based are you seeing that you are increase and is that something specific to Williams Sonoma and your brand or are you seeing kind of a wide spread tie. It you know people need to be at home they want to be.
To their just buying it regardless of you know what the pricing it and then have a quick one for Julie afterwards.
Sure. So I just the first thing is that our commitment to value remains one of our top priority. So we have been busy building in to our value categories, making sure that our price design quality.
Relationship is stronger than the competition, we spend a lot of time working on us and making sure that were in that winning positioned to begin the differences are high our regular price authors or higher we're not having as much clearances. We did previously and we have more winters.
No you know we then.
Working on SKU productivity for a while I mean, you've been hearing us talk about it and getting rid of those skews that that aren't that aren't selling and we've been more effective.
On that front than previously and that the depth of a promotion is changing you know, it's it's too early to call. It you know.
A success, yes, because we've just started to do this and we're testing the waters very carefully but you know we simply wont be able to you know.
Drive.
As much demand as possibly is there because we'll have the inventory and short term.
You know you know so that it's going to be an important thing for us to balance the promotions to drive to Mars and often get them to buy those things that we do have in stock.
Okay very helpful and Julie you no question about initial markup and I get the kind of tied into that sourcing from China, specifically I know you were making great inroad, reducing not an Eva in general I'm afraid I assume is going down, but then we're hearing oh.
Outbound freight coming out of Asia being more expensive. So can you help with with the kind of puts and takes on that you know cost of goods the cost of product line. Please.
Sure I mean from where we are with China perspective, we've said before that we were going to reduce by about 50% together the production that we do and China by the end of this year. So we're on target to do that and we're also not developing as many products into China. So nothing has changed from that standpoint, we have not seen higher shipping costs are coming out of town.
China in fact, we are coming down so from that perspective, obviously, you know so you have to the lower shipping cost on a flip side you still have the China tariffs, which I know, it's not the topic does your but it's still a significant amount that we absorbed in Q1.
You know and so thankfully, but we had the higher merchandise margins that we spoke to earlier to be able to offset that but hopefully that answers your question.
Yes. It does thank you very much and best of luck.
Thank you.
And this concludes D to any portion of today's call reduce sincerely apologize for today's of technical difficulties I'd like to now hand, it back over to Laura Alber for closing remarks. Thank you.
Well. Thank you all four I'm, joining us today and I sincerely wish you and your families and friends the varied that and we look forward to getting another update the end of Q2.
And this concludes today's call. We thank you for your participation you may now disconnect your lines and have a wonderful day, everyone take care.
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