Q2 2020 Williams-Sonoma Inc Earnings Call

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Yes.

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Welcome to the Williams Sonoma incorporated second quarter 2020 earnings Conference call.

At this time all participants are in listen only mode. We will conduct a question and answer session. After the presentation.

This call is being recorded.

I would now like turn the call over to at least swing Vice President of Investor Relations to discuss non-GAAP financial measures and forward looking statements. Please go ahead.

Thank you.

[laughter] coal.

Options in the press release issued earlier today.

Oh Oh.

Oh, gosh today, well nice results and guidance based on certain non-GAAP measures.

A reconciliation to non-GAAP financial measures for the most directly comparable GAAP financial measure.

Yeah, what nation wide non-GAAP financial measures may be useful are discussed in exhibit long told our press release.

That's cool also contain forward looking statements, leading the meeting all from private Securities Litigation Reform.

And on five which address the financial condition results of operations business initiatives trends work plans and prospects of the company in 2020 and beyond.

Jim.

And uncertainties that cold.

Okay, that's a materially from such forward looking statements.

Please refer to the company called impressively and have easy filing.

The most recent 10-K for more information on these risks and uncertainties.

The comedy undertakes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise off is able to school.

I'll now turn the conference call on the floor out.

Our president and Chief Executive Officer.

Thank you ladies.

Good afternoon, everyone and thank you all for joining US also on the call with me today, our Julie Whalen, our Chief Financial Officer feel it's Scott Billeadeau or Chief Marketing Officer, and you also onto our Chief Technology Officer.

As you saw in our press release, we delivered an exceptional second quarter net comp growth of 10.5%.

Operating margin expansion to nearly double that of last year at 13.1%.

And record earnings growth of over 100%.

E Commerce again drove our results growing 46% in the quarter and our stores performed better than expected improving throughout the quarter as we reopened.

The time when home is more important than ever we have taken to talk to push our longer term plans.

We will do this in three different ways first we will accelerate digital growth, it's fundamentally shifts the channel mix of our business.

Second we're focusing our marketing strategy I'm confident in building customer relationships.

And third we're stepping up our profitability in our longer term earnings outlook.

Our digital first strategy, our trusted brands, our omni channel approach and our commitment to sustainability, we'll continue to provide a powerful source of differentiation and a competitive advantage for our business.

As always and especially in challenging times, what makes us proud of the company goes well beyond the products we sell.

The last several months, we've witnessed not only the ongoing impact of the global Pantelic, but also heartbreaking reminders of racial injustice in our country.

As we continue to support coated relief efforts in our communities. We're also taking action to help drive positive change and create a more equitable inclusive future for all we're committing to multiyear donations to racial justice organizations and increasing black representation internally and deepening our diversity and inclusion.

First.

These are extraordinary times that require us to continuously evolve and rethink how we best serve all of our stakeholders.

We are rising to the challenge learning adapting and leading with our values in everything we do.

We know thoughtful actions now it will shape. The next phase of our growth we're firmly focused on this opportunity and investing in long term strategies.

Now, let's talk about Q2 in more detail.

While our net comp was at 10.5% demand comp was substantially higher.

Our ecommerce business grew at a net comp over 46% and include purchases made through our omni channel services, such as curbside pickup and ship from store.

We further optimized our digital experience, adding more inspiring contents enhancing the speed and usability of our E commerce sites.

As it relates to our stores.

Traffic was down but conversion was up substantially and our stores outperformed expectations improving material materially from May to July with third quarter to date demand comp improving to negative high single digits.

Another highlight of the quarter, what's a significant expansion in our margins.

In addition to cost savings across the business, we substantially pulled back on promotions and leaned into content led marketing.

Our value equation is driving lasting authentic connections with our customers and also attracting record high new customers.

Our ecommerce performance. This quarter was a powerful example of our brand and digital strategies at work.

The key drivers of our growth were innovative sustainable products and engaging content rich experience and technology improvements.

Our newly designed single page checkout experience improved sites speed extensive product information page improvements and our outward powered design crew room planner enhancements all drove strong results.

Also this quarter, we continue to optimize our digital spend tie returning investments leveraging our in house media capabilities, and a stress test and learn agenda across the portfolio.

Our content rich online experience, coupled with our marketing strategies drove another quarter of very strong customer growth and ecommerce channel as well substantial increase in organic traffic.

Now, let's talk about our brands.

Probably the most impressive what's the Williams Sonoma brand, which delivered a record quarter with a netcomm of 29.4%.

We maximize the shift to cooking at home during the pandemic and executed on a relevant marketing strategy.

Customer growth reached over 15%, we saw an increasing number of new and returning customers turning to us for their cooking at home dining needs.

Our marketing and relevant content strategies were driven by our food first approach highlighting ideas recipes and culinary skills the revolved around eatingwell at home.

To support the vendor community across the country, we added perishable products from local restaurants and increased our assortment of foods to meet the rising demand from our customers.

As we look forward, we are excited about the growing interest in cooking, especially for millennials, which will not only benefit our business in the short term, but as more people learn to cook it will become a lifelong skill that should drive our business over the longer term.

To continue our growth trajectory in the William similar brand, we're focused on innovative exclusive products further improving our digital experience driving more awareness and interest in cooking at home and optimizing our channel mix.

Our part of our brand also had a very successful quarter driving a net top of 8.1%.

Product line continue to improve with exciting new aesthetics and high quality sustainable products at great price points.

Businesses saw particular strikes in the quarter were outdoor furniture work from home solutions and products uptake family living spaces.

Our growth initiatives PV apartment and marketplace also grew ahead of expectations and contributed meaningfully to our comp growth.

The foundation of our Q2 performance with a tremendous results in our E Commerce channel, which reached over 70% of our sales.

We continue to improve our site experience by adding inspiring content that drove strong organic traffic high average order value and units per order.

Our pottery barn children's home furnishings business was also strong in the second quarter with a net comp of 4.8%.

It's clear that customers are responding to our sustainable high quality products, our industry, leading assortment of Greenguard certified organic and Fairtrade products are resonating with customers more than ever, especially in a baby business, which continue to accelerate in Q2 was a key growth category.

One area of softness has been our backpack business as most schools are starting the academic year with distance learning, but we are seeing a surge in our study at home solutions, especially homes study furniture across both pottery barn kids and team as we become the destination for study from home for kids of all ages.

West Elm continued to deliver a very strong that comps year over year at 7% and on a two year basis of 24.5%.

This brand continues that high appeal, particularly in our furniture categories, where we saw substantial growth in indoor and outdoor as well as key successes in home office dining and storage furniture this quarter.

We substantially enhanced our digital experience in previously retail dominant category.

Like upholstery, textiles, and decorative accessories, which also contributed to our growth online.

Also in the quarter, we expanded our steel placed partnership for the launch of a new furniture collections aimed at helping our customers work from home comfortably and productively with products that provide form and function.

Cross brand our business to business Division, we accelerated substantially to double digit growth.

As you know this is a large highly fragmented industry that we are disrupting.

We have invested in a strong sales team and support our infrastructure to turn this opportunity into a $2 billion business.

And the second quarter as states reopened we were there for our customers in offering a furniture resource that was immediate Lee available for hotels restaurants, and corporate public spaces.

We also continued to see significantly higher sales growth from our cross brand loyalty key members compared to non members.

And more customer shopping across our portfolio of brands to furnish their home.

It goes without saying that none of these results to be possible without our people their ongoing resilience and dedication have never been more apparent than during these difficult times.

We are proud to continue to invest in our associates through several initiatives announced this quarter, including increasing the minimum wage for hourly associates and further enhancements to our principal lead policy.

Building on our strong culture, especially in times of real diversity is not only the right thing to do but also creates more loyalty and a better experience for our customers.

Looking forward the second half of the year and beyond we're confident in our growth trajectory.

The strong trends from last quarter, our continuing.

Our product pipeline is one of the best we've ever seen our E. Commerce initiatives are driving accelerating Kate <unk> and our inventory position will continuously improve.

Longer term, we believe the behavioral changes it industry ships that have emerged from the pandemic will persist and continue to favor our business.

Over the past five months, we've seen an acceleration in online sales and with our powerful digital platform and trusted brands, we're maximizing the shift and driving ecommerce sales to new levels.

We expect this trend to continue and are executing to a future where stores will be fewer in number, but even better and experience.

As a result, we're not only more confident in our long term financial outlook, but in our potential to further expand our profitability.

We are investing in the next phase of our growth and the opportunities that position us for accelerated market share gains.

And if we look ahead, we're more optimistic than ever about our future.

Now I'll turn over to Julie who will provide more detail on our second quarter financial results.

Thank you Laura from good afternoon, everyone.

Our second quarter performance demonstrated our ability to deliver strong topline growth at record profitability levels, our topline acceleration combined with strong financial discipline resulted in the highest operating margin we have seen outside of a holiday fourth quarter and earnings per share of more than double last year.

This performance reaffirms the resilience of our digital first model and the enduring appeal of our innovative and sustainable products. It also speaks to the strength of our team and their agility and strong execution. During these challenging times.

Before I discuss our financial results in more detail I wanted to give you an update on our response strategy to the current pandemic as cobot 19 continues to present ongoing challenges safety and adaptability remain our guiding principles for how we are operating during this time.

This is met heightened safety measures in all of our supply chain operations in our reopen stores and across our corporate offices.

From a financial perspective, given the uncertainties on the macro environment going forward, maintaining strong financial health remains a top priority.

As we continue to prepare our business with the various economic scenarios that could unfold. The next six to 12 months, we're maintaining tight expense control over all non essential spend including the elimination of almost all business travel and other discretionary spend.

Advertising investments are limited to those initiatives with the highest returns and our capital expenditures have been prioritized for those initiatives that support our ecommerce growth and further our long term competitive positioning including investments in technology, and our supply chain operations, while reducing our investments in store Remodels and relocations.

These actions on our culture of strong financial discipline have allowed us deliver strong profitability. Despite the incremental operating costs associated with cobot 19.

Our liquidity position remains robust as our strong performance year to date has generated over 216 million and operating cash flow and have contributed to bringing our cash balance to almost 950 million.

And as mentioned on our last call. We further improved our financial flexibility recently by adding a half a billion of liquidity through the extension of our 300 million dollar term loan to January 2022, and the addition of a 200 million dollar 364 day unsecured revolving credit facility.

We believe this level of liquidity puts up in a very strong position to continue supporting our operations, while investing in the long term accelerated growth of our business.

Now turning back to our second quarter performance net revenues in the second quarter grew 8.8% to 1.491 billion was a net comp growth of 10.5% the highest quarterly comp we have seen in the past 10 years, our demand comp, which includes orders placed but not yet filled in the quarter was.

Substantially higher at almost 19%.

This growth was driven by another quarter of incredibly strong E commerce growth, which accelerated to a net comp of 46.4% and reached almost 76% of our total revenues in the quarter.

Brands Williams Sonoma delivered a record net comparable almost 30% driven by triple digit growth and if ecommerce business.

Pottery barn accelerated with highest quarterly net comp in recent years of 8.1% and West Elm grew at a net comp up 7% on top of 17.5% last year.

Our pottery barn children's home furnishings business drove a net top of 4.8% with particular strength in our team business and our emerging brands rejuvenation, and Mark and Graham delivered another quarter of double digit growth.

Moving down the income statement gross margin for the second quarter was 37% compared to 35.4% last year. The 160 basis points of expansion in our gross margin was driven by higher merchandise margins and occupancy leverage higher merchandise margins resulted from reduced promotional activity as we continued with our shift to a comp.

We had led marketing strategy that focuses on the overall value equation of our high quality sustainable products.

Occupancy leverage was driven by higher sales and are almost 6% or $11 million reduction in year over year occupancy costs, which includes the impact of reduced rent and operating cost from fewer stores as well as reductions from Coke 19 related rent abatements.

And this resulted in occupancy leverage of 170 basis points at $166 million for 11.2% of revenues this year as compared to 177 million or 12.9% last year.

The combined impact of these two drivers was partially offset by higher shipping costs shipping costs were up in the quarter. As a result is a substantial ships to ecommerce sales in the quarter as well shipping surcharges from our third party shippers that went into effect in the last month of the quarter.

In addition, we continued to be negatively impacted by incremental China tariffs.

SGN, a leveraged 460 basis points to 23.9% of net revenues compared to 28.5% of revenues last year.

This was primarily driven by significant advertising leverage as we further optimize our digital spend on those initiatives that drove high returns and traffic and conversion.

Employment leverage and other Leverages rockets DNA, primarily from higher top line performance lower variable store payroll and strong financial discipline.

These results led to our record profitability with operating income growth of 108% to 195 million in operating margin expansion of 620 basis points to 13.1% the highest operating margin we have seen outside of holiday fourth quarter.

This resulted in diluted earnings per share of $1.80, which was more than double that of last year 87 cents.

We're very pleased to be able to achieve these levels of profitability, while continuing to pay all our corporate associates and store associates, who are working over 12 hours per week as well as absorbed the incremental cost help keep our associates and customers say during this pandemic, including personal protective equipment frequent cleaning testing and posted bonuses for our supply.

Chain associates.

Going forward, even though our profitability is at record highs given the uncertainty in the economic environment due to the cobot pandemic, we will continue to eliminate all non essential spend to ensure that we can continue to fund the operations of our business and to invest through this crisis and emerge isn't even stronger and more resilient business delivering sustainable long term profit.

The growth.

On the balance sheet as previously mentioned, we ended the quarter with a strong cash balances almost 950 million compared to 120 million last year. This reflects the strength of our cash balance as we enter 2020, the full draw down on our $500 million line of credit with the support of our banking partners back in March as well as the resilience of our business. During this pandemic general.

Any positive operating cash flow over 216 million year to date.

This cash balances allowed us not only fund the operations of the business, but you also invest over 76 million and capital expenditures in support of our future growth and to return over 79 million in the form of continued quarterly dividend payments to our shareholders.

And given the strength of our business in our current liquidity levels. We have made the decision to return our capital expenditures to pre pandemic levels. We are also contemplating reducing the amount outstanding on our $500 million line of credit during the third quarter.

Our decision process will take into account various factors, including at the uncertainty that still remains in the macro environment.

Moving down the balance sheet merchandise inventories were 1.042 billion for a decrease of 12.2% compared to last year. This reflects our efforts to cutting push out our inventory purchases to preserve our liquidity at the beginning of the pandemic and the impact of our subsequent substantial ecommerce outperformance in the past two quarters, we've been working class.

Mostly with our vendor partners majority of whom have returned operating at full capacity and we expect to see continuous improvement in our inventory position.

Turning to our outlook for the second half and our fiscal year guidance. We have made the decision not to provide specific full year guidance at this time, given the uncertainty in the economic environment due to the cobot pandemic.

What we do know now says that our business continues to be very strong in the third quarter quarter to date sales remain robust across all brands and inventory will continuously improved for the balance of year. However, as much as we expect to improve our overall profitability on the year and going forward. The Q2 level of SGN a is not sustainable we have significantly reduced payroll and.

Cost band as our sales expectations were lower than what we actually delivered this quarter in terms of margin. We believe they were going to continue to be able to reduce promotions as well deliver occupancy leverage but shifting will be a major headwind in the back half various surcharges have an announced by third party shippers on all retailers and these higher costs will affect us in Q3.

And more so in Q4 as a result of peak surcharges during the holiday season.

In addition, we also expect to incur incremental costs associated with keeping our people and customer say during the pandemic.

Regardless, we remain confident in our ability to drive higher operating margins on the year compared to last year due to our strong performance to date, including our robust E Commerce performance, which we believe will persist through the balance of the year.

With regard to capital allocation, given our business has not only recovered substantially but excels. During this pandemic, we've increased our capital investments in high returning initiatives that focus on digital to drive our long term growth and as it relates to our dividend we have announced today another quarterly cash dividend of 48 cents per share which speaks to the.

Confidence, we have in our business as well as our commitment to shareholder returns.

Looking further ahead of lower mentioned, we are even more confident in our long term financial outlook the renewed appreciation for the home and at home experiences such as cooking and working from home together with the accelerated shift to online for home furnishings continue to favor our business on all fronts.

We are executing with speed and agility to capture the unprecedented opportunity that lies ahead for our company our strong performance through this crisis reinforces the relevance of our defined let sustainable products and the power of our digital first platform.

With more consolidation expected in our highly fragmented industry. We're confident that we are one of the very few retailers, who are best positioned to outperform and too aggressively take share.

As a result, we now believe that would the acceleration of our profitable ecommerce business, becoming a bigger part of our total growth we can drive operating margin expansion.

In summary, this past quarter with another powerful display of our competitive strengths that continued to extend our leadership in the home industry.

Our innovative sustainable products are multi brand digital first models and our content rich marketing are the reasons why customers are choosing us over the competition.

And this combined with our long term growth roadmap and strong execution.

Gives us confidence in our ability to maintain this growth and increased profitability in the years ahead.

Before I turn the call over for questions I want to thank our associates for their ongoing dedication flexibility and resilience. During these challenging times. They are at the core of our company success and our ability to continue to serve all our stakeholders our customers our associates and our shareholders.

I would now like to open the call for questions. Thank you.

Thank you very much if he'd like to ask a question on today's call. Please press star one on your telephone keypad. If you listened today using a speakerphone. Please pick up your handset pricing the corresponding didn't.

Please limit yourself to only one question.

Well go ahead and keep our first question from Adrian <unk> with Barclays. Please go ahead.

After noon.

Let me say a remarkable quarter I'm really truly remarkable.

Lore I was wondering is actually lower or duly if you can talk about what drove the Lee quartered demand comp.

Yeah, the differential between the 19 in the 10.5, we assume that that sort of you know a tailwind that should be recognized on top of whatever a kind of momentum comp you had in the third quarter and then just really quickly are you seeing trend.

Outside of major Metropolitan suburbs. This notion of de urbanization added sustainable trend how do you think about that going forward. Thank you very much.

Thanks, A.J. this Laura.

So.

We saw we've seen very strong demand.

And as you know when the pandemic began.

We substantially car inventory.

And our partners is so reactive that they were able to do that and so obviously as our demand exceeded.

The inventory levels.

Not only do not fill it in some cases you put it on backwater, but also the demand itself is constrained. So one could say that the demand comp that's actually been even higher had we had the inventory in stock.

So the inventory levels were 0.1 0.2 is mix so our business.

It is growing.

Really across the board, but more rapidly in furniture, and specifically drop ship furniture, we made a big strategic moves to move a lot of our Asian upholstery basically for west Elm into our sort of street operations and so of course that inventory previously was store distribution center and now we're making it.

For orders, there's a natural delay the also just happens because we're shifting into domestic upholstery.

In terms of.

Second question about demographics, we have deals here field, we want to talk about our customers and what was the true across the board.

You got it.

In terms of urban and suburban we haven't seen dramatic shifts, but I think what.

Noteworthy is the shift into especially younger demographic with the millennial.

Population getting into household formation.

We also are seen a nice growth in.

Condo in apartment dwellers.

Where I think you know we've spent a lot of time and energy focused on.

The size and scale of our furniture as well as our opening price points I think that coupled with the fact that we.

Do you offer such a great assortment that is a sustainably build is part of the attraction of what millennials are finding so I think those are two trends that we're starting to see from a dumb demographic perspective.

Great. Thank you very helpful.

Yes.

Well go ahead and take our next question from Peter Benedict with Robert W. Baird. Please go ahead.

Oh, Hey, guys. Thanks, So I guess.

Maybe Julie can you maybe frame that the parents it this quarter.

And as we think about the second half your.

The tariff headwinds should basically be a push I would think but I just wanted to confirm that and.

When you think about that house, the shipping cost headwind in comparison to the size of the tariff and what is.

That shipping headwind just basically replaced what's been the tariff headwind so kind of a minimal cost question. I know you mentioned in your prepared remarks, but can you give us maybe a little bit more.

Detail around those a weekend, we can think about that correctly. Thank you.

Sure so from our China care perspective, as we've said before as we move throughout the year the year over year impact becomes less theres still a year over year impact in the back half, but it's not as big as Q1 in Q2.

And so that will reduces removed throughout the year, but we'll still have obviously, they're trying to tariffs.

As far the shipping to shipping charges, our material I think you've heard from the third party shippers that they are on the Tommy posing surcharges all retailers, so that will be a headwind as we move into the back half, particularly in the fourth quarter when peak surcharges and it'll be sizeable we haven't disclosed the amount obviously its confidential from our country.

Actual perspective, we can't speak about it.

But it is something that we'll have a put pressure on gross margins would of course with you know occupancy leverage at higher merch margins that are expected and ongoing SG nine leverage we're very confident our ability to drive out margin expansion.

Okay, great. Thank you very much.

Okay.

As a reminder, that I. Please limit yourself to one question. We'll go ahead and take our next question from Brian Nagel with Oppenheimer. Please go ahead.

Hi, good afternoon, great quarter congratulations.

Sure well I was to do one question.

Just maybe elaborate further oh just on the other trended business through the quarter ignore you had mentioned your comments about world stores are tracking relative just how we go how big how the business trended through the quarter, both in store and online in particularly as the stores opened there maybe you could elaborate regardless of where we're seen so far into the third.

Core.

Yeah, I mean, it's not there's nothing really there that would be interesting I don't think to even if you saw everything is very consistently strong as it is still now you know of course the stores.

Opened and then now we have I think 22 currently reshot.

So that doesn't help when when I read you you know the comp and I told you earlier, where the comp is right now that include process.

So yes, we have just Rockstar store people, who are driving business not just on the stores were opened but also driving online through design and virtual chaps, which is quite amazing and so you know there. They're just so dedicated were so proud of them and yeah. That's a big part of I think these results is.

Is what they're doing and their training, we kept them all working and they're so valuable to us because they know how to sell furniture. They know our line of furniture and they were able to do it from home. So what wasn't great that so as we close that was you know hard for everyone, but they're making the most of it. So you know the big question becomes I think as we look in the second half.

This is what happens do more source shops and more stores open.

And you know that that would be a benefit I think the stores are really an add to our digital for strategy.

And they certainly bring to life, our products and allow you to make even a better decision. So we're very hopeful that they'll stay open them keep everybody say says we have done with our claimants and no safety protocol constant cleaning. So we're very we're very optimistic about the back half we have a lot of things in our favor.

And you know, we feel very lucky that time, where I know.

It's not the case for everyone and we're very cognizant of that and empathetic about what's going on the world and doing our part to use our strength.

Also you know make a big difference in the communities and with our employees.

To dry it.

You know everything.

Safety, but also mental health and racial justice. So I know, it's a lot of an answer to your one question.

But it's important to us and it's it's a true north right now and it's it's you know our values are driving our business and our business is allowing us to do more for our stakeholders.

That's what just this.

Q2 to <unk> the business due to business strengthened through through the second quarter with strong throughout its strong it's a strong throughout there's no different things that happen.

When you comp different promos you decide not to have copper promo and that has nothing to do with demand is just how it flows but there's there's not a lot of change there.

Okay quick Rotce again, thank you.

Hey.

Well take our next question from Oliver Wintermantel with Evercore ISI. Please go ahead.

Yeah, Thanks, very much Laura you mentioned.

Several times the prepared remarks. Thank you if there's still first strategy and investments in Capex more on the E Commerce side and I T investments what does that mean for your store base is there is there an underlying message did did we might see an accelerated store closures or I just want to see in.

In two years over three years, how would your store base low compared to today.

Yeah sure.

So first of all we have been investing in E. Commerce for many years. So we have a very sophisticated platform. It's not as if we have some big hockey stick to come.

With the tech stack I'm going to let you answer the minute who's with us talk about.

The things we are adding that are driving significant performance, but let me answer your store question, specifically, so we see stores as an addition to our strategy.

That said, we have significant amounts of leases for renewal in the next three years over half come up.

Over half.

So whether we keep them.

Close them renegotiate them.

Or relocate we're sitting in a very strategic play in this time.

And we are investing in our stores, where we operate and we are closing others. So that we can be very focused on running.

Great stores with great experiences in them the mix will continue to shift obviously because the growth.

In DTC is much greater in stores are contracting and this is giving us a lot of occupancy leverage and our landlord partners. We have some very very good ones really see us is a very strong partner they want to keep us and working together with them to stay in those stores and have very high profit less.

Oh, and where that doesn't work for them. We just we go somewhere else to release entirely the market I think this this pandemic has has shown us that we are agile and we can operate regardless.

And those store people are the people, who make that happen whether they have their stores open or they're talking to customers from home and that was something that I think we're all really just we hoped would happen but were square. So impressed continues to be a strength.

Okay. So now I'd like to pass it over to Yasuda talk about our our stance on technology and investment in ecommerce.

Great. Thanks, Laura So I think and connecting into in the stores and then I'll get into the ecommerce like in stores also like units that we have provided continued to provide and invest get goes into the hands up on us, we'll see especially over designers one can it go deep into the community. The design experiences lot I was just mentioned about the design tools in order to a Chad the appointments.

So bad that has given a strong tools into the hands. So for designers and that have made an impact and engaging with the customers and a you know we have also been continuously investing in kind of working stores and do more on the expedient. So whether its buy online pick up in stores ship from store ship to store curbside pickup, especially being for why do you see because it goes.

Tumors during the quarter times and that has worked very well for our customers and follow what associates.

And you know our E commerce as much as much as a huge has been living business has been big growth engine for us continues or because you invest in covered a guy and we took a you know understanding we took a step back and don't end up optimized where do you keep investing in tech and right now we're trending back towards that what people would investment.

Acknowledge you all know what including definitely in doubling down on E. Commerce, and you know that old technology team I would say at this time is I'm. So proud to have on such a go go to mindset and everybody in my technology team agility commitment and you don't bidding to fight against all on so you wouldn't he's quarantines as you know many companies have gone through faster.

Transformation digital transformation, we have been seen many many ex times and we have gone faster in implementing burning things, which might have taken six month on a regular dine Peter my teams have been going in two months, one afmtwenty one very fast to the market do experimented with the customers can learn to signal from the customers what they need a lot more sites and expedia.

In food using our own homegrown experimentation platform using our own homegrown recommendations platform and you know the outboard power, which a lot on every where do you on the leadership talks about is like we're trying to go get connecting outboard much better than ever with our website experiences with the wants to what experiences and ended.

So I can go on and on the supply chain transformation, we're doing and Ark, one important thing to see like the transformation of the past two years of being to focus and dry where decisions based on data analytics and powered by artificial intelligence and came out of visitors search engine with letters outboard expedient. There's an all so I think we are we have.

Going up a very very strong brackish talent got foam technology and the innovation stream, it's going very fast and we believe this is like sort of the I'm sorry, the attitude at the beginning of you're going to birds. So much more venture is gonna be very long lasting beyond corporate and beyond 2021 and further.

Got it thanks very much good luck.

Go ahead and take our next question from Chris Horvers with JP Morgan. Please go ahead.

Thanks, Good evening very nice quarter.

Couple of questions on the margins first the near term do you expect gross margin to be down in the back half, but leverage operating margin overall on the machine a.

And secondly, as you think about the machine a or some of what happened in this quarter whats right. What's the right baseline that we should be you know building off of what we would you consider you know sort of the one cost one time cost bucket just as we think about you know normal seasonality of machine $8.

Hi, Chris This is truly I'll take that so from a gross margin perspective, I think what we were really excited to see was the you know expansion. We saw this quarter that both from the fact that we had higher merchandise margins and occupancy leverage and we have every reason to believe it that's going to continue.

Certainly there will be higher pressure on shipping costs.

But we're knocking off the guiding to where the gross margin is gonna be but we're really thrilled to be able to drive that gross margin expansion, even with this quarter, having some pressure from the shipping costs and certainly asked today you know the leveraging for a while we expect that to continue we've been having some really strong cost control eliminating all you know nonsense.

I will spend and being very thoughtful about that because there's no different scenarios you can model and we got to make sure. We're ready to continue to invest in this business and take market share as we come out of this even more so but I will say Q2 was certainly some of the lowest levels. We've seen so there as we move into the back half with the you know holiday peak holiday season, and things like that we may have.

And a little bit more in advertising and little bit more very comparable store payroll on so I wouldn't necessarily take you know our Q2 levels and model those out but we do expect to have SJ leverage we absolutely expect have operating margin expansion.

Well go ahead and take our next question from Chuck Grom with Gordon Haskett. Please go ahead.

Thanks.

Good afternoon, and just a couple from me on this day again between that kind of demand can you. Just couple of let's think about that came out better perspective, and I guess, how that's going to impact and third quarter results do you expect to recapture on that the man power, but then on the long term Guy can you can you provided some guy person, where do you think operating margins can go to or maybe said differently.

The flow through will look like going forward. Thanks.

Hi, Chuck I'm, so sorry, we're not going to give you the Gulf coast, you're looking for we're not ready that workovers changing is to say that previously we said we are out margin at eight six would would stay there and we drive sales now what we're saying it's going to drive sales.

We're also drive profit.

Under the age six okay. So that's that's all that's all we are willing to say at this point in terms of by banner. That's an interesting question. So of course because of the dynamic I talked about was furniture, the spread is larger where the furniture brands because Williams Sonoma.

Although there is components that are you know to calm and that our furniture. It's a much smaller percent. So the other brands have more higher demand comp versus net than the Sonoma banner.

And then let's see.

Third quarter, you asked me what remind me what you asked me about third quarter.

I guess just.

Looking over the quarter the good okay, but I'm wondering if that's what we're doing just like when do you expect admit where would you expect them to recapture that I mean, how long is that they feel because I assume you actually wherever you know where the net comps I mean.

It's a it's a interesting question if demand continues to exceed our expectations. Then the inventory constraints will just be kicked down the line because.

You will run out faster.

So it's everything the stuff to where we think it's gonna be you'd see recovery in the back half all away into next year about away.

But if we if we beat the numbers again, then you're going to be hearing me say. This next time the numbers are within what what you're seeing on hit now.

There are some you know very variation here in there, but there was in the same range of what the comp is that we just.

Shared with you for Q2, I Hope I hope that's already.

Yeah, I got it picks up.

Well go ahead and take our next question from San Sebastian with Wedbush Securities. Please go ahead.

Thanks, a lot and good afternoon, and great quarter my questions around guests you know clearly overtime, you're playing to reduce your store footprint, which will reduce your artist cost at all so take out store labor as it relates to store labor in the interim would you plan to reduce that even ahead of.

Store closures because of reduced traffic levels.

No impact, but it might be there [laughter] because you know things get more complicated the baiting factor is that we can't that many people in our stores. So even if the demand is there I would tell you have so many people, but you should not model that store labor will leverage any further.

Holiday will cause us to bring more people in.

So the sales or higher.

Got it okay. That's helpful. If I could just follow up if you don't mind as it relates at United speaking about the go forward run rate clearly, we're talking about levels are higher than the second quarter just to rephrase. The question that others have asked we're thinking about a year over year basis would you expect to asked you need to be down year over year in the back half the year.

As you know it down and.

We expect SGN in the back half would be down to last year's US you know.

The backup.

Thank you.

And as a reminder, please limit yourself to one question. We'll go ahead and take our next question from Brad Thomas with Keybanc Capital markets. Please go ahead.

Hi, Thanks for taking my question Congratulations from me as well I won't ask about the dynamic of you know sustainability and pulled forward. We're all asking of many home related companies right now no I've been asked my question is how many bread makers mountain bye.

I'm of the believes that these trends are probably pretty sustainable, but I was hoping it's just more data on maybe how the customer shopping you now and what you're seeing in terms of repeat purchases and ability to a.

Cross pollinate customers across your brand. Thank you.

Yeah, Our cross brand performance has never been better and we've been driving its not a surprise I mean, we were driving it through our key rewards and our cross brand marketing you know it's interesting in the beginning we started we saw the obvious spread maker trend I screamed maker, but now the strength was broad based.

And you can just say that people are very interested in making them more comfortable and we are top of mind with our curated products in our trusted brands.

And we're delivering it you know for them in a way that they can expect to get it and and we stand behind it. So there's a lot, but we have going for US right now it's a very relevant to this time than a competitive advantage.

That will continue to drive our results.

Well go ahead and take our next question from Michael Lasser with Yes. Please go ahead.

Good evening. They go up for taking my question, Laura you probably saw some your competitors or like 80% growth that we fear.

Party Comping up 30% in the home category why do you think in light of those you might have lost share in the quarter and also how much demand comp was realized that was coming out of one Q2, two Q to contribute to the huh.

HM two Q.

Okay, I don't want to come back about these but versus competitors, but I want you to.

Look at our profit levels versus last year, first and foremost and compare to somebody's. Other people you can drive sales you know we could drive them higher frankly, we didn't have to inventory to do that we want to have a great customer experience.

We don't want anymore than we have to have on backwater. We know the items are willing to wait for the don't become excessive but if you put too much on backwater, it's about customer experience. So.

We're we're very focused on taking share I've said before no, it's not an either or with us and wayfair as the disruption in brick and mortar happens and smaller players. There's a couple of people who are gonna when.

And we're one of those people because you know currently 80% husband done at retail.

And that is obviously changed forever now and so they are going to us and they're going to go to those other retailers to and the thing that is really the differentiator with us.

Is that we have curated brands you don't have to source through a ton of products you can trust.

That level of quality the products are sustainable the value equation is fair.

And.

You know those are all very important attributes to a customer and were able to do that because we design on products make around products. So we're giving you a great price point for what we're selling you.

So you know doesn't it doesn't phase me to you know to think about their growth slightly higher we also.

Obviously on terms that demand question when we try to understand what you asked I think you you're asking.

Did we feel we're always going to fill from the other quarter, we have more of a gap than we had [laughter] right. I mean, we have more demand then we can fill now and that affected the Q3 the Q2 net.

Negative okay.

Understood. Good could I have one one quick one on the Williams Sonoma comes it how much of the group came from like consumable products a lot of food that that business, though reverses devices in other items that go into the support of quick example.

All good.

Oh, okay.

Okay.

Thank you very much.

Thank you.

Oh go ahead and take our next question from Anthony Chukumba with <unk> capital markets. Please go ahead.

Hi, Good morning, Let me think Mike graduate them this quarter as well I guess my question is I mean, obviously your ecommerce penetration was Oh. It was at all time high and it sounds like you know that's kind of where the good shifting historically, you've been sort of like 50 50 between you know.

Oh, you know in for revenues.

See you know what what do you what do you envision it sort of a long even just kind of direction. It took a long term.

I'm kind of sustainable mix going forward is more like 60, 40 E. Commerce <unk>, you know ER or maybe 70 30, how do you have you sort of thinking about that thank you.

I think the best way to think about topic do you think colo business could be.

You know I mean, clearly were ahead of our targets with respect to he comes to the extent of our total and that's where the growth is going to come from.

Our results show that you know our digital first platform have a lot of capacity to meet our customers demand on line and it also depends on how many stores, we closed and what our landlord do with our leases in the future, but our physical stores play an important role into team to differentiate our offering to the customer and their experience show and they are.

For our customers the convenience of omni channel services to which we haven't talked about but that is a real benefit and getting the products close to the customer, particularly as you know we see the shifting battlefield.

And so you know it's that we're currently at 70 could you say could it go higher yet, but you know you might see better than expected store results through the back half as well.

Got that's helpful. Thanks, so much.

Sure.

Well go how did you go next question from Cristina Fernandez with actually Advisory Group. Please go ahead.

Oh, Hi, and I'll add my congratulations for the quarter.

I wanted to ask about the holiday season, how are you planning you differently. This year given the cadence of events in store limits and do you think the merchandise that has to work. So far I will continue to drive that demand through the through the holiday season.

Yes. Thank you for the question.

Of course, yes, we always know that I'm getting a running start the holiday with both customers new customers that also products that are selling makes for a better season and also gives us the ability to get the inventory levels right. We can chase. It. So that is all good you know in terms of the competitive posture.

And how we're playing the holiday season, I I hesitate to go through that now because it is so competitive, but we're very optimistic and planning for a variety of different outcomes that could occur as I mentioned earlier in case, we have a second wave a store closures, how we handle that and if we continue to be demand.

In DTC, how we make sure that we get it to our customers on time.

Well go ahead and take our next question from Bobby Griffin with Raymond James. Please go ahead.

Good afternoon.

Congrats on a great quarter, just looking from a from a high level perspective.

Well you can still pandemic has delayed any of the new product innovation or development that the industry typically has or is one thing if it gets caught up kind of in this from this demand and kinda supply chain gets back to normal well, we'd be back on a typical product introductions likewise, because we had been in the past.

We're not delayed and our product introductions.

I don't know Ernie maybe others are but we are not our team since then.

Doing it virtually in approving sample size Newman its been pretty amazing what they've been able to do.

So now we're not we're not behind the Sacco, probably it's interesting point that I haven't thought up or probably gaining speed on other too.

Aren't as agile.

Oh, how did take our next question Fred Marni Shapiro with retail track. Please go ahead.

It's really outstanding.

Can you talk could you give us an update on some of your smaller brands, a little bit on Mark and Graham and rejuvenation and just an update as well on your international businesses I don't recall hearing your update on that.

Yeah sure. Thank you for that question, so really rejuvenation delivered a very strong quarter I'm trying to customer engagement. They had an increase in traffic and historic assumption vast improvement the it'll be is up substantially and as I said customer growth you can imagine with.

Customer spending more time in the home is focused on home projects, we've seen our core categories like lighting, heartburn kitchen, and Bath, all drive strong quarter to date double digit comps.

We remain really focused and bullish on the strategy accelerating our digital growth optimizing on our marketing strategy and accelerating our contract trade strategy, which is a big part of this business.

Mark and Graham also at a very strong quarter. Despite the fact that they're not as focused on home, which is quite interesting and they continue to pivot that merchandising strategies. The areas that are the strongest.

And incremental categories like patent baby are working.

And we're really focused on optimizing the customer site experience there watching the path with the new creative overhaul.

Cleaner personalization experience et cetera.

In terms of global you know it's this is a good one because we didn't see some weakness in Q2 to the franchise orders being down but that quickly change directions and now we're chasing orders and just to reiterate our strategy for global is franchise, it's not company owned.

As it relates to our company owned though you know Australia is doing pretty well UK is under a little pressure and we are well positioned to continue to drive E commerce across our franchises and a company on.

The thing you Didnt ask which you know we didn't mention with B to B, which is quickly becoming very sizeable business for us in one I think people questioned whether would stay healthy during the pandemic and we have we are gaining momentum and confidence in this the business with very large companies.

Who are investing with us and our speed to market.

It is a huge competitive advantage here.

Our team is very aggressive out hunting new deals all the time versus just waiting for them to come in and that's that's a big change frankly, and then also people love that they can shop across brands.

With a single person and how to coordinate delivery for them. So it makes a lot easier for us is going to a bunch of different purveyors.

Well. Thank you for the question mine.

That does conclude today's question and answer session I'd like to turn the call back over to Laura Alber, if any to show my closing remarks.

Well. Thank you all for joining us today. Thanks. Thank you for your thoughtful questions and we look forward to seeing you then talking too soon on it at the next quarter earnings result.

Once again that does conclude today's conference. Thank you. So much for your participation you may now disconnect your phone lines.

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HM.

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Welcome to the Williams Sonoma incorporated second quarter 2020, <unk> earnings Conference call.

This time all participants are in listen only mode. We will conduct a question and answer session. After the presentation.

This call is being recorded.

I would now like turn the call over to at least Wayne Vice President of Investor Relations to discuss non-GAAP financial measures and forward looking statements. Please go ahead.

Thank you.

[laughter] coal.

Adoptions in the press release issued yesterday.

Unless indicated otherwise.

But I wouldn't like to resolve and God based on certain non-GAAP measure.

A reconciliation on the non-GAAP financial measure to the most directly comparable GAAP financial measure.

Explanation why not all GAAP financial measures.

I discussed in exhibit one called out friendly.

That's cool also contain forward looking statement.

During the meeting of the private Securities litigation reform, knocking on spot, which address the financial condition.

Welcome Operation this definition trends.

Plans and prospects for the company in 2020 NBR and.

Not subject to risks and uncertainties that could cause actual results could differ materially from such forward looking statement.

Please refer to the company called impressively and everything class.

The most recent Ken.

For more information on these uncertainties.

The company undertakes no obligation to update or revise any forward looking statement.

Events or circumstances that may arise.

Oh.

I'll now turn the call for coal and there's more Oh.

Oh, President and Chief Executive Officer.

Thank you really.

Good afternoon, everyone and thank you all for joining us.

Also on the call with me today, our Julie Whalen, our Chief Financial Officer, they'll Scott Billeadeau, Our Chief Marketing Officer, and you also Anwar our Chief Technology Officer.

As you saw in our press release, we delivered an exceptional second quarter netcomm growth of 10.5%.

Operating margin expansion to nearly double that of last year at 13.1%.

And record earnings growth of over 100%.

Ecommerce again drove our results growing 46% in the quarter and our stores performed better than expected improving throughout the quarter as we reopened.

The time when home is more important than ever we've taken to talk to push or longer term plans.

We will do this in three different ways first will accelerate digital growth, it's fundamentally shifts the channel mix of our business.

Second, we're focusing our marketing strategy, our content and building customer relationship.

And third we're stepping up our profitability in a longer term earnings outlook.

Our digital first strategy, our trusted brands, our omni channel approach and our commitment to sustainability well continue to provide a powerful source of differentiation and a competitive advantage for our business.

As always and especially in challenging times, what makes as proud as a company goes well beyond the products we sell.

And the last several months, we've witnessed not only the ongoing impact of the global pandemic, but also heartbreaking reminders of racial injustice in our country.

As we continue to support Cobot relief efforts in our communities. We're also taking action to help drive positive change and create a more equitable includes a future for all.

We're committing to multiyear donations to racial justice organizations, and increasing black representation internally and deepening our diversity and inclusion efforts.

These are extraordinary times that require us to continuously evolve and rethink how we best serve all of our stakeholders.

We are rising to the challenge learning adapting and leading with our values and everything we do.

We know thoughtful actions now well shaped the next phase of our growth.

Our firmly focused on this opportunity and investing in long term strategy.

Now, let's talk about Q2 in more detail.

While our netcomm with a 10.5% demand comp was substantially higher.

Our E Commerce business grew at a net comp over 46% and included purchases made through our omni channel services, such as curbside pickup and ship from store.

We further optimized our digital experience, adding more expiring contents enhancing the speed and usability of our ecommerce sites.

As it relates to our stores.

Traffic was down but conversion was up substantially and our stores outperformed expectations improving material materially from made a july with third quarter to date demand comp improving to negative high single digits.

Another highlight of the quarter, what's a significant expansion or margin.

In addition to cost savings across the business, we substantially pulled back on promotions and leaned into content web marketing.

Our value equation is driving lasting authentic connections with our customers and also attracting record high new customers.

Our ecommerce report this quarter with a powerful example of our brand and digital strategies at work.

The key drivers of our growth were innovative sustainable products and engaging content rich experience and technology improvement.

Our newly designed single page checkout experience improved sites speed extensive product information page improvements and our outward powered design crew room planner enhancement all drove strong results.

Also this quarter, we continue to optimize our digital spend high returning investments leveraging our in house and media capabilities and the stress test and learn agenda across the portfolio.

Content rich online experience, coupled with our marketing strategies drove another quarter of very strong customer growth and ecommerce channel as well substantial increase in organic traffic.

Now, let's talk about our brands.

By the most impressive what the Williams, Sonoma brand, which delivered a record quarter with a netcomm up 29.4%.

We maximize the shift to cooking at home during the pandemic executed on a relevant marketing strategy.

Customer growth reached over 15%, we saw an increasing number of new and returning customers turning to up to their cooking at home dining needs.

Our marketing and relevant content strategies were driven by our food first approach highlighting ideas recipes and corners skill that resolved around eatingwell at home.

To support the vendor community across the country, we added perishable products from local restaurants and increased our assortment of foods to meet the rising demand from our customers.

As we look forward, we are excited about the growing interest in cooking, especially for millennials, which will not only benefit our business in the short term, but it's more people learn to cook it will become a lifelong skill that should drive our business over the longer term.

We continue our growth trajectory in the William similar brand. We are focused on innovative exclusive products further improving our digital experience driving more awareness and interest in cooking at home and optimizing our channel mix.

Our part of our brand also had a very successful quarter driving a net comp of 8.1%.

Our product line continue to improve with exciting new with Fedex and high quality sustainable products at great price point.

Businesses saw particular strength in the quarter were outdoor furniture work from home solutions and products update family living spaces.

Our growth initiatives PV apartment and marketplace also grew ahead of expectations and contributed meaningfully to our comp growth.

The foundation of our Q2 performance with a tremendous results in our E Commerce channel, which reached over 70% of our sales.

We continue to improve our site experience by adding inspiring concept that drove strong organic traffic high average order value and units per order.

Our part of our children's home furnishings business was also strong in the second quarter with a netcomm of 4.8%.

It's clear that customers are responding to our sustainable high quality products, our industry, leading assortment of Greenguard certified organic and fair trade products are resonating with customers more than ever, especially unabated business, which continue to accelerate in Q2 of the key growth category.

One area of softness has been our backpack business as most schools are starting the academic year with distance learning.

But we're seeing a surge in our study at home solutions, especially homes study furniture across both pottery barn kids and team as we become the destination for study from home for kids of all ages.

West Elm continued to deliver a very strong that comps year over year at 7% and on a two year basis of 24.5%.

This brand continues to high appeal, particularly in our furniture category, where we saw substantial growth in indoor and outdoor as well as key successes in home office dining and storage furniture this quarter.

We substantially enhanced our digital experience in previously retail dominant category.

Like upholstery, textiles, and decorative accessories, which also contributed to our growth online.

Also in the quarter, we expanded our steel placed partnership for the launch of a new furniture collections aimed at helping our customers work from home comfortably and productively with products that provide form and function.

Cross brand our business to business Division, we accelerated substantially to double digit growth.

As you know this is a large highly fragmented industry that we are disrupting.

We have invested in a strong sales team and support our infrastructure. The turned this opportunity into a $2 billion business.

The second quarter as states reopened we were there for our customers in offering a furniture resource that was immediate Lee available for hotels restaurants, and corporate public spaces.

We also continued to see significantly higher sales growth from our cross brand loyalty key members compared to non members.

And more customers shopping across our portfolio of brands to furnish their home.

It goes without saying that none of these results to be possible without our people their ongoing resilience and dedication have never been more apparent than during these difficult times.

We are proud we continue to invest in our associates through several initiatives announced this quarter, including increasing the minimum wage for hourly associates and further enhancements to our principally policy.

Building on our strong culture, especially in terms of real diversity is not only the right thing to do but also creates more loyalty and a better experience for our customers.

Looking forward the second half of the year and beyond we're confident in our growth trajectory.

The strong trends from last quarter, our continuing.

Product pipeline is one of the best we've ever seen.

E Commerce initiatives are driving accelerating Kate.

And our inventory position will continuously improve.

Longer term, we believe the behavioral changes it industry shifts that have emerged from the pandemic will persist and continue to favor our business.

Over the past five months, we've seen an acceleration in online sales and with our powerful digital platform and trusted brands, we're maximizing the shift and driving ecommerce sales to new levels.

We expect this trend to continue and are executing to a future where stores will be fewer number, but even better and experience.

As a result, we're not only more confident in our long term financial outlook, but in our potential to further expand our profitability.

We are investing in the next phase of our growth and the opportunities that position us for accelerated market share gains.

And as we look ahead, we're more optimistic than ever about our future.

Now ill turn over to Julie will provide more detail on our second quarter financial results.

Thank you Laura good afternoon, everyone.

Our second quarter performance demonstrated our ability to deliver strong topline growth at record profitability levels, our topline acceleration combined with strong financial discipline resulted in the highest operating margin we have seen outside of a holiday fourth quarter and earnings per share of more than double last year.

This performance reaffirms the resilience of our digital first model and the enduring appeal of our innovative and sustainable products also speaks to the strength of our team and their agility and strong execution. During these challenging times.

Before I discuss our financial results in more detail I wanted to give you an update on our response strategy to the current Pandemics as Cobot 19 continues to present ongoing challenges safety and adaptability remain our guiding principles for how we are operating during this time.

This is Matt heightened safety measures in all of our supply chain operations in our we opened stores and across our corporate offices.

From a financial perspective, given the uncertainties on the macro environment going forward, maintaining strong financial health remains a top priority as we continue to prepare our business for the various economic scenarios that could unfold. The next six to 12 month, we're maintaining tight expense control over all non essential spend including the elimination of almost all business.

Travel and other discretionary spend.

Advertising investments are limited to those initiatives with the highest returns and our capital expenditures have been prioritized for those initiatives that support our E commerce growth and further our long term competitive positioning including investments in technology, and our supply chain operations, while reducing our investments in store Remodels and relocations.

These actions on our culture of strong financial disciplines have allowed us deliver strong profitability. Despite the incremental operating costs associated with cobot 19.

Our liquidity position remains robust as our strong performance year to date has generated over 260 million in operating cash flow and have contributed to bringing our cash balance to almost 950 million.

And as mentioned on our last call. We further improved our financial flexibility recently by adding a half a billion dollars liquidity through the extension of our 300 million dollar term loan to January 2022, and the addition of a 200 million dollar 364 day unsecured revolving credit facility. We believe this level of liquidity puts up in a very strong.

Position to continue supporting our operations, while investing in the long term accelerate growth of our business.

Now turning back to our second quarter performance net revenues in the second quarter grew 8.8% to 1.491 billion was a net comp growth of 10.5% the highest quarterly comp we have seen in the past 10 years, our demand comp, which includes orders placed but not yet filled in the quarter.

Was substantially higher at almost 19%.

This growth was driven by another quarter of incredibly strong E commerce growth, which accelerated to a net comp of 46.4% and reached almost 76% of our total revenues in the quarter.

By brands Williams, Sonoma delivered a record net comp of almost 30% driven by triple digit and if ecommerce business.

Rebar and accelerated to its highest quarterly net comp in recent years of 8.1% and West Elm grew at a net top up 7% on top of 17.5% last year.

Our pottery barn children's home furnishings business drove a net top of 4.8% with particular strength in our team business and our emerging brands rejuvenation, and Mark and Graham delivered another quarter of double digit growth.

Moving down the income statement gross margin for the second quarter was 37% compared to 35.4% last year. The 160 basis points of expansion in our gross margin was driven by higher merchandise margins and occupancy leverage higher merchandise margins resulted from reduced promotional activity as we continued with our shift.

Content led marketing strategy that focuses on the overall value equation of our high quality sustainable products.

Occupancy leverage was driven by higher sales and are almost 6% or $11 million reduction in year over year occupancy costs, which includes the impact of reduced rent and operating cost for fewer stores as well as reductions from Coke 19 related rental payments.

And this resulted in occupancy leverage of 170 basis points at $166 million or 11.2% of revenues this year as compared to 177 million or 12.9% last year.

The combined impact of these two drivers was partially offset by higher shipping costs shipping costs were on the quarter. As a result is a substantial ships to E commerce sales in the quarter as well shipping surcharges from our third party shippers that went into effect in the last month for the quarter.

In addition, we continued to be negatively impacted by incremental China tariffs.

SGN, a leveraged 460 basis points to 23.9% of net revenues compared to 28.5% of revenues last year.

This was primarily driven by significant advertising leverage as we further optimize our digital spend on those initiatives that drove high returns and traffic and conversion employment leverage and other leverages rockets DNA, primarily from higher topline performance lower Veritiv store payroll and strong financial discipline.

These results led to our record profitability operating income growth of 108% to 195 million in operating margin expansion of 620 basis points to 13.1% the highest operating margin we have seen outside of holiday fourth quarter.

This resulted in diluted earnings per share of $1.80, which was more than double that of last year 87 cents.

We're very pleased to be able to achieve these levels of profitability, while continuing to pay all our corporate associates and store associates, who are working over 12 hours per week as well as absorb the incremental cost to help keep our associates and customers save during this pandemic, including personal protective equipment frequent cleaning testing and posted bonuses for our supply.

Chain associates.

Going forward, even though our profitability is at record highs given the uncertainty and economic environment due to the cobot pandemic, we will continue to eliminate all non essential spend to ensure that we can continue to fund the operations of our business and to invest through this prices and emerge as an even stronger and more resilient business delivering sustainable long term profit.

Will grow.

On the balance sheet as previously mentioned, we ended the quarter with a strong cash balance almost 950 million compared to 120 million last year.

Reflects the strength of our cash balance as we enter 2020, the full draw down on our $500 million line of credit with the support of our banking partners back in March as well as the resilience of our business. During this pandemic generating positive operating cash flow over $216 million year to date.

Just cash balances allowed us to not only from the operations of the business, but to also invest over $76 million capital expenditures in support of our future growth and return over $79 million in the form of continued quarterly dividend payments to our shareholders.

And given the strength of our business in our current liquidity levels. We have made the decision to return our capital expenditures to pre pandemic levels. We're also contemplating reducing the amount outstanding on our $500 million line of credit during the third quarter.

Our decision process will take into account various factors, including the uncertainty that still remains in the macro environment.

Moving down the balance sheet merchandise inventories were 1.042 billion for a decrease of 12.2% compared to last year. This reflects our efforts to cutting push out our inventory purchases to preserve our liquidity at the beginning of the pandemic and the impact of our subsequent substantial E commerce outperformance in the past two quarters, we've been working.

Mostly with our vendor partners majority of whom have returned operating at full capacity and we expect to see continuous improvement in our inventory position.

Turning to our outlook for the second half and our fiscal year guidance. We have made the decision not provide specific full year guidance at this time, given the uncertainty in the economic environment due to the cobot pandemic.

What we do know now is that our business continues to be very strong in the third quarter quarter to date sales remained robust across all brands and inventory will continuously improved for the balance of year. However, as much as we expect to improve our overall profitability on the year in going forward. The Q2 level of SGN a is not sustainable we have significantly reduced payroll and.

Cost spend as our sales expectations were lower than what we actually delivered this quarter.

In terms of margin, we believe they were going to continue to be able to reduce promotions as well deliver occupancy leverage but shifting will be a major headwind in the back half various surcharges have an announced by third party shippers on all retailers and these higher costs will effect in Q3 and more so in Q4 as a result of peak surcharges during the holiday season.

In addition, we also expect to incur incremental costs associated with keeping our people and customer sales during the pandemic.

Regardless, we remain confident in our ability to drive higher operating margins on the year compared to last year due to our strong performance to date, including our robust E Commerce performance, which we believe will persist through the balance of the year.

With regard to capital allocation, given our business has not only recovered substantially but excel. During this pandemic, we've increased our capital investments in high returning initiatives that focused on digital to drive our long term growth and as it relates to our dividends, we have announced today another quarterly cash dividend of 48 cents per share which speaks to the confidence.

We have in our business as well as our commitment to shareholder returns.

Looking further ahead of more mentioned, we are even more confident in our long term financial outlook the renewed appreciation for the home and at home experiences such as cooking and working from home together with the accelerated shift to online for home furnishings continue to favor our business on all fronts.

We are executing with speed and agility to capture the unprecedented opportunity that lies ahead for our company our strong performance through this crisis reinforces the relevance of our defined that sustainable products and the power of our digital first platform.

With more consolidation expected in our highly fragmented industry. We're confident that we are one of the very few retailers, who are best positioned to outperform and too aggressively take share.

As a result, we now believe that with the acceleration of our profitable ecommerce business, becoming a bigger part of our total growth we can drive operating margin expansion.

In summary, this past quarter with another powerful display of our competitive strengths that continue to extend our leadership in the home industry.

Our innovative sustainable products are multi brand digital first model and our content rich marketing are the results by customers are choosing us over the competition.

And this combined with our long term growth roadmap and strong execution.

Gives us confidence in our ability to maintain this growth and increased profitability in the years ahead.

Before I turn the call over for questions I want to thank our associates for their ongoing dedication flexibility and resilience. During these challenging times. They are at the core of our company success and our ability to continue to serve all our stakeholders our customers our associates and our shareholders.

I would now like to open the call for questions. Thank you.

Thank you very much if he'd like to ask a question on today's call. Please press star one on your telephone keypad. If you listen to aging is speakerphone. Please pick up your handset pricing the corresponding digits.

Limit yourself to only one question.

We'll go ahead and keep our first question is from Adrian.

Please go ahead.

Afternoon.

Let me say a remarkable quarter really truly remarkable.

Laura I was wondering is actually lower or Julie if you can talk about what drove the late quarter demand comp.

The differentials between 19 in the 10.5 should we assume that that sort of.

A tailwind that should be recognized on top of whatever.

Kind of momentum comp you had in the third quarter and then just really quickly are you seeing trends outside of major metropolitan suburbs. This notion of de urbanization.

As a sustainable trend how do you think about that going forward. Thank you very much.

Thanks digits Laura.

So.

We saw we've seen very strong demand.

And as you know when the pandemic began.

We substantially cut our inventory.

And our partners is so reactive that they were able to do that and so obviously as demand exceeded.

The inventory levels.

Not only do not fill it in some cases you put on backward, but also the demand itself is constrained. So one could say the demand comp has actually been even higher.

Had we had the inventory in stock.

So the inventory levels were 0.1 0.2 is mix so our business.

Is growing.

Really across the board, but more rapidly in furniture, and specifically drop ship furniture, we made a big strategic move to move a lot of our Asian upholstery basically for west Elm into our sort of street operations and so of course that inventory previously with store distribution center.

And now we're making it to orders there is a natural delay. The also just happens because we're shifting into domestic upholstery.

In terms of.

Your second question about demographics, we have deals here.

We want to talk about our customers and what we're secure across the board.

Got it.

In terms of urban suburban we haven't seen dramatic shifts but I.

What.

Noteworthy is the shift into especially younger demographic.

With the millennial.

Population getting into household formations.

We also are seeing a nice growth in on.

Condo in apartment dwellers.

Where I think you know we've spent a lot of time and energy focused on.

The size and scale of our furniture as well as our opening price points I think that coupled with the fact that we.

You offer such a great assortment that is sustainably built.

It is part of the attraction.

Our deals are finding so I think those are two trends that we're starting to see from a devon demographic perspective.

Great. Thank you very helpful.

Okay.

We'll go ahead and take our next question from Peter Benedict with Robert W. Baird. Please go ahead.

Hey, guys. Thanks, So I guess.

Maybe Julie can you maybe frame that would parrots hit this quarter.

And as we think about the second half year.

The tariffs headwinds should basically be a push I would think but I just wanted to confirm that and.

When you think about that how's the shipping cost headwind in comparison to the size of the tariff.

That shipping headwind just basically replace what's been the tariff headwind so kind of a minimal cost question. I know you mentioned in your prepared remarks, but can you give us maybe a little bit more detail around those weekend, we can think about that correctly. Thank you.

Sure So China care perspective, as we've said before as we move throughout the year the year over year impact become less theres still a year over year impact in the back half, but not as big as Q1 in Q2.

And so that will reduce as we move throughout the year, but we'll still have obviously the chance here.

As far as the shipping to shipping charges, our material I think you've heard from the third party shippers that they are on time and posing surcharges all retailers. So that will be a headwind as we move into the back half, particularly in the fourth quarter with peak surcharges.

Will be sizeable we havent disclosed the amount obviously its confidential from our contractual perspective, we can't speak about it.

But it is something that we'll have put pressure on gross margins would of course with.

Occupancy leverage at higher merch margins that are expected and ongoing SG nine leverage we're very confident our ability to drive op margin expansion.

Okay, great. Thank you very much.

As a reminder, that please limit yourself to one question. We'll go ahead and take our next question from Brian Nagel with Oppenheimer. Please go ahead.

Good afternoon, great quarter congratulations.

Sure.

Mr to one question.

Just maybe to elaborate further I just want to have trended business through the quarter ignore you had mentioned.

It's about.

Stores are tracking from what you're just how how that how the business trended through the quarter.

In store in online in particularly as the stores opened that maybe you could leverage regardless of what we're seeing so for into the third quarter.

Yes, I mean, it's not there's nothing really there that would be interesting I don't think to you. Even if you saw everything is very.

Certainly strong as it is still now.

Of course the stores.

Open and then now we have I think 22 currently we shop.

So that doesn't help when I review the comp and I told you earlier, where the confidence right now that includes.

So we have we have just Rockstar store people, who are driving business not just on the stores were opened but also driving online.

Through design and virtual chats, which is quite amazing.

And so they're they're just so dedicated were so proud of them Anda.

A big part of I think these results is is what they're doing and their training kept them all working and.

So valuable to us because they know how to sell furniture. They know our line of furniture and they were able to do it from home so.

It wasn't great. So as we close those hard for everyone, but they're making the most of it. So the big question becomes I think as we look in the second half is what happens to more stores shots to more stores open.

And you know that that would be a benefit I think the stores are really and add to our digital for strategy and they certainly bring to life products that allow you to make even a better decisions. So we're very hopeful that they'll stay open them. We'll keep everybody say says we have done with our claim is center.

Safety protocol constant cleaning.

So we're very we're very optimistic about the back half we had a lot of things in our favor and.

We feel very lucky that time, where I know.

It's not the case for everyone and we're very cognizant of that and empathetic about what's going on the world and doing our part to use our strength.

It's also.

Make a big difference in the communities and with our employees.

To drive.

Evan.

Both safety, but also mental health and racial justice. So I know, it's a lot of an answer to your one question.

But it's important to us and it's it's Truenorth right now and it's.

Our values are driving our business and our business is allowing us to do more pro stakeholders.

That's a distribution.

Q2.

The business.

Through the second quarter was strong throughout the strong strong throughout there's different things that happen.

When you comp different promo decide not to copper promo and that has nothing to do with demand is just how it flows but.

There's not a lot of change there.

Congrats again, thank you.

Thanks.

Well take our next question from Oliver Wintermantel.

Evercore ISI please.

Yes, thanks, very much Laura you mentioned.

Several times the prepared remarks like your digital first strategy and investments in Capex more on the ecommerce side and IP investments what does that mean for your store base is there is there an underlying message that we might see as accelerated store closures or.

Just want to see in two years three years, how would your store base low compared to today.

Yes sure.

So first of all we have been investing in E. Commerce for many years. So we have a very sophisticated platform. It's not as if we have some big hockey stick to come.

With the tech stack I'm going to let you answer in a minute who's with us talk about.

The things we are adding that are driving significant.

Performance, but let me answer your store question.

Specifically, so we see stores as an addition to our strategy.

That said we have.

Get amounts of leases for renewal in the next three years over half come up.

Over half.

So whether we keep them.

Closed renegotiate them.

Or relocate we're sitting in a very strategic players in this time.

And we are investing in our stores, where we operate and we are closing others. So that we can be very focused on running great stores with great experiences in them.

The mix will continue to shift.

Obviously, because the growth.

In DTC is much greater in stores the contracting.

And this is giving us a lot of occupancy leverage and our landlord partners. We have some very very good worms.

Really see US is a very strong partner they want to keep us and working together with them to stay in those stores and have very high profit levels, and where that doesn't work for them, which as we go somewhere else to release entirely the market I think this this pandemic has.

As shown us that we are agile.

And we can operate regardless.

No store people are the people who make this happen whether they have their stores open or they're talking to customers from home and that was something that I think we're all really just we hoped would happen but were square. So impressed continues to be a strength.

Okay. So now I'd like to pass it over to you also talk about our.

Stance on technology and investment in E Commerce.

Great. Thanks, Laura So I think correcting it when the stores and I'll get into the call. My second stores also I'd like you said, we have provided continued to provide an investor.

Dulles into the hands up on us, we'll see especially of our designers or connector deep into the community design Expedias lot I was just mentioned about the design tools in order to a chat.

Ointments all of that that has given.

Strong tools into the hands off our designers and that have made an impact and engaging with the customers and we have also been continuously investing in converting stores in do more omni expedient weathers buy online pickup in stores ship from store ship to store slight pickup, especially be providing safe because the customers during the quarter times and then.

He has worked very well for our customers and for our associates.

And our E commerce as much as much as a huge has been doing business has been.

The growth engine for Us continues.

Investing over.

And we.

You know understanding we took a step back and.

Optimized way to keep investing in tech and right now we're trending back or is that what people would investment in technology, all the work, including definitely in doubling down on E. Commerce, and you know that or technology team I would say at this time, if I'm so proud to have as such.

So to mindset and everybody my technology team agility commitment and you're not willing to fight against all odds. So during these forward times as you know many companies have gone through faster transformation digital transformation, we have been seeing many many ex times and we have gone faster in implementing burning thanks, which might have taken six more than a regular bank.

My teams have been going in two months wanted to half months, we've been very fast.

The market to experiment with the customers and learn the signal from the customers more than even our sites and experiences using our own homegrown experimentation platform using our own home loan recommendations platform and all the outboard power, which a lot on every and where do you on the leadership talks about as like we're trying to compete connecting outboard much.

Better than ever.

Our website experiences with almost one experiences and design. So I can go on and on the supply chain transformation, we're doing and large and one important thing to see like the transformation of the past two years of being to focus and drive our decision was based on data analytics and powered by artificial intelligence and.

But that are search engine with enters outboard expedient. There's an all so I think we are we have developed a very very strong package talent platform technology and the innovation stream, it's going very fast and we believe this is like sort of the I'm, sorry, and it's at the beginning of you're going to birds. So much more of it just going to be very long lasting beyond quoted.

Beyond 2021 and further.

Got it thanks very much good luck.

Go ahead and take our next question from Chris Horvers with JP Morgan. Please go ahead.

Thanks, Good evening very nice quarter.

Couple of questions on the margins first of the near term do you expect gross margin to be down in the back half, but leverage operating margin overall on the M&A.

And secondly, as you think about the Shannay.

Some of what happened in this quarter whats right, what's the right baseline that we should be building off of what we would you consider sort of the one cost one time cost bucket just as we think about normal seasonality a best DNA dollars.

Hi, Chris This is really I'll take that so from a gross margin perspective, I think what we were really excited to see was the expansion. We saw this quarter that both from the fact that we had higher merchandise margins and occupancy leverage and we have ever reasonably that that's going to continue.

Certainly there'll be higher pressure on shipping costs.

We're not obviously guiding to where the gross margin is going to be but we're really thrilled to be able to drive that gross margin expansion, even with this quarter, having some pressure from the shipping costs and certainly.

Hi, good leveraging for a while we expect that to continue we've been having some really strong cost control.

Limiting all non essential span and being very thoughtful about that because there is no different scenarios you can model and we got to make sure. We're ready to continue to invest in this business and take market share as we come out of this even more so.

But I will say Q2 was certainly some of the lowest levels we've seen.

So there as we move into the back half with the holiday peak holiday season, and things like that you may have spent a little bit more and advertising and little bit more variable variable store payroll. So I wouldn't necessarily take our Q2 levels and model those out, but we do expect to have SJ leverage and we absolutely expect have operating margin expansion.

Well go ahead antique our next question from Chuck Grom Gordon Haskett. Please go ahead.

Thanks, guys. Good afternoon, and just a couple from me on this so again between that time, but demand can you can you just couple of quick about that demo better perspective, and I guess, how thats going to impact on third quarter results do you expect to recapture on that the manpower and then on the long term guide can you can you provided some got grossly where do you think operating margins can go to.

Or maybe separately, what you think that flow through will look like going forward. Thanks.

Hi, Chuck So sorry, we're not going to give you. The guide post you're looking for we're not ready that workovers changing its to say that previously we said we are op margin at eight six with would stay there and we drive sales now what we're saying it's going to drive sales.

We're also drive profit.

So the eightsix. Okay. So that's that's all that's all we are willing to say at this point in terms of.

By banner, that's interesting questions. So.

Of course, because of the dynamic I talked about was furniture, the spread is larger where the furniture brands because Williams Sonoma. Although there is components that are you know to come and that our furniture. It's a much smaller percent. So the other brands have more higher demand comp first.

Net than the Sonoma banner.

And then let's see.

Third quarter, you asked me, what remind me, what you're asking about third quarter.

I guess just.

I'd like to be able to quarterly.

But I'm going to want to ask just like when do you expect that when would you expect to recapture that I mean, how long is I think there because I mean, yes, the weather where the net comes I mean.

It's interesting question if demand continues to exceed our expectations then the inventory constraints will just be kicked down the line because.

You will run out faster so there's everything the stuff to where we think it's going to be you'd see recovery in the back half all the way into next year by the way.

But if we if we beat the numbers again, then you're going to be hearing me say that's next time.

The number there within what what you're seeing us hit now.

There are some very variation here in there, but there was in the same range of what the confidence that we just.

Tom.

Shared with you for acute.

I hope I hope that's separate.

Hi, guys. Thanks.

We'll go ahead and take our next question from sense fashion.

I wish Securities. Please go ahead.

Thanks, a lot and good afternoon and great quarter.

My questions around guest DNA clearly over time, you're playing to reduce your store footprint, which will reduce your cost at all so take out store labor.

As it relates to store labor in the interim or do you plan to reduce that even ahead of a store closures because of reduced traffic levels.

No impact.

I see the opposite because.

You know things get more complicated the fading factor is that we can't that many people in our stores. So even if the demand is there we still have so many people, but you should not model that store labor will leverage.

Any further.

Holiday will cause us to bring more people in.

So the sales or higher.

Got it okay. That's helpful. If I could just follow up if you don't mind as it relates to at United speaking about the go forward run rate clearly, we're talking about levels that are higher than the second quarter just to rephrase. The question that others have that we're thinking about a year over year basis would you expect to actually need to be down year over year in the back half of the year.

As you in a down and.

We expect SGN in the back half to be down to last year's Us unit.

The backup.

Thank you.

And as a reminder, please limit yourself to one question. We'll go ahead and take our next question from Brad Thomas with Keybanc Capital markets. Please go ahead.

Hi, Thanks for taking my question Congratulations from me as well I won't ask about the dynamic of sustainability and pull forward. We're all asking of many home are labeled companies right now.

I've been asked by investors, how many bread maker we continue.

By I'm of the believes that these trends are probably pretty sustainable, but I was hoping you could share some more data on maybe how the customer shopping you now and what you're seeing in terms of repeat purchases and ability to.

Cross pollinate customers across the brands. Thank you.

Yeah, Our cross brand.

Performance has never been better and we've been driving it it's not a surprise I mean, we were driving it through our key rewards and our cross brand marketing.

You know it's interesting that beginning we started we saw the obvious spread maker trend I screamed maker, but now the strength was broad based and you can just say that people are very interested in making the home more comfortable and we are top of mind with our curated products in our trusted brands.

And we're delivering it for them in a way that they can expect.

To get it and we stand behind it so there's a lot, but we have going for US right now it's very relevant to this time than a competitive advantage that we'll continue to drive our results.

Well go ahead and take our next question from Michael Lasser with EMEA. Please go ahead.

Good evening, Thanks for taking my questions Laura probably saw some your competitors report like 80% growth is there.

Comping up 30% in the home category why do you think in light of those you might have lost share in the quarter and also how much demand comp was realized that was coming out of one Q2, two Q to contribute to the hub.

To Q.

Okay.

Ill come back to that these but versus competitors, but I want you to.

Look at our profit levels versus last year, first and foremost and compared to some of these other people you can drive sales you know we could drive them higher frankly, we didnt have the inventory to do that we want to have a great customer experience.

We don't want any more than we have to have on backwater. We know the items, they're willing to wait for that don't become excessive but if you put too much on backwater, it's about customer experience. So.

We're we're very focused on taking share.

I've said before no, it's not an either or with us in wayfair as the disruption in brick and mortar happens and smaller players.

There's a couple of people who are going to win.

We're one of those people because currently 80% has been done at retail.

And that is obviously changed forever now and so they are going to us and they're going to go to those other retailers to and the thing that is really the differentiator with us.

Is that we have curated brands you don't have to source through a ton of products you can trust.

The level of quality the products are sustainable.

Value equation is fair and.

Those are all very important attributes to a customer and were able to do that because we design on products maker on products that we're giving you a great price point for what we're selling it.

So does that doesn't phase me to.

To think about their growth slightly higher we also.

Obviously on terms that demand questions. Let me try to understand what you asked I think you you're asking.

Did we Phil we're always going to fill some other quarter, we have more of a gap than we have.

Right I mean, we have more demand than we can fill now and that affected the Q3 Q2 net.

Negative okay.

Understood.

Good good I wasn't one quick one on the Williams Sonoma County.

Almost to the group team roam like consumable products is a lot of food that that business. So.

Versus a devices and in other items that go into the support a quick example.

All good.

Okay.

Okay.

Thank you very much.

Thank you.

Well go ahead and take our next question from Anthony Chukumba with loop capital markets. Please go ahead.

Good morning, let me thanks, Mike congratulate them this quarter as well I.

I guess my question is I mean, obviously your ecommerce penetration was.

Was that all time high.

And it sounds like that's where the good shifting it historically you've been sort of like 50 50 between you know.

ER for revenues.

See what do you what did you in business sort of a long even just kind of direction come a long term.

I'm kind of sustainable mix going forward is more like 60 40 E commerce.

Yeah.

Or maybe 70 30, how do you have you sort of thinking about that thank you.

I think the best way to think about public you think total business could be.

You know I mean, clearly we're ahead of our targets with respect to E commerce as percent of our total and that's where the growth is going to come from.

Our results show that our digital first platform has a lot of capacity to meet our customers demand on line and it also depends on how many stores the clothes and what our landlord.

Do with leases in the future, but our physical stores play an important role and continue to differentiate our offering to the customer and their experience Joel and may offer customers. The convenience of omni channel services to which we havent talked about but that is a real benefit.

And getting the products close to the customer, particularly as we see the shipping battlefield and so you know it.

We're currently Usseventy could you say could go higher yet, but you know you might see better than expected store results through the back half as well.

That's helpful. Thank you so much.

Sure.

Well go ahead and take our next question from Cristina Fernandez with Tesla and management Group. Please go ahead.

Hi, and I'll add my congratulations for the quarter I want to that's about the holiday season, how are you planning it differently. This year given the cadence of events in store limits and do you think the merchandise that has worked so far I will continue to drive that demand through the through the holiday season.

Okay.

Yes. Thank you for the question.

Of course, yes, we always know that getting a running start into holiday with both customers new customers, but also products that are selling makes for a better season and also gives us the ability to get the inventory levels right. We can chase it so.

That is all good.

[music].

In terms of the competitive posture and how we're playing the holiday season, I I hesitate to go through that now because it is so competitive, but we're very optimistic and planning for a variety of different outcomes that could occur as I mentioned earlier in case, we have a second wave of store closures, how we handle that.

And if we continue to be demand in DTC, how we make sure that we get it to our customers on time.

Well go ahead and take our next question from Bobby Griffin with Raymond James. Please go ahead.

Yes.

Let me add my congrats on a great quarter, just real quickly from from a high level perspective, well do the pandemic has delayed any of the new product innovation or development that the industry typically has or is once famously gets caught up kind of in this from this demand and kind of supply chain gets back to normal we'd be back on a typical prada.

Introduction cycle as we had been in the past.

We are not delayed.

Got a construction.

I don't know Ernie maybe other side, but we are not our teams have been.

Doing it virtually in approving sample size zoom and.

It's been pretty amazing, what they've been able to do.

So now we're not we're not behind the fact for probably it's interesting point that I haven't thought of were probably gaining speed on other too.

On his agile.

Our next question from Marni Shapiro with retail track. Please go ahead.

It's really outstanding.

Can you talk could you give us an update on some of your smaller brands, a little bit on Mark and Graham and rejuvenation and just an update as well on your international businesses I don't recall hearing an update on that.

Yes sure. Thank you for that question. So we rejuvenation delivered a very strong quarter strong customer engagement based upon an increase in traffic.

And historic assumption vast improvement the ASV is up.

Substantially and as I said customer growth you can imagine with customer spending what time in the home focused on home projects, we've seen our core categories like lighting, heartburn kitchen, and Bath, all drive strong quarter to date double digit comps.

And we saw the furniture that was impacted more greatly because of store closures a rebound later in the quarter.

And we remain really focused and bullish on the strategy accelerating our digital growth optimizing on our marketing strategy and accelerating our contract trade strategy, which is a big part of this business.

Mark and Graham also had a very strong quarter. Despite the fact that they're not as focused on home, which is quite interesting and they continue to pivot that merchandising strategy to areas that are the strongest and incremental categories like patent baby are working.

And we're really focused on optimizing the customer site experience there rocking the path with a new creative overhaul.

Cleaner personalization experience et cetera.

In terms of global.

This is a good won because we did see some weakness in Q2 to the franchise orders being down but that quickly change directions and now we are chasing orders and just to reiterate our strategy for global is franchise, it's not company owned.

As it relates to our company owned though Australia is doing pretty well UK is under a little pressure and we are well positioned to continue to drive E commerce across our franchises and our company on.

The thing you Didnt ask which.

We did mention with B to B.

Which is quickly becoming a very sizeable business for us in one I think people questioned whether would stay healthy during the pandemic and we have we are gaining momentum.

And confidence in this business with very large companies, who are investing with us and our speed to market.

Is a huge competitive advantage here.

Our team is very aggressive out hunting new deals all the time versus just waiting for them to come in and that's a big change frankly.

And then also people love that they can shop across brands.

With a single person and how those coordinate delivery for them. So it makes a lot easier versus going to a bunch of different purveyors.

Well. Thank you for the question mine.

That does conclude today's question and answer session I'd like to turn the call back over to Laura Alber, if any additional my closing remarks.

Well. Thank you all for joining us today. Thanks. Thank you for your thoughtful questions and.

We look forward to seeing you then talking too soon.

The next quarter earnings results.

Once again that does conclude today's conference. Thank you. So much for your participation you may now disconnect your phone lines.