Q1 2021 Williams-Sonoma Inc Earnings Call
[music].
Please standby as we are about to begin.
Welcome to the Williams Sonoma incorporated first.
At this time all participants are in a listen only mode.
We will conduct a question and answer session. After the presentation.
Is being recorded I would now like to turn the call over to at least Wang Vice President of Investor Relations to discuss non-GAAP financial measures and forward looking statements. Please go ahead.
Thank you.
This call should be considered in conjunction with the press release that we issued earlier today are.
Unless indicated otherwise our discussion today will relate to results and guidance based on certain non-GAAP measures.
A reconciliation of the non-GAAP financial measures for the most directly comparable GAAP financial measures and our explanation of why the non-GAAP financial measures may be useful are discussed in exhibit 1 of our press release.
This call also contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which address the financial condition results of operations business initiatives trends growth plans and prospects for the company in 2021 and beyond.
Subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements.
Please refer to the company's current press release, and SEC filings, including the most recent 10-K for more information on these risks and uncertainties.
The company undertakes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
I will now turn the conference call over to bore out that our president and Chief Executive Officer.
Yes.
Good afternoon, everyone and thank you all for joining us.
We are proud to report another record quarter of accelerating revenue and profitability with over 40% comp growth and a 950 basis point expansion in our operating margin.
These results were driven by strength across all of our brands, we are seeing strength in our core businesses and our new growth initiatives have outperformed.
As reopening as accelerate across the country a record number of customers continue to shop with us as they invest in their homes.
We are honored to be our customers' destination for their entertaining at home furnishings needs as they welcome friends and family back.
As a result, we are raising our full year guidance for mid to high single digit revenue growth to low double digit to mid teen revenue growth and year over year operating margin expansion.
We believe our business is uniquely positioned to gain market share given our growth strategies and our 3 key differentiators, which are 1 our in house design to our digital first channel strategy and 3 our values.
These differentiators are more relevant than ever with our customers and are setting us further apart from our competition.
Starting with our in house design capability, we know that ultimately everything starts and ends with product our in house designers combined with our vendor partners create proprietary products that are high quality sustainable and aesthetically unique the.
The strength of our value proposition has given us the opportunity to pull back on promotions.
We see this as a sustainable change in our model and a game changer for the longer term strength of our margin.
In addition, our world class design capabilities are driving new product launches across our brands.
In Q1, we saw strong indicators of growth and these new initiatives for example in pottery barn, our rustic modern casual point of view in furniture home furnishings, and decorating are driving double digit growth in all categories.
Both in our Bath renovation business accelerated to nearly 50% in the quarter and our marketplace business gained momentum growing over 70% in the quarter and reaching over 6% of our total pottery barn brand sales.
And part of our kids and teen we continue to amplify our leadership in the children's home furnishings market with our emphasis on design and sustainability.
We are proud that 100% of our children's furniture is greenguard gold certified and our in house designed furniture collections are distinctive in the market.
Furniture continues to be a key growth driver for the brand.
We also saw outsized growth in key initiatives, such as baby, which grew over 30% on our aesthetic expansion into modern which comp nearly 70% over last year.
And West Elm. In addition to broad based strength, our aggressive expansion in the outdoor category has been successful and incremental.
This quarter, our outdoor furniture business grew at a comp of nearly 140% driven by line extensions in our top performing collections and new product introductions.
We've expanded our year round assortment and plan to introduce several new collections over the next year that will nearly double our outdoor business.
Another exciting growth initiative is the expansion of our west Elm kids business, including the launch of a dedicated E Commerce site.
And the Williams Sonoma brand cooking at home and now entertaining at home are driving our customers' purchases.
This quarter, we saw significant growth in all areas of entertaining, particularly outdoors and Easter gatherings.
As for momentum built with people coming back together and celebrating we are well positioned to meet their cooking and entertaining needs as we head into the back half of the year.
Additionally, in our Williams Sonoma home business, we delivered a 40% comp for the quarter.
Our decision to reposition the brand as a furniture destination is paying off and customers responding very favorably to our high end sustainable casual aesthetic.
Our outdoor collections for example are delivering over 200% growth.
We continue to believe that Williams Sonoma home is 1 of our biggest growth opportunities at the high end luxury furniture market remains significantly underserved, especially online.
Our cross brand growth initiatives b to be delivered another record breaking quarter.
Up nearly 165 per cent or $100 million of revenues and is on track to reach over half a billion by year end.
The momentum in our contract business accelerated throughout the quarter as the business has started to reopen and our win rate on large projects continue to improve.
1 example of a high profile project is for the Austin Football club over.
Over the past 16 months, we have been furnishing the club state of the Art Q2 stadium that set to host its first international game next month.
We're also thrilled that we continue to see repeat business from some of our key customers like sales force and we have a growing number of new projects currently underway.
Now I'd like to discuss our digital first positioning as a key differentiator.
E Commerce is and will continue to power our growth demonstrated by our sustained step ups and top and Bottomline results.
We have built our e-commerce platform over decades of investment, including our supply chain custom built to ship directly to customers industry, leading in house digital marketing capabilities.
Digital first house file and a sophisticated tech stack.
This quarter, our in house Tech platform and rapid experimentation program continued to deliver strong results.
We introduced new features and improvements across the digital experience and site navigation and personalization Pip experiences and in our proprietary product recommendations platform.
All of which drove double digit growth in engagement and a significant lift in revenue per visitor.
More of our customers are also utilizing our <unk> design tool. The design crew room planner with total plans created in Q1 up nearly 50% compared to last year as.
As a reminder, customers who utilize this tool continue to generate twice as many sales as the average customer.
We also have the advantage of being digital first but not digital only.
Our stores helped drive our online growth and our key competitive advantage they give our customers the ability to experience our products in person.
To access our convenient omni services and to take advantage of our free in store or in home design services.
This operating model allowed us to generate strong e-commerce growth maintaining over 65% of our revenue mix, while delivering some of the highest retail growth we have seen on both a 1 year and a 2 year basis.
As a reminder, on our channel performance, we're up against store shutdowns for March 18th through the end of June last year and limited retail traffic due to COVID-19 restrictions through the balance of the year.
We are thrilled to see both our retail and DTC channel outperforming expectations.
Our results this quarter also demonstrate the effectiveness of our digital marketing investments.
We continue to focus on high ROI advertising vehicles, we manage our advertising spend in house and have developed a robust test and learn agenda across our portfolio of brands, allowing us to find efficiencies and to reinvest.
And the margin upside we have seen from less promotions also enables us to invest more in incremental high ROI marketing initiatives that drive the topline.
We've also identified a large growth opportunity in cross brand migration.
We've seen a significant change in behavior since we launched the key our free loyalty program that allows customers to earn points across our brands and to use their rewards any 1 of our brands.
New customers are increasing their cross brand spend at record levels and we have just begun to tap into this opportunity.
This year, we will be implementing new cross brand programs messaging and events that will further accelerate this cross brand shopping behavior.
We believe this is 1 of our key incremental growth opportunities and we will.
Look forward to sharing more with you as we have some very exciting launches coming this fall.
We are also proud to have made progress in the area of values.
As our third key differentiator.
Last month, we became 1 of the first in our industry to commit to a science based target for emissions reduction by 2030 <unk>.
Including the goal of carbon neutrality across our own operations by 2025.
We underwent an extensive year long data gathering process using third party experts and independent research alongside our company data to measure our carbon footprint and to arrive at this carbon reduction targets.
We are also proud to be gaining traction on our goal to plant 3 million trees in 3 years with 1 million trees already planted since the campaigns inception at the beginning of 2021.
In addition, we recently included the top 100 companies of Forbes best employers for diversity, which honors our progress in creating a diverse and inclusive workplace for our associates.
We also continue to build on our relationship for the Black equity action for partners. The <unk> ACP, the Jackie Robinson Foundation, and the National Urban League.
And we have just established our new partnership with Asian Americans advancing Justice Asian Law caucus.
Kate motivated attacks against the agent community are simply unacceptable, we stand with the Asian community and our Asian Associates, and we will continue to use our collective power to fight against hate racism.
Racism and in equity in all forms.
Yeah.
I would now like to discuss our outlook for the balance of the year and provide some insight into what we're currently seeing in our business.
Quarter to date, our business remains strong we are seeing topline growth and strong margin continue.
This is particularly important because we are now comping a substantial spike in home category demand last year as a result of the pandemic lockdown.
And this trend further confirms our confidence in our growth outlook and a more normalized environment.
From a supply chain perspective, although backward has remained high we are working to restore our in stock levels.
We continue to do all that we can to expedite inventory flow and we are proactively extending our product lead times were unnecessary and reaching out to customers with timely updates as we work through these delays.
The situation, however remains difficult, especially with a heartbreaking COVID-19 crisis in India, which of course is impacting production.
Our current estimate is that we should be back in stock during the third quarter.
As it relates to cost increases that continue to pressure the industry are you shipping costs and raw material increases.
We are confident that we can achieve our profitability goals due to our strong product margin expansion and occupancy leverage.
From a macro perspective, we believe trends will continue in our favor.
High consumer confidence spending shift to e-commerce, the continuation of remote hybrid work and a robust housing market provides a strong backdrop to our strategies.
Also as kids return to school, we've seen a significant recovery in our gear and dorm businesses and expect this will continue and be material as we move into the fall.
In addition, the outsized growth across all of our entertaining related categories, such as outdoor dining and tabletop gives us confidence that the entertaining trend will further accelerate as we move throughout the year and as people welcome friends and family back into their homes, especially for the holidays.
<unk>.
We also see a big opportunity in gift, giving this year as people gather and reconnect to give gifts in person this holiday.
As far as other parts of our business. Our <unk> sales are accelerating week after week as our project pipeline continues to expand with the reopening of businesses across the country.
And our global operations are also gaining momentum with the reopening of our company owned stores and strong franchise business across the world.
As we look ahead, we are confident in our runway for growth and profitability. The goals. We have set are driving incremental growth faster than anticipated our brand differentiators continue to accelerate and favorable macro trends should continue to benefit our business for the long term.
We are the only home furnishings retailer, that's able to serve customers at scale online and provide the experience and convenience of physical retail with exclusive sustainable products.
US the unique advantage to gain share for many years to come.
Before I pass the call to Julie I want to thank our associates for their ongoing hard work and dedication.
Their resilience and innovation are key part of our success and our ability to continue to deliver profitable market share gains for the long term.
Thank you Laura and good afternoon, everyone. We.
We are pleased to report another outstanding quarter of financial results revenue gross margin expansion and earnings per share all accelerated and exceeded expectations demonstrating the power of our 3 key differentiators in the great execution by our team.
The strength, we saw across all of our brands reinforces that the consumer has a continued appreciation for the home, resulting in a shift in consumer spending to our category, which should continue to benefit our business for years to come.
Let's now review, our first quarter results in more detail.
Our net revenues reached approximately 175 billion with comparable brand revenue growth accelerating to 44%.
We saw strong sequential acceleration across all brands, starting with west Elm at a comp of 59% pottery barn at a 41, 3% Williams Sonoma at 35, 3% and pottery barn kids and teen are 27, 6%, our emerging brands rejuvenation, and Mark and Graham combined delivered comp.
Growth of over 35% and our global business grew over 81% to approximately $100 million.
Moving down the income statement gross margin expanded a record 850 basis points to 43% driven by substantially higher selling margins and occupancy leverage selling margins expanded for another consecutive quarter up over 440 basis points year over year, and 310 basis points from the fourth.
<unk> driven by higher merchandise margins and ship cost leverage which reflects a higher mix of retail channel versus last year.
Higher merchandize margins were driven by a significant pullback in promotions and our continued focus on marketing our proprietary design sustainability and value in lieu of site wide promotions allowed us to deliver another quarter of strong merchandise margins.
Occupancy leverage of approximately 410 basis points in the quarter resulted from higher sales and another quarter of relatively flat year over year occupancy dollars at approximately $176 million as compared to $175 million last year.
Our ongoing efforts to optimize our retail fleet by either renegotiating rents are closing less profitable stores has enabled us to minimize our occupancy dollar growth and to deliver this occupancy leverage as a reminder, we closed a total of net 33 stores last year and expect to close 25% of our total retail fleet.
And the next 5 years.
SG&A in the first quarter was 27, 1% of net revenues compared to 28, 1% last year, leveraging 100 basis points year over year.
This was primarily driven by leverage in employment and other general expenses, resulting from higher sales and overall cost discipline.
We offset by higher advertising as compared to our significantly reduced AD spend last year.
As you may recall as part of our initial financial response to Covid, we substantially reduced our spend across the business, particularly in advertising at this time last year.
Since then we have an incrementally investing back into advertising to drive our profitable top line growth and we expect this to continue as we move throughout the year.
Given the strength of our business, including our record profitability levels. We are pleased that we are able to incrementally invest in high ROI advertising to drive topline growth and market share gains, while still delivering another quarter of SG&A leverage and substantial operating margin expansion.
Operating income grew over 250% to $278 million and resulted in operating margin expansion of 950 basis points to 15, 9% a record high first quarter operating margin.
This resulted in dilutive earnings per share of $2.93, or nearly 4 times higher than that of last year at 74.
On the balance sheet, we ended the quarter with almost $640 million in cash and over $238 million in operating cash flow a significant increase over last year.
This strong liquidity position allowed us to fund the operations of the business, including $42 million in capital expenditures and to provide accelerated shareholder returns of over $361 million consisting of increased quarterly dividends of over $45 million and a substantial increase in share repurchases of over 300.
$15 million.
These accelerated returns combined with a full paydown of our $300 million term loan during the quarter along with the recent expiration of our 360 for day $200 million line of credit facility.
<unk> our confidence in the long term strength of our business and our commitment to maximizing returns for our shareholders.
Moving down the balance sheet merchandise inventories were $1 billion and $88 million for an increase of 1.6% over last year.
While our inventory levels have sequentially improved they continued to be impacted by our stronger than expected demand across all brands as well as supply chain disruptions such as the West coast Port congestion and Suez Canal blockage earlier in the quarter the container shortage out of Asia, and the Covid related delays coming out of India.
As a result of these challenges we expect back order levels to remain elevated until at least for third quarter of this year.
We are also experiencing delays in our upholstered furniture production from the recent foam shortage, which is currently causing our upholstered furniture quote times to be longer than usual.
Now, let me turn to our expectations for the rest of the year.
As Laura mentioned, we are raising our 2021 outlook for mid to high single digit revenue growth.
Low double digit to mid teen revenue growth along with year over year non-GAAP operating margin expansion.
We are confident in our ability to deliver this higher revenue outlook given the strength of our business year to date, the strong housing environment and peoples deeper appreciation for the home.
Accelerating momentum in our growth initiatives b to B marketplace, and our global operations and a planned sequential improvement in our inventory, enabling us to fill our significant back orders as we move throughout the year.
Now I would like to talk about profitability.
Although there are ongoing cost pressures from freight and raw materials as Laura mentioned, we believe our operating margin expansion will be driven by overall sales leverage continued occupancy leverage from the renegotiation of our lease agreements and store closures continued expansion in our merchandise margins due to our differentiated positioning with design led value engine.
Geared and sustainable products as well as from overall strong financial discipline.
As far as our capital allocation in 2021, we are maintaining our balanced approach of first investing in the business and then returning excess cash to shareholders.
We are on track to invest approximately 200 million to $250 million in the business. This year.
Spend prioritized on technology and supply chain initiatives that primarily support our e-commerce growth.
We also plan to return excess cash to our shareholders in the form of quarterly dividend payouts and increased levels of share repurchases compared to last year.
Our total share repurchase of over $350 million in the first quarter reflects our continued belief that our stock is undervalued given our growth and profitability outlook. As a result, we believe investing more in our own stock will also drive long term financial returns.
Longer term, we remain well on track to reach $10 billion in net revenues and maintain at least 15% operating margins in the next 5 years.
In summary, our results in the first quarter and the progress we have made across our key growth initiatives reinforce our ability to drive long term sustainable growth and increased profitability.
We believe we are in the best position to take market share, especially in an environment, where consumers are investing more in their homes.
Shifting increasingly online and are prioritizing design value and sustainability and their purchases more than ever before.
All of this gives us the confidence to deliver on our long term outlook and to drive strong financial returns for our shareholders for years to come.
I would now like to open the call for questions. Thank you.
Thank you.
If you would like to ask a question. Please signal by pressing star 1 on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal retail equipment. We ask that you. Please limit yourself to 1 question.
Again for Star 1 to ask a question.
Okay.
Yeah.
And we will go first to Oliver winter Middle of Evercore ISI.
Yes. Good afternoon. Thank you.
Laura.
You said the strength continued into the second quarter and revenues and margin as well.
Slapping despite from last year.
This does that.
If you could give a little bit more details on that and then secondly.
The raised guidance.
Thank you provided today, if I look at the really strong output.
Outperformance in the first quarter versus expectations.
Probably get you there without touching the rest of the year. So just anything that you learned during the first quarter that applies to the second path for the.
The last 3 months of the year. Thank you.
Sure. Thanks Oliver.
In terms of.
The quarter today.
It's early in the quarter, but we are seeing strengthen.
The stores are amazing traffic is still under where it was in 19.
And that just shows you how much more room. There is as traffic really comes back is thing that people feel even more comfortable shopping in our stores and E. Commerce continues to be a strong driver and we are.
Running a really regular price business that said, we are running we will run markdowns, where we have seasonal issues, but there.
There is substantial upside with the margin throughout the back half of the year as I said earlier and it's a it's an important change for us. It allows us to do a lot of other things that create that virtuous cycle, where you can invest in other things that drive top line like the AD costs, which is very effective.
So in terms of the guidance Julie do you want to talk a little bit about that yeah, I would say Oliver I wouldn't read too much into that we are very confident in.
And where we are today, both obviously because of our Q1 performance, which was phenomenal, but also where we are quarter to date.
And if you look at it on the high end basically we are guiding to a mid teen level on top of the 17 last year with operating margin expansion on top of last year's outperform that was about 560 over the year before so we feel very confident in the future of our business. Both on this year and to reaching our 5 year $10 billion targets.
Read anything into that at all it's just we're early in the year I mean thats. The reality, we gave the previous outlook 2 months ago.
And now we've completed 1 quarter and we've got 3 big quarters to go and so obviously as we move through the year, we will update you accordingly, but we feel very confident in our business.
Got it thanks very much good luck.
And we'll go next to Adrian day of Barclays.
Yes.
Good afternoon, another great quarter. So congratulations.
Laura I. My question is on something that you had just said.
Earlier in the Q&A session that was about AD spend and when we look at last year. The AD spend as a percentage of the much higher sales, obviously fell 2.5%, but it's historically been at 7% as you move more and more to a pure play E. Commerce model. How do you look at that line items, and where do you think the right number should be thanks.
Sure.
It's an interesting question.
And 1 that I think you need to remain flexible on as we see different things happen in our business. We have here looks here for us if you want to make some comments about our AD cost approach.
Absolutely.
Thank you for the question no we continue to invest in advertising, where we see the ROI and as Laura mentioned, we've taken all of our online media buying in house, we manage across brand.
Learning agenda across our 7.
<unk>, which allows us to test and learn on 1 brand and wallet to the other.
Our legacy performance marketing dating back to our catalog day is gives us that competitive advantage. When it comes to just identifying top ROI tactics. So to answer your question. Yes, we continue to see investment in online. It's paying back we are still dedicated to the op margin goals for the company.
But we are passionate about investing where we see the ROI.
And then Julie 1 quick 1 for you so with the total store closures of 25% over the horizon.
And I mean that sort of implies that you will be closing decently for wall positive store. So how do you think about that and you know.
Yes, I guess the question is is that is that the case or are you. Okay closing for wall stores that other people might look at it actually want that 4 wall contribution, but because the E. Commerce is so much more accretive if it's the right move thank you for that.
Adrian it's Laura.
I'd love to take that 1.
You're right.
We are we're closing less profitable stores, but I think under anybody else's.
Framework day with they would like the 4 wall the differences.
We would like to have the store is rival our e-commerce and profitability and we think that as well.
We also know that there are some malls that.
We don't want to be in anymore, they're just not they're not good for the brand.
We also have some markets, where there are too many stores, we never over stored but theres still room for consolidation and room to have bigger greater stores versus so many because we are a destination and people will drive to us.
In some cases, we're moving from 1 place for the next we just opened a few great Williams Sonoma stores in pottery barn stores, and some new centers lifestyle centers and I'm thrilled with the results. So youre going to see us do great things for the retail and prune the bottom and take the total profitability of the company up.
Thank you very much great luck to you.
Thank you.
And we'll go next to Matt <unk> of Cowen and company.
Great. Thanks, a lot and congrats on a very strong quarter. So first can you maybe discuss the framework for what EBIT margin could look like this year maybe.
Maybe the lower end to the higher end of what's achievable in really the most up her E factors that could get you there and then separately longer term as we think about your $10 billion revenue.
Outlook, how do you think that could shake out in the core versus some of the newer businesses and ultimately when we sit in 'twenty 5.
You know what what would it take for the core to be at the lower or the higher end of what is feasible. Thanks a lot.
So from an EBIT perspective, I think the most important thing is that we are very bullish on our ability to drive profitability and we have not seen this level of merchandise margin expansion to this degree for awhile now, though we have been driving it from 2018 because of our change in our operating model and a perspective as to how to pull back on promotions and Thats a fundamental shift that we've made.
Good.
It's at this level, it's been incredible and then you combine that with our occupancy leverage and of course, the SG&A leverage that we've been able to drive.
It gives us a lot of confidence in a very profitable operating margin like we delivered last year. I mean, I think everyone was surprised by a $14.2 which was 560 over the prior year and then they were surprised that we said we'd.
Expand on top of that this year and we are committed to doing that and to driving at least 15% in 5 years and I think it could be higher but for right. Now obviously, we've got puts and takes like everybody who else is out there we've got raw material increases and we've got.
If rate increases and things like that but we are best positioned to be able to offset that and drive very strong profitability that we're committed to doing for the foreseeable future.
On the revenue side, we are very confident as well about our $10 billion in 5 years that come obviously, the core is a big base and so that's a big driver of that growth, but really our growth initiatives. I think you can't underestimate I mean, 1 of my favorite that I always speak to is our b to B I mean, it is on fire and we have committed to well over.
For 500 million for this year and I think it's going to go even higher much quicker than we thought and so I think our growth initiatives, whether its <unk>, whether its marketplace, whether it's our global operations all of that our smaller businesses Williams Sonoma home is a huge opportunity for a luxury market. That's clearly underpenetrated and we really have just gotten started on a lot of these and so.
That's what gives us the confidence and excitement to drive to that $10 billion number.
Great. Thanks, a lot very helpful.
And we will go to our next question for Cristina Fernandez of Telsey Advisory group.
Yeah.
Hi, Good afternoon, and also my congratulations on the quarter.
I have a follow up on the on the operating margin you just well, let's look at this quarter much higher gross margin, but also higher.
Expenses are these levels sort of sustainable for the rest of the year should we think about gross margin in that 40 plus percent.
Per cent and SG&A.
And then also statistic wanted to ask about the merchandise margin, it's been increasing for the past couple of quarters.
Yes.
The peak level or you think it can go higher even still from here.
Yeah, I mean again, if first of all as I said a minute ago. I mean, we're very confident in our ability to drive operating margin expansion and to be a profitable company from that perspective, we're very confident in our ability to continue to drive merch margin expansion, where that will actually play out on each quarter, and whether it's above or 40 or not we're not going to be providing that kind of level of disclose.
At this time, but we have no reason to believe that that's going to just continue.
So I think you can't model out obviously, we had 950 basis points of expansion at 850 in gross margin I wouldn't model that out by quarter for the rest of the year, but I do believe that we've got a lot of strength left to come because of our fundamental shift in our pull back on promotions and the reason we can do that.
Because of our Differentiators is the fact that we design our product in house, and we engineer our product for value and sustainability, while still being of high quality and so because of that we are able to then lead with content led marketing and get the product that people want to them at a very good price and so we don't see that changing anytime soon.
Unique in that perspective, because others are and I think that would do that.
And so I think thats, what gives us the confidence that we'll be able to maintain the strong margins going forward.
And we will move to our next question from Steven Forbes with Guggenheim Securities.
Good afternoon.
Greg on a great quarter as well.
What I wanted to try to focus on the cross banner, where cross brand right migration strategy. The best we can right. It sounds like we've got some exciting stuff coming up here in the future.
Curious if you can update us on just the number of cross brand customers and how Thats evolved right from the last data point that we've got which I think is probably 2 years ago or so.
And then just any color right on their behaviors relative to the average they're spending trend the frequency trends.
And really just any color on what gets you so excited about the.
The potential to continue to lean into that that strategy.
Great I'm going to let you in.
Jeff.
Yes. Thank you for the question Yeah. We are crazy excited about the cross brand opportunity we think it.
It's 1 of our biggest opportunities in the company and I know.
We get compared to the peer playing question about spending spending spending, but it's not just about customer acquisition. It's also about.
For the share of wallet, you have with each customer pricing. So we believe that our sales per customer obtain increased dramatically.
When we start to migrate customers from 1 brand to another and the key is really the foundation of that we've seen.
Record number of customers migrate across our brands I think what's particularly exciting is that our new customers are migrating or participating at 1 or 2 more 2 or more brands.
Current levels since we launched the key and now almost 80% of our customers are enrolled in the queue.
So that bodes incredibly well for our future state. It also bodes well for lifetime value.
Proposition when we look at customer retention and customer profitability, we will increase the number I don't want to give away our total playbook, but youre going to be seeing a lot more cross brand awareness throughout our customer shopping journey from the homepage to in store from shopping by category. So looking for <unk>.
<unk> ideas.
We think it's the key to owning share of wallet for existing customers and we're very focused on that.
You have some announcements coming up of fall were thrilled about but at the end of the day the excitement drives from the Kpis, we are seeing from customers who have migrated across our brands.
And maybe just a quick follow up I can't on that because I think Laura you mentioned before right.
Question about stores and consolidation in regions.
Well look out.
Patients.
Part of that I'm going to come in the form of larger stores that merchandize across the banners or I think you mentioned larger stores and 1 of the questions in any sort of thought on just the evolution of the footprint the potential evolution of the footprint in terms of true.
True migration right or consolidation of the banners within 1.1 store.
There's a wide range of sizes that we currently run in our fleet and it's not that I'm going to open stores that are larger than our largest store now is that we're not going to have we have a bunch of smaller stores that are that are pretty dated that we would trade up to be more of our standard for each brand is a standard that we we.
Feel free to optimize them, we don't have plans to change that at this point.
I'll just mention also while we're talking about this.
The flexibility and resilience of our operating model.
And how important the channel are to each other we are seeing really outsized growth also in our omni services, particularly focus in both this we're seeing a 2 year comp of almost 90% just showing the importance and the relevancy of these stores for the online business.
And I'll, just remind everyone to please limit yourself to 1 question.
We will go next to Curtis Nagle with Bank of America.
Great. Thanks, very much for taking the question.
Sure.
Not to belabor a point here, but just.
Hey, Joe.
It was a promotional cadence.
For what's going on in the industry.
I totally get what you're saying in terms of what Youre doing with your marketing and about average with volume discounting obviously the garage sales.
Well I guess, what do you think happens what you know at some point, whether that's next year.
This year called who knows when things settle down a little bit more.
Backlogs query and you know do you know.
We're in a period right now where you just don't need to promote right for all sorts of obvious reasons.
Thank you.
You may have to step back a little bit or just you know.
How should we think about that.
Kind of outside of what's your kind of non plus.
Operating environment.
<unk> sales.
Across the across the board.
Yes sure.
I think the way to think about it it's really about our 3 key differentiators in our growth drivers and we have really incremental and real growth drivers that we're showing you right now that we're only in the first couple of innings of.
So those things are going to continue to help us drive growth at regular price.
And the key part of our pricing strategy, which is important is that we want a gift for the customer great value.
But we continue to bring in new products opening price points and product that can't be rivaled by anybody for the quality and design that we are relentless in our pursuit of gorgeous sustainable design.
And that's what we're going to continue to do that is our focus.
And it's 1 where customers understand that if they want something from us are not going to buy it elsewhere and if we give them a fair price.
And now over price our products and we give them great quality, they will come to us over and over and that's why we see very high average order size, we see customers coming back at greater rates than other brands out there as we compare our numbers.
And I don't see any reason why this should.
Abate, especially given what I know, we have in the pipeline for growth initiatives.
Okay. Thank you very much appreciate it.
Thank you.
Yeah.
We'll go next to Seth Basham Wedbush Securities.
Thanks, and congratulations on Great results. My first question just thinking about the sales outlook for this year by brand based on your growth initiatives, which brands do you expect to outperform and caring for comparable store sales growth for the balance of the year.
Okay.
Julie how would you like to have.
I mean first of all kinds of comparable store sales growth that we havent been giving that.
Number truly out, but if youre, saying comps in general I mean quite honestly, we're seeing broad based strength. So I mean, we're not going to be disclosing by brand, where we think the comps will be but we haven't seen anything of that.
In our business, obviously look at the results in Q1 were phenomenally strong and we're seeing strong results or events per second quarter. So.
Whether it's for kids, returning to school, and you've got gear, and backpacks and dorm rooms to fill.
And across our kids business, whether its Williams, Sonoma business, and you're entertaining outdoors with food and cooking or whether it's you know all of our other brands for their home furnishings offerings for outdoors for entertaining and and as we move through the back half for the year and we have gift, giving me. They all have something incredible to offer for the <unk>.
Or is that comps so I really think it's going to be broad based and they are quite competitive with each other so.
It'll be interesting to see they have their plans and they have great all of them incremental growth strategies as well as you know.
Our core growth strategies, but I think we have a strong year across the board.
Got it and when you think about the cadence for the go through the year, obviously, you're facing tough comparisons as the year goes on but you're expecting growth in each quarter in terms of revenue.
Yes.
Alright wonderful. Thank you good luck.
Thank you.
And we'll go to Simeon Gutman of Morgan Stanley.
Hi, everyone hope you're good.
Stick with margin for a second first have you have you talked about the assumptions related to promotion of this merchandise margin environment for the back half of the year.
And Laura I think you'd probably did cover it.
And in your script for a game changer for margins and I think a lot of the answers you provided probably apply for this question, but how do you balance.
The structural improvement.
The perception improvements around the brand versus.
Promotional cycle that.
Most likely to come back at some point.
I mean, we haven't highlighted per se with the back half merch margins or gross margins will be except to say that we continue to believe that we can drive merch margin expansion and occupancy leverage and so we have we're very confident in our ability to drive gross margin expansion. Obviously, you can't model exactly what we've done this quarter.
Or make those sort of assumptions as we move throughout the year because to your point, we certainly will have a more pressure as he moves for the year and of course for half raw material costs and freight costs are going up like everybody else, but we are best positioned to be able to handle those.
Given our scale and given our unique offering and still be able to deliver merch margin expansion of gross margin expansion. So that's sort of what we called out on that front.
Is there anything you can provide on the marketplace in terms of margin structure of how to think about it.
On the gross margin line technically they are lower than our regular retail price, but they also offer breadth and new customer counts and the ability to give the customer what they want and ultimately without volume their operating margin accretive. So you want us to deliver those every day of the week.
Yeah.
Alright, well thank you all.
Just add to what Julie just said.
To make sure it's clear that we really are applying our same standards for sustainability and design and quality to our marketplace product and.
We are we are offering a pretty edited assortment compared to other people oftentimes exclusive.
Only offered with us and.
That's an important factor in what we're doing a lot of the categories. We brought in our categories that we don't offer.
For example ceiling fans, we never had them before marketplace for us to be in that business, which is really important for the home and a lot of a lot of areas and allows us to go in there and be in that business and do it in a capital light way.
And we'll go to our next question from Chuck Grom of Gordon Haskett.
Hey, thanks.
Good quarter here on occupancy dollars truly 106 million down about $5 million sequentially. Just wondering how we should be modeling that line item in the coming quarters and that we can be a little bit lumpy, but do you think this is a good run rate or do you think.
Great continue to drop and then follow up question unrelated would be.
It would be I think it was 400 million last year, you said earlier $500 million a share I know the long term of $1 billion.
It doesn't make sense to backfill that opportunity now invest more in it to grow.
Seems like it's coming in a lot stronger than what the economy reopening it seems like it could be.
Pretty myself ahead.
So on the occupancy dollars I wouldn't necessarily make that assumption going forward certainly because we shots on net 33 stores, mostly towards the end of last year, we're getting the benefit for.
From that from that rents that's come out of the equation, but we also have our distribution centers that are layering in as we mentioned, we're adding 2 million square feet to support our significant e-commerce growth and so that goes in there and it's also the timing and the size of the capital expenditures that hits depreciation and that's what makes it lumpy. So I don't think you can just take this current quarter's run rate and assume that.
Throughout the back of the year, but certainly we will still be driving occupancy leverage given our high sales and our ability to mute that cost because of the lower rents from the stores and so we are committed to doing that throughout the rest of the year.
On the BTB fronts, we I think it was closer to 309, a little lower than that.
But yes, very strong business very bullish on it and we think we've got a huge opportunity up to $80 billion business.
And we are.
Coming in at $500 million of share so to speak.
So and the trajectory that we've seen in the week after week acceleration in that business has been phenomenal and we're really just getting started we have been building the infrastructure from a people perspective from a system perspective from a supply chain perspective, and it's really gaining momentum and so trust me that we are investing everything we need to in that business to drive it because we do believe it's a cigna.
Difficult growth opportunity for us.
As a reminder, please limit yourself to 1 question.
We will hear next from Christmas <unk> of Jpmorgan.
Thanks, Good evening.
My first I have 2 questions. So can you talk about the sequential improvement in gross margin relative to the fourth quarter, how much of that was perhaps the.
For the shipping volume surcharges fading, how much of that was.
Perhaps taking some some price increases on existing inventory as raw material costs have accelerated and some of the shipping cost for accelerated accelerated and then.
Just to clarify on the guidance raise you talked about strength quarter to date being part of the driver. So is the topline raised just really the fourth to the first quarter beat or is it also.
Your expectations around the second quarter. Thank you.
Sure so as far as relative to the fourth quarter. The outperformance on the gross margin line was relatively broad based it was.
Merch margin expansion was significant.
And we did see shipping costs leverage.
And that is both because youre coming out of the peak rates, but more so because we also had a pretty sizable shift to retail and the strength of retail even on a 2 year basis was phenomenal and so when you have that and Theres more pass sales so to speak there's less shipping cost just generally for the sales that you're driving the top line and so we had that benefit as well.
And then we have the factor that we shut off net.
Net 33 stores towards the end of last year, when we started to get the benefit on the lower occupancy, particularly in the first quarter and so that plus the significant sales growth. We had really delivered all 3 of those.
And second question on time or what that was what was your second question Chris.
Hi.
<unk> yeah. It's.
Taken all of it in consideration to be honest with you.
On the high end of that mid teens.
Revenue outlook on top of a 17 last year and that's taking into consideration what we are able to see today and so it's both Q1 and our performance going into the second quarter and then its also just realizing the benefits that we have ahead of us in particular in relation to the strong housing market, which tends to if you look back in time bode well for us for years to come.
And so that is a very strong.
Scenario for us that's going to help us plus we have the fact that you have the acceleration.
Folks buying our category online.
You have also got the fact that there was a much more interest in companies that stand for values in sustainability and we've seen that and we think that's going to continue and then of course you layer in the fact that we've got you know higher back orders and all of that we expect to come back in the back half of the year gives us a lot of confidence in our ability, but well you know as.
As we said earlier, it's the first quarter and we gave outlook 2 months ago, and we've raised it call. It 600 plus basis points in 2 months. So we feel like this is a good spot to be giving them for 1 quarter end, but we are absolutely confident our ability to deliver strong performance this year.
And we'll move to our next question from Brian Nagel with Oppenheimer.
Hi, good evening.
Another great quarter congratulations.
I have 2 questions for short of our merchant together with regard to sales trends.
Are you sure.
G.
For the quarter, and then I guess into Q2 or are you seeing any divergence in trends in markets.
Reopening sooner.
Than others and then the second question I have.
This is relative to you, but every retail was up I'm talking about the benefits of stimulus.
It's worth asking.
Do you see any type of excel.
The acceleration of your in your <unk>.
Business across your brands as the stimulus checks yet thanks.
Okay. So in terms of market somebody gives us for the data that I feel like.
In terms of open closed market for wholesale.
Sure Alright.
Alright, David Guy said, we've looked at 100 different points.
Whether people are by by state by vaccination mask requirements, there, where there is no correlation I mean, it depends on last year when they were open when.
When you look at the 2 year, which I think is more important the great news is that we're seeing strength across all the states and all of the areas regardless of their.
Their vaccination rates, so that that too gives us confidence about the balance of the year.
Got it.
And then and then shift for us from a shift perspective, there's no major changes in demographic shift perspective, you know the younger customers continue to we see a nice bump there.
That's not just driven by stimulus, but that's also driven by just the gross.
The millennial and Gen Z base.
We are seeing you know there are now the majority.
Our growth in new customers.
Think that's due to our opening price point positioning and PB apartment, obviously, the west Elm brand aesthetic and value plays well to that and of course, our kids and baby business.
Driven by the younger generation.
Is benefiting from that.
Yes.
Planned for expansion as well.
That's all I can answer for that.
Yeah.
Yeah.
And well move on to our next question from Stephen for call of Citi Research.
Great. Thanks for taking my question and congrats on the strong results.
I had a question on the SG&A outlook for the balance of the year. So the amount of leverage you saw on the 40 comp seemed to moderate versus what you've seen in the past few quarters.
Our sales growth moderates through the balance of the year and you continue to prioritize advertising expenses, how should we think about the cadence of SG&A spending maybe the ability to drive leverage.
Yeah, I mean, I think what you have to look at US at this time last year, we substantially pulled back like just about everybody [laughter] when everything was shutting down in the equity markets were coming down and so we dramatically pulled back our spend.
And so given our performance we've been continuing to invest in that.
So this quarter reflects a higher investments on advertising, which by the way also drives future sales and so we think it's really important to continue to make these investments as you know Felix alluded to earlier, it's a competitive.
<unk> that we can do this most people don't have the merch margin expansion that we have they don't have the occupancy leverage even if they have the top line and they can't afford the cost of advertising right now and we can and so we're going to make that investment out maybe competitive about it and go after market share gains that will benefit us for future quarters and years quite frankly, and so yes, you will.
See pressure on the SG&A line.
Mostly from advertising Theres, some higher hourly wages that were.
Wrapping so to speak but the reality is there's a lot of COVID-19 expenses that were in within SG&A as well last year that we hopefully won't be comping again based on what we know today and so that will also provide us benefits in the back half to be able to offset that regardless.
We are very confident in our ability to deliver merch margin expansion and occupancy leverage and so where our commitment is on the bottom line of operating margin expansion, which we feel very confident about being able to deliver and I think to add.
To what Julie just said and you can see this in our results.
Over not just this quarter for over the last year and even when you look back for 2018.19, we've had acceleration in our comps and we are now looking at a gross company again, and we're very confident in that and that means that we're going to improve our op margin, but we are going to reinvest to drive the topline.
<unk>, because we have that opportunity, we're still very small in comparison to how good our brands our people love our brands and with our Differentiators and our growth drivers. There's no doubt in our minds that we're going to reach that $10 billion by faster than people expect and to do it more profitably than I think probably anybody else in our space.
Yeah.
And at this time I would like to turn the call back to Laura Alber for any additional or closing comments.
Well. Thank you good questions and really appreciate your interest and I look forward to talking to you again after the next quarter.
And ladies and gentlemen that does conclude the call we would like to thank you for your participation you may now disconnect.
Okay.
Okay.