Q3 2023 Williams Sonoma Inc Earnings Call

Welcome to the Williams Sonoma, Inc. Third quarter fiscal 2023 earnings conference call. At this time all participants are in listen only mode. A question and answer session will follow the conclusion of the prepared remarks, I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer, and head of Investor Relations.

Please go ahead.

Good morning, and thank you for joining our third quarter earnings call.

Here this morning, with Laura Alber, our President and Chief Executive Officer.

Jeff Howie, our Chief Financial Officer, Yasir, Anwar, our Chief Digital and Technology Officer, and Felix Carbo Lido, our president of the Williams Sonoma brand.

Before we get started I'd like to remind you that during this call. We will make forward looking statements with respect to future events.

Performance included updated guidance for fiscal 'twenty, three and our long term outlook.

We believe these statements reflect our best estimates however, we cannot make any assurances these statements will materialize.

And actual results may differ significantly from our expectations.

The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after todays call.

Additionally, we will refer to certain non-GAAP financial measures.

These measures should not be considered replacements for and should be read together with our GAAP results.

A detailed reconciliation of non-GAAP measures. The most directly comparable GAAP measure appears in exhibit one to the press release, we issued earlier this morning.

This call should also be considered in conjunction with our filings with the SEC.

Finally, a replay of this call is available on our Investor Relations website.

Now I'd like to turn the call over to Laura.

Thank you Jeremy good morning, everyone and thank you for joining the call before.

Before we get into our Q3 results I would like to take a minute to thank incredible team at Williams Sonoma, Inc. For another quarter of great results without their hard work dedication and focus none of the results. We are reporting today would have been achievable.

We are proud to deliver another quarter of strong earnings significantly exceeding expectation, despite a challenging economic backdrop for our industry.

We beat profitability estimates with a record third quarter operating margin was 17% with.

With earnings per share of $3.66.

Our comp sales, which reflect the larger macroeconomic backdrop ran negative 14, 6% in Q3.

And our two year comp was negative $6 five and our four year comp to 2019 was positive 34, 8%.

These results were achieved in an environment with ongoing consumer hesitancy on high ticket discretionary furniture and.

An elevated level of promotional activity.

Despite this environment, we continue to drive results because of our unique proposition in the marketplace and our relentless focus on customer service.

Our advantage is our portfolio of brands, serving a wide range of categories aesthetics and life stages.

While people are currently buying fewer large ticket furniture pieces than last year.

Portfolio of brands and product offerings has us positioned well for the shift in the kitchen purchases fashion textiles.

Dorm baby and seasonal holiday offerings.

Our in house design capabilities and vertically integrated supply chain are also key in producing proprietary products at the best quality value relationship to the market.

We remain firmly committed to reducing promotion.

Elevated levels of discounting in the industry.

In fact, our third quarter promotional levels were meaningfully lower than last year.

Instead, we are meeting our customers' need for value.

Introducing a larger offering of new products at mid tier and lower price points.

Not only is this strategy could for profit, but we have also reduced friction with our customers as we give them better value without confusing them with short term discounts.

We strongly believe that this is the right way to run our business as it preserves the design value price equation that we offer.

And our customers appreciate it.

Moving on to customer service in the supply chain.

We are seeing the year over year benefit of selling through inventories with lower supply chain costs.

And we continue to increase selling margins by reducing out of market in multiple shipments.

We have improved our customer service returning to pre pandemic and best in class levels.

Investments in the final mile delivery experience have resulted in fewer customer accommodations lower returns lower damages and lower replacements.

And customer metrics like on time delivery, alright record highs and.

And Backorder crate rates have substantially improved.

The total benefit from these supply chain and customer service improvements is significant and you can see it in our results today.

Regarding marketing.

We increased our spend from Q2, but still leveraged in the quarter. We continue to ensure that our marketing investment gives us the ability to test new formats.

Connect with new customers and to showcase our offering to our existing customer base and our highly engaged brand loyalists.

We've seen increasing success with our marketing and product collaborations and we will continue to build upon them.

Our ongoing investment in building our proprietary E Commerce technology continues to improve our online experience.

We're focused on offering customers inspiring content and dynamic tools to assist with their design projects.

And AI is accelerating these efforts.

We see many opportunities for our business from developments from AI.

And it's early adaptors of integrating AI, we look forward to leading the retail industry in this area and we will focus on quality authenticity and responsiveness of this new technology.

And as focused as we are in our E. Commerce capabilities. We are also continuing to focus on delivering a best in class retail business.

Our stores are beautifully designed and curated with inspirational assortments and our continued retail optimization efforts have refocused our fleet on the most profitable inspiring and strategic locations.

On the sustainability front, we are proud to report that in Q3, we were named the top score on a sustainable furnishings counsel wood furniture scorecard for the sixth consecutive year.

Using sustainable wood has been a key focus of our strategy and a differentiator of our business.

Now I'd like to spend a few minutes talking about our brands.

Pottery barn ran a negative 16 six comp in Q3, but ran a positive 3% on a two year basis and a positive 43% on a four year basis, we have substantially reduced the promotional offerings and the brand and have successfully introduced new low and mid tier programs at great value.

<unk>.

And while furniture demand has been most impacted we are seeing strength in textiles and seasonal decorating worksite.

We're excited for the holiday season, given strong early reads on our innovative proprietary collections.

Earlier this week, we announced the launch of a new mobile shopping and design up for pottery barn. Following the success of our pottery barn kids and pottery barn teen apps.

Pottery barn mobile app delivers a convenient customer shopping experience and makes it easy to create and manage our registry on the go.

Now customers can explore and shop full rooms easily share their favorite products and connect with the design experts all through the convenience of their phone or tablet.

Yes.

The pottery barn children's business ran a negative six 9% comp in Q3 and.

The negative $11 seven on a two year basis and positive 29% on a full year basis.

Across these life stage brands, we are focused on delivering compelling innovation and elevating the customer experience.

One key area of focus in the quarter has been the evolution of our back to school offering here.

Here, we saw standout growth in our dorm business as customers gravitate to higher design and quality.

We offer a compelling complete solution that is easy to shop on a part of Argentina and given the size of the door market. We believe represents a significant opportunity for us for years to come.

We also continue to focus on another key life stage offering which is baby the entry point to the children's home furnishings brands.

Here, we are winning with our innovative nursery seating and a curated selection of high quality baby gear.

And our stores and across our mobile App customers can register with pottery barn kids receive help from nursery experts.

Also we're really encouraged by the strength of our innovative product introductions and fresh product collaboration with strong response to our recent Super Mario and loves Shaq fancy launches and as we look to the quarter ahead. We believe we have a compelling pipeline of collaborations that our customer will love.

Moving onto West Elm West.

West Elm is the brand that has been most impacted by the customer pullback in furniture.

In Q3, West Elm ran a negative 22, 4% and was negative 18, 2% on a two year basis and ran a positive 26, 1% on a full year basis.

West Elm has the highest percentage of its assortment in furniture, the most underdeveloped and other categories and our customer base has been most impacted by the current macro environment.

Despite current challenging dynamics west Elm saw very strong reception to their new fall products, which marked a real evolution the brand's modern design voice.

Sales from this year's fall assortment are up to last year with positive customer response to fresh furniture forms mixed materials, and new textures and innovations and textiles.

Early holiday reads have also been positive and seasonal trend in tabletop as well as hosting and entertaining categories.

Given these positive reads, we see sizeable opportunity in west Elm as it rebalance this more into textiles, decorative accessories entertainment and seasonal offerings.

We continue to be very optimistic about the long term growth trajectory of west Elm with its industry, leading design and value.

The Williams Sonoma brand, which includes Williams Sonoma home ran a negative one 9% comp in Q3.

On a two year basis, the brand ran negative three 4% and was positive 34, 6% on a four year basis.

The Williams Sonoma kitchen business ran a positive comp for the second consecutive quarter. This year, primarily driven by retail.

Earlier this quarter, we launched a successful collaboration in cookware with Stanley Tucci, who designed an exclusive collection with Green Pan.

Williams Sonoma.

Collaborations like <unk> have been an excellent vehicle for growth and new customer acquisition.

Kitchen continues to see strength in high end electrics, particularly in coffee and espresso.

And the Williams Sonoma home business, while still negative is beginning to see improved trends with a refreshed more editorial point of view that showcases updated textiles and decorative accessories.

Looking to Q4 Williams Sonoma becomes a bigger part of our business.

And early reads on holiday are positive, indicating a strong season of entertaining and gifting ahead.

We have an impressive pipeline of new launches with engaging content and corresponding events for our customers to experience both in store and online.

Now I'd like to update you on our other initiatives.

We are pleased to report business to business delivered a positive quarter running positive one 5% in Q3, driven by 30% growth in the contract business.

Exciting wins in the quarter included a brand standard program for pottery barn, with pendry hotels for custom outdoor furniture, and a new partnership with a premier developer partner Jamestown for two new properties, including our senior living tower, and a new residential development.

We're also excited about the success of specific <unk> product developments like the expansion of our restaurant furniture program that has been key to gaining momentum in the food and beverage space with clients like Dave and Busters, along with clients in the sports and entertainment space.

The future remains bright for this business.

Now I'd like to talk about our global business.

Our global strategy has not changed and we continue to focus on our franchise first model.

This business has of course been affected by the uncertain macro environment, particularly in the middle East.

We were excited to see our brands exceed expectations in other markets like India. We.

We opened our third west Elm retail location in Pune and expanded our pottery barn brands into the World famous Geo World Plaza now open in Mumbai.

The Mexico market is also showing strength driven by improved in stocks and furniture and strong back to school and seasonal assortments.

And we continue to see momentum in our Canada business fueled by our commitment to enhancing the customer experience both online and in retail.

We have also grown the brand and service offerings available to Canadian customers by launching rejuvenation, and Mark and Graham online and Relaunching gift registry and Canada.

Lastly, I'd like to update you on our emerging brands.

Do you have a nation delivered a positive quarter, driven by a remodel and refresh categories as well as new growth initiatives.

Customers continue to update their homes, specifically in the spaces of kitchen and Bath.

We are continuing to grow the brand in new markets by opening a new store in the San Diego market and another new store opening this weekend in North Carolina.

We continue to be excited by the opportunity we have for growth from the rejuvenation brands.

We are also pleased with our results and Mark and Graham our gifting and personalization brand. We are optimistic for Q4, as we head into the key gift, giving holiday season.

Customers will benefit from the brand's inspiring content and curated monogram gift guide organized by both recipient and price point.

And at Green row, we continue to gain momentum in this new brands, which utilize a sustainable materials and manufacturing practices to create colorful heirloom quality products.

While it's early we remain optimistic about the potential of this brand.

And its aesthetic.

These successful and exciting emerging brands demonstrate our ability to develop new businesses that expand our portfolio of brands and address white space in our product offerings.

All with minimal investment and low cost of entry leveraging our knowledge and infrastructure.

In summary, our outperformance this quarter drove a record Q3 operating margin of 17%.

Although customers are shifting their spending temporarily away from high ticket furniture purchases, we have a powerful portfolio of brands, serving a range of categories aesthetics and life stages to meet the demands of customers.

And despite our sales running down this year, our execution and the strength of our operating model produced strong earnings again, this quarter driven by our full price selling supply chain efficiencies and best in class customer service.

Our early seasonal reads are strong and we are optimistic about the holiday season.

As we put this all together we are raising our guidance for the year. We now expect full year revenues to come in at a range of downturn to down 12, and we are raising our outlook on operating margin to a range of 16% to 16, 5% it.

It is important to note that the reduction in our revenues outlook is more than offset by a raised operating margin outlook and with that I will turn the call over to Jeff to walk you through the numbers in detail.

Thank you Laura and good morning, everyone.

Laura said, we're proud that once again, we've delivered earnings substantially exceeding expectations.

Our Q3 results reinforced the themes, we've consistently communicated over the past several quarters.

First.

Our steadfast commitment to maintain price integrity.

And not run site wide promotions.

Second.

Our earlier supply chain cost pressures.

Will become tailwind in the second half and beyond.

And third.

Our ability to control costs and manage inventory levels.

Our strong profitability this quarter.

Despite softer topline revenues demonstrates the durability of our operating margin.

Now, let's dive into our Q3 results.

Followed by an update on our fiscal year guidance.

In addition to year over year results I'll reference 2019.

It's helpful to compare our performance with pre pandemic levels.

Net revenues came in at $1 85 4 billion.

While below our expectations, our revenues reflect the larger home furnishings backdrop.

And our commitment to maintain price integrity, even if it means forgoing some revenues in the short term.

Our revenue growth in Q3 came in at negative 14, 6% comp.

Our two year stack was negative six 5%.

And our full year stack against 2019 grew 34, 8%.

Our Q3 demand comp and negative 11, 8% was materially unchanged from our Q2 trend.

Our two year demand stack was negative 13, 8%.

Our full year demand stack was a positive 33, 2%.

Our revenue comps this quarter reflect a normalized spread between demand and that comps.

Our improvement across returns and appeasement.

Offsets the majority of last year's outsized back order fill.

From a cadence perspective or demand trends continue to be inconsistent and.

And choppy, especially after labor day.

Moving down the income statement gross margin at 44, 4% exceeded our expectations.

The 290 basis point improvement over last year reflects the.

Supply chain tailwind, we've been guarding for several quarters.

Merchandise margins.

Increased materially over last year driven.

Driven by lower Ocean freight costs flowing into our income statement.

And our focus on full price selling and price integrity.

In fact, merchandize margins were substantially higher than Q3 2019.

Selling margin also improved materially over last year driven.

Driven by supply chain efficiencies.

Through our improved execution and investment in supply chain we.

We substantially improved our customer experience.

Key metrics.

<unk> out of market shipping.

Multiple deliveries per order.

<unk>.

Accommodations damages and replacements are all performing at pre pandemic levels, if not better I'd like to congratulate.

And thank our supply chain organization for delivering these results.

Altogether, our selling margins were 450 basis points higher than last year, reflecting the full impact to our profitability of the supply chain tailwind.

Occupancy costs of $200 million grew 1% lower than last year.

And decreased 2% quarter over quarter.

Coming in at 10, 8% of net revenues occupancy Deleveraged 160 basis points to last year, driven by the softer top line.

Our Q3 gross margin.

At 44, 4%.

840 basis points higher than 2019, 36%.

SG&A expenses of $507 million were down 11% from last year.

Once again, reflecting our ability to control costs.

Our 27, 4% rate Deleveraged 140 basis points to last year.

By general expenses offsetting variable expense savings.

Employment expense decreased double digits versus last year.

The deleverage primarily driven by favorability in last year's stock based compensation.

We continue to manage variable employment costs in accordance with topline trends.

Our advertising expense slightly deleverage in Q3 despite.

Despite increased funding quarter over quarter.

As we continue to test into higher levels of advertising spend.

Our rate leverage reflects the competitive advantage of our agile.

Performance driven marketing organization.

Our in house capabilities first party data and multi brand platform continue to drive efficient advertising spend.

General expenses drove the majority of the deleverage on the quarter.

<unk> from timing of asset disposal and legal settlements.

Overall, our year to date SG&A through 39 weeks is down 12% to last year and flat on a rate basis.

And it's 100 basis points lower than 2019 SG&A rate of 28, 4%.

Regarding the bottom line our results speak for themselves.

Q3 operating income came in at $315 million.

<unk> operating margin at 17% a record operating margin for our third quarter.

17% is 150 basis points above last year, and 940 basis points above 2019, seven 6%.

Our diluted earnings per share of.

Of $3 66.

It was slightly below last year's third quarter earnings per share of.

Of $3 72.

But significantly above 2019.

Earnings per share of $1 <unk>.

On the balance sheet, we ended the quarter with a cash balance of $699 million with no debt outstanding.

This was after we invested $42 million and capital expenditures supporting our long term growth.

And we returned over $61 million to our shareholders through quarterly dividends and share repurchases.

Merchandise inventories at $1 4 billion were down 17, 2% to last year.

Three important points I'd like to emphasize once again.

First we are well positioned to maintain our price integrity.

As we proactively manage our inventory levels in line with our demand trends.

Second going into the holiday season.

Our in stock levels are near historical highs.

And our regional inventory balance and composition is well positioned.

Third our Q3 ending inventory levels.

Our up only 11% versus the same period in 2019.

And that's with revenue comps up 34, 8% over the same timeframe.

This discipline highlights how we've improved both our inventory efficiency and turnover.

Summing up our Q3 results, we're proud to have delivered earnings substantially exceeding expectations.

I'd like to thank all our associates for delivering these outstanding results.

Now, let's turn to our outlook.

Based on our Q3 results.

Our full year outlook.

Our new guidance reflects both the ongoing top line uncertainty.

The strength in our operating margins.

We now expect full year 'twenty three net revenues to be in a range of downturn comp to down 12 comp.

And we are raising our operating margin outlook to a range of 16% to 16, 5%.

It's important to note.

There are lower sales outlook.

He has more than offset by our increased operating margin.

Producing higher implied EPS guidance.

On the top line.

Our updated guidance is based upon the facts and trends we know today from our Q3 results.

Specifically.

A conservative view of our one two and four year trends in Q3 connects with the implicit Q4 guide.

In our updated full year 'twenty three net revenue guidance.

Given the macroeconomic environment, we believe this outlook is prudent.

On the bottom line.

Our supply chain tailwind will continue to bolster our profitability.

Producing full year operating margin within our updated range of 16% to.

To 16, 5%.

With implied Q4 operating margins in line with historical builds from Q3.

We continue to expect our full year income tax rate to be approximately 26%.

Our 2023 capital expenditures are now anticipated to be $225 million due to timing of project spend.

As we have communicated quarterly we are committed to returning excess cash to our shareholders through.

Through dividends and opportunistic stock repurchases.

We will continue to pay our quarterly dividend of <unk> 90 per share and we have almost $700 million remaining on.

Under our current $1 billion share repurchase authorization to repurchase our stock Opportunistically.

As we look forward to 2024, we will balance the macroeconomic uncertainty with our long term growth potential.

And we will provide guidance in March.

As we look further into the future beyond 'twenty four.

We are reiterating our long term guidance.

Of mid to high single digit topline growth.

With operating margins exceeding 15%.

We are confident we.

We will continue to outperform our peers and deliver shareholder growth for these reasons.

Our ability to gain market share in a fragmented home furnishings industry.

The strength of our in house proprietary design.

The competitive advantage of our digital first but not digital omnichannel strategy.

The ongoing strength of our growth initiatives.

And the resiliency of our fortress balance sheet.

With that I'll open the call for questions.

At this time, if you would like to ask a question press star followed by the number one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up and return to the queue for any additional questions. You may have our first question will come from the line of Chuck Grom with Gordon Haskett. Please go ahead.

Hey, Thanks, good morning, everybody.

The compression in your topline in the third quarter and the implied slowdown in the fourth quarter really isn't all that surprising.

Given the backdrop today, but at what point do you run the risk of losing market share or mind share by not engaging and then as a follow up gross margin control was actually more impressive can you talk about the drivers there and the sustainability into into 2024, particularly on the supply chain front.

Good morning, Chuck why don't we start with the last one and I'll talk about gross margin and then I'll turn it over to Laura to talk about our promotional posture.

Margin exceeded expectations this quarter really driven by the tailwind I have been guiding for the past several quarters. There were three main drivers in order of magnitude.

First our lower ocean freight from rate normalization flowing into our income statement.

Second supply chain efficiencies, including lower out of market shipping fewer multiple deliveries per order and decrease returns accommodations damages and replacements.

And third reduced promotional activity as we focused on full price selling and maintained our price integrity.

Overall, the majority of improvement came from ocean freight and supply chain efficiencies. We've made significant improvements in our customer service and you can see it in our results and I want to once again, thank our supply chain organization for really.

In the cover off the ball.

Going to your question about how these will continue here's what you need to remember our Q3 margins represent the start of the tailwind we will see from supply chain efficiencies and while we don't guide specific lines, we anticipate similar tailwind in Q4 and even into 2024.

Hi, Chuck So I don't think we should think about gross margin as a trade for sure.

The two are not necessarily as correlated as one might think in fact, it's not clear that people who are running more promotions are going to gain more share, especially long term and for our target customer. We are confident that we are gaining share and at the high quality regular priced customer is the one that we best serve.

Given what we do as brands and Trust me, we are very focused on returning to growth. In fact, we're very confident about our strategies and our ability to execute if the environment. There is really a question mark for us as we look at the balance of the year in the short term and so we continue to test different things to see what makes sense.

Whether it's pricing up down more marketing less marketing and trust me when as we see things that do not just benefit short term, we're definitely focused on pushing them and building upon them for the long term.

Yes.

Okay, great. Thanks. Thanks, Thanks, a lot and then can we just talk a little bit about like for like SKU pricing today relative to 2019, I know there's been a lot of improvements, but if you have you find items that are actually like for like where do we stand today relative to back then thanks.

That's a good question Chuck I didn't expect that one to 2019 is a long time ago, it's hard to remember I.

We took some price increases.

During the pandemic as you know in a lot of them have stuck in some we've backed off and we've also gotten a lot of vendor price reductions, which is a great thing to see and we've used some of those to reduce prices to our consumers. So that we are.

Very competitive with our value quality relationship. The thing to remember also is that it's not just about reducing prices on existing products. We bring in a fair amount of exclusive exciting newness and we've been building into both our mid tier and low price points and those things are full margins and so that's a very that's a.

Very good way to continue to build value into the business, but vis vis 2019, I actually don't have that number on how we exactly stand with the entire assortment versus 2019 and pricing.

Okay, I'll circle up with Jeremy Thanks.

Thanks, guys that's correct that's correct.

Your next question will come from the line of Cristina Fernandez with Telsey Advisory Group. Please go ahead.

Hi, good morning, and congratulations on the profitability.

Wanted to ask on up on promotions lawyer your comment that you were.

Less promotional than a year ago.

No you've pulled back from the site wide promotions, a while back to where I guess, where are you lowering promotions hit the clearance is.

Is it other items.

Like rewards et cetera would be helpful to understand that trend.

Yes. Thank you for the question. We are in fact pulled back promotions both sequentially this year and versus last year and we've pulled back in now.

We took away all uptown pricing that was site wide.

Site wide promotions have been gone.

We also did remove E mail overlay all those hit in promo tactics that other people use coupon matches double points, we don't offer any of those.

The level of clearance and <unk>.

Promotions during our sale periods, which we call warehouse sales is also lower.

Yeah.

Our next question will come from the line of Peter Benedict with Baird. Please go ahead.

Alright, guys. Thanks, Thanks for taking the question I.

I guess, just maybe can you spend a little more on retail optimization, where you stand in that process, what's still to come.

Jeff you mentioned the occupancy costs down slightly.

Year over year in the third quarter is flat to down something thats sustainable in that line as you think into <unk> and then into 'twenty four that's my first question.

Good morning, Peter.

We continue to operate a world class retail business and our storage server as billboards for the brand and operated profit centers. They are beautifully designed and curated with aspirational Assortments and we believe we will continue to serve as a competitive advantage. We continue on our journey of retail optimization.

Since 2019, we closed about 15% of our store count and over the next three to five years about 50% of our leases come due and we will continue to guide that we anticipated about 20% of those will close over time.

Now, there's multiple aspects to our retail optimization strategy.

Obviously, we will close any of the least performing stores from a profitably standpoint, or a brand demonstrating thats the low hanging fruit.

The second point, which is really the exciting one is the repositioning of our retail fleet and this is where we're taking a look at some of our older stores that in our older <unk>.

The customer is not shopping as frequently in removing them more vibrant lifestyle centers and here, we're seeing not only a better customer engagement better topline, but better economics as well and we'll continue to look to reposition our fleet.

So right locations as leases come due.

And of course, it all comes down to negotiations as part of the real estate business as we all know.

We're probably and from an earnings standpoint, we're probably any six I'd say any five or six on our journey here. There is more work to do we have like I said, we have a lot of leases coming due.

But the key point here is we continue to improve our retail profitability and I'll give you. One example of where this is continuing to resonate and I know it used in the last call, but it continues to be an outstanding example of where the strategy of retail positioning reaffirm reach optimization really works and Thats. Our party is born store in Westport, Connecticut.

Which we moved from downtown Westport.

Not the best location for us to a location on the post road that is more vibrant more customer friendly and I've said in Q3 that the results were 30% better than the prior store I mean in Q2, but the results were 30% better than prior store and are up 45% to the prior store.

This strategy continues.

To gain traction and the key thing for US is that our world class stores, coupled with our best in class ecommerce store demonstrates a digital first but not digital only channel strategy as a key differentiator in the home furnishings industry.

Nice to see my recent visits to the Westport store showing up in the numbers there I guess.

Thank you for your business.

Yes.

I'm not exactly sure.

So next question just would be around the cash balance obviously continues to rise each slowed the buyback.

Here of late.

Just curious is this just prudent caution given all the macro pressures that risks that are out there.

Or is there something more strategic.

Thats may be at play here in terms of building the cash the cash balance. Thank you.

Yes, Peter as you know, we don't commit to a consistent cadence of share repurchases. We do remain committed to driving long term shareholder returns and we'll opportunistically buy back stock can drive total shareholder returns.

In Q3, we had extremely strong performance in our stock price relative to the broader market. We've seen in all three major indexes.

The collection of hard lines retail in offline retail so we outperformed so it's not what we consider opportunistic.

Okay fair enough. Thanks, so much and good luck.

Okay.

Your next question comes from the line of Max <unk> with TD Cowen. Please go ahead.

Great. Thanks, a lot and congrats on a nice quarter. So first.

Laura how are the brands performing against your own internal expectations.

And which brands do you view each have the bigger opportunities to take market share from some of your struggling or closing Peters.

That's a great question.

We are disappointed in the top line performance as you know in most of our brands this year, except for our emerging brands.

We've seen slower than expected furniture performance.

That said, we've seen really strong seasonal performance and these life stage businesses in certain categories are better than expected.

It's a big change for us that we have.

Really focused on and made the shift into quickly with our marketing and our inventory purchases, but as I think about the long term and we think about where we sit vis vis the market market. As you know is very large and very fractured and so.

There is huge opportunity for us to gain share with all of our brands I think that the names of our brands are stronger than the volumes that they produce.

Do you think about the Williams Sonoma name the brand Williams, Sonoma and you think about how small it is and.

The consolidation of the industry.

With that in that bed Bath, <unk> beyond closing, its retail footprint and others going out of business.

<unk> not seen anyone deliver an exclusive proprietary products for high end kitchen, you can see what a tremendous opportunity we have.

With that also we have Williams Sonoma home, which sits in that that higher end space, where there is not many particularly in the.

Aesthetic that that we're serving I actually have feel like sitting right next to me.

We invited him today, because we're upon the very large holiday season that we're looking forward to as you know Williams Sonoma really spikes during the holiday season, and so you want to make a few comments about how you see your brand gaining market share in the future sure I don't want to give away too much of our winning formula but.

It includes curating, the best products out there inspiring customers how to use it offering in their channel of choice, whether it be online or in store.

I think somehow square brands offer products that don't inspire and some inspire but don't have a 150 plus stores and a great website to purchase from.

As Jeff said, our beautiful stores are well trained and passionate store associates are inspiring catalog and our multi dimensional website, our competitive advantages I don't think anyone really has.

As we head into the fourth quarter. This is the time.

We celebrate the most.

We have Thanksgiving Hanukkah Christmas New year's Eve.

These are the reasons for people to come visit our stores and I think we've pulled together.

The best assortment of gifts and holiday decor that we ever had so we're excited and we want to continue to gain market share and all indicators are that in the kitchen business.

It appears we are and then as you look at our other brands.

The big ones, both west Elm and pottery barn.

We have shown this year that there are there's areas within each brand that are very underdeveloped and where the sizeable opportunity from accessible furniture for pottery barn and dorm.

And west Elm filling out the modern accessories textile piece, which we haven't addressed and also more modern seasonal assortments that is that's a big opportunity and one that has never been bill. So we see us being able to pick up share in those two brands in specific categories and of course the <unk>.

For a furniture pullback is just that.

This too shall reverse and the great news is that we won't have built our business are held it up with promotions like others are at this time that is getting out of our base and and it's going to continue to allow us to focus on delivering proprietary products and not just thinking about mark.

Downs, all the time, but thinking about how to build better collaboration and more relevant product lines that the customer loves the last thing I'll, just say as we've talked about <unk>, it's across all brands to big driver of market share for us because nobody is doing what we're doing and so a very very large.

Industry, and we are still scratching the surface and we are still as Josie who runs it likes to say we are still.

Doing more gathering and hunting and we have a lot more that we can do as we continue to build this muscle. So we're excited about that.

The growth algorithm for the future and we do recognize that it's been softer than expected this year, particularly in furniture, but we're completely focused on that growth posture looking out into the future.

That's great Super helpful and Jeff I have to ask you a margin question, but.

When you think about the updated margin guidance is there anything that makes you think that you can at least hold it as we think ahead, especially once you start to leverage leverage fixed expenses on topline growth.

As I said in the answer to Jeff's question on gross margin, we anticipate that the results. We saw in Q4, the tailwind I've been talking about we will continue I'm sorry. The results we saw in Q3.

<unk> been talking about will continue into Q4.

These are a pretty strong tailwind.

Talk about the impact of ocean freight in our supply chain efficiencies in our full price selling.

While we're talking about guidance I also want to just point out.

That while we don't guide specific lines.

Last year's Q4, our SG&A materially benefited from some large favorable items, we recorded that we don't anticipate reoccurring this year.

But here's the key takeaway, it's all contemplated in our guidance, which we've raised our full year outlook for implied Etfs.

Great. Thanks, a lot.

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Hi, This is zach on for Simeon Thanks for taking our questions on your view for top line do you think this year will be the bottom your updated guidance implies an underlying deceleration in the fourth quarter across <unk>.

So do you think that the trends could inflect and 24. Thanks.

Good morning.

We'll talk more about next year after we get through the really important holiday season, right now Thats, where our focus is and as Laura just touched on in our primary objective in 'twenty four will be to drive both growth and margin and we will balance the macroeconomic uncertainty with our long term growth potential.

But we'll talk more about that in March.

Our next question will come from the line of Anthony <unk> with loop capital markets. Please go ahead.

Good morning, and let me add my congratulations as well on the strong profitability. So you talked about introducing a larger offering.

New products at mid tier and lower price points.

And then you talked specifically about about pottery barn.

Introducing those products.

I guess just two questions related are there any other brands that have.

You've introduced those mid and lower tier products.

How do we be merchandise selling margins on those products compare to some of your higher price point offerings. Thank you.

Thanks Anthony.

The margin profile is the same as the rest of our products.

It's not that they are lower at all in fact, there are great margins.

And we've done the same thing also in west and Youre going to see us in West Elm, which I'm really excited about continue to have more and more newness sequentially. So for fall you might have heard in my prepared remarks that we had some just superb winners in the furniture assortment.

And in some cases they were also at the higher price point. So we're building upon those many of them are sold out right now and.

We're thrilled, but we are also chasing those products and we'll be getting back in stock in Q1, and those and that gives us confidence about where we want to take the brand aesthetically not just from a price point, but where we think the.

The modern customer wants to be now more that evolution is going and so as we go into Q1 and Q2 I'm just really excited about the product line that youre going to see in west Elm and based on the wins that we have currently I think it is going to be a big change in the next.

Really big.

Stephanie evolution. The next chapter if you will for West Elms winning strategy.

Okay.

Got it thank you.

Welcome.

Your next question comes from the line of Jason Haas with Bank of America. Please go ahead.

Hey, good morning, and thanks for taking my questions.

I wanted to also ask about how youre thinking about the tradeoff between comps and margins I'm curious if you think that you could have driven gross profit dollars higher this year. If you had used more promotions.

Or do you think that that would have actually driven the gross profit dollars higher my question is obviously if you did.

You could but didn't the reason would be because you don't want to destroy the pricing power over the long term and you don't want to harm the brand image. So I'm curious if you feel like that the dynamic where you're basically sacrificing in the short term.

So hopefully a better results once.

The industry turns in your favor.

Yeah.

Jeff and I are fighting over your questions.

I would say, it's both short term and long term is not is not clear is it reducing prices to drive more if you have less people buying frankly, just reduce the price 20% you got 20% more people buy it just to be even right.

So you May think youre doing something thats, what retailers do they might shutdown when they want more sales and it's not necessarily the case in fact, we've done a lot of testing up and down to see where that sensitivity is so.

That's one secondly for sure it's not good for the long term and you can see that.

The race to the bottom with promotions. If you look at the history of retailers who've done that it's about idea.

And we are not a low price provider, where quality high service high design.

Retailer and so.

So pricing is not usually what it come to US you want the price to be great for the value in the design.

But our quality is so much higher we're not willing to sacrifice in the short term or long term.

<unk> sustained a promotional strategy.

Thank you that makes sense and then as a follow up I was curious to ask about.

The West Elm performance in particular.

It's good to see pottery barn, and Williams Sonoma performing well both on a year over year basis, and then also versus 2019.

That you should not be the case previously its in west Elm was the stronger performer.

Curious to know how much you think of the external given west Elm I believe tends to serve a younger maybe less affluent customer than.

Then there is other brands versus how much of it is internal.

You've talked about some of them can you talk about what changes are being made at west Elm.

And when we should expect some improvement.

Sure.

Yes.

There's no doubt that.

Metrics the.

The makeup of the West Elm business makes it more vulnerable to the external right you mentioned it the younger customer.

The less affluent customer.

The.

Higher furniture for less developed seasonal business is less developed decorative textile business. Those are all factors in the west. Some underperformance that said, we do not think about not being able to do anything about anything we are focused on what we can do being served this set of circumstances.

So we have been working very diligently to give the customer other options other than just furniture and to make sure. Our stores have those things ready to go versus having them only online to big change for us to push that business into the stores to drive repeat traffic not just when you come to buy furniture. So we've talked about.

Not just the development of those things, but I want to make sure you understand to the waiver using the channel strategies to push.

Things that are that are lower ticket and that are more for easy updates for the home versus the whole home.

So we've been pushing collaborations and had some really great success lately with Colin King and Joseph <unk>.

Those things sold out where we've got some really exciting ones in the pipeline and we have more confidence now to buying stuff and collaborations are very exciting for brands because they bring in new customer groups and so that's a that's a nice incremental change for us as well and then in terms of the.

Product design and without going into too competitively you always want to leave you always want to lead with.

<unk>.

With design and.

We are making as I, just said previously some pretty significant improvements and what we're bringing in.

In terms of newness quantity.

And also the relevancy in my opinion, and so that's very exciting and it's in the Hopper on order.

We're filling in where we are out of stock currently on some winners and we're excited to see that come to fruition next year. So it's not to me that.

So that's where all of our brands deal with their with our design, it's not that there's a problem. It's more of that you want to stay on top and you want to lead in this new leadership at West Elm and our focus on product and focus on design is really exciting.

Great to hear thank you.

Your next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Hi, good morning.

Thank you for taking my questions.

So first I would like to we'd like to add my congratulations on your continued profitability Beach.

So the question I wanted to ask.

No it's a bit of a follow up here, but just with respect to just the overall promotional environment.

Questions. Within this question one we won as you're monitoring the environment and the actions of your competitors is it.

If you look at the other promotions that are accelerating do you believe this is more.

Temporary.

Sure.

Backdropped within clearance driven or is this the kind of the return to levels, we saw pre pandemic.

And then the second question I have and you look you've done a great job holding the line on your pricing.

We see that in the margins.

So I guess the question I'm asking is your communicate with your customers and is there is there has there been a shifted marketing or shifts otherwise that youre, saying your customers look we have great brands as a high quality and you should not expect promotions from us.

And there's still plenty of things on sale, because we cleared products.

So you can find.

If you're a promotional shopper you can find.

Sales prices on our websites for sure so let's not pretend we don't have any.

Is that the quantity of those is so much lower than it's been it so much lower than our competitor I don't like to name people by name, but we have scrubbed everybody's website and.

Look at them and they are littered with I mean, some cases, 80% red lines.

Hundred percent Red lines of some really good names out there and I don't know what they're doing but I can tell you what the customer sees and I don't know when theyre going to go back to regular price or if this is the new strategy.

What's going on in the marketplace.

It's very important to us that the customer can.

Count on the price because if you buy a piece of furniture, it's likely not delivered for four to five weeks that price changes and it hasn't even been delivered.

You're never going to you're going to always wait until you get the sale and we just created this up and down the curve of customers waiting for sale.

It's not a good cycle.

And what I said before about the newness selling.

When you bring out an incredible product and this is today, even with us depressed furniture, but I'm talking about furniture.

Itself out.

When you have product that good customers want to buy it but the key thing is the first time, we price it.

That price value relationship needs to be great. So that is where we're focused what is the first price is that a great value is at the best value in the marketplace and now we're looking at the competition and assuming they're going to be 20 off assuming they're going to be 30 off. So we're not just saying is it the best versus a regular place regular.

We're saying is at the best versus their sale price and Thats. The key driver here on trading value for the consumer and having them Trust us when they trust us they finished their whole house with us.

Okay, that's very helpful.

If I could ask a follow up unrelated but with regard to gross.

Gross margins, but now we're seeing the benefit of.

He is moderating shipping, causing of recognizing that there's a lot of accounting noise and how these costs are capitalized.

I guess just maybe this is more for you, but I mean, how long how long will this dynamic proven tailwind that for gross margins for Williams Sonoma.

Look we've certainly said in the call that it will continue into Q4.

And previously I've said, it will continue to be a tailwind into <unk>.

Into 2024.

But we are starting to hinge on 2020 for guidance.

Which we'll address in March.

But Meanwhile, we're really laser focused on delivering our Q4 results with the all important holiday season ahead of us.

Alright I appreciate it thank you.

I will now turn the call back over to Laura Alber for any closing remarks.

Well. Thank you all we really appreciate your time.

And I want to wish you all a wonderful Thanksgiving and a great beginning to the exciting and beautiful holiday season with your family and friends, we look forward to talking to you again.

After the new year and.

Take care.

That will goodbye call. We thank you.