Q4 2023 Williams Sonoma Inc EarningCall

Operator: Welcome to the Williams-Sonoma Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode.

Welcome to the Williams Sonoma, Inc. Fourth quarter 2023 earnings conference call. At this time all participants are in listen only mode. A question and answer session will follow the conclusion of their 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.

Operator: 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.

Jeremy Brooks: Good morning, and thank you for joining our fourth quarter earnings call. 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 in financial performance, including guidance for Fiscal 24 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances that these statements will materialize.

Jeremy Brooks: Good morning, and thank you for joining our fourth quarter earnings call.

Jeremy Brooks: 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 and financial performance, including guidance for fiscal 'twenty, four and our long term outlook.

Jeremy Brooks: We believe these statements reflect our best estimates.

Jeremy Brooks: However, we cannot make any assurances that these statements will materialize and actual results may differ significantly from our expectations.

Jeremy Brooks: 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 today's call. Additionally, we will refer to certain non-gap financial measures. These measures should not be considered replacements for and should be read together with our GAP results.

Jeremy Brooks: The company undertakes no obligation to pulp.

Jeremy Brooks: Quickly update or revise any of these statements to reflect events or circumstances that may arise after todays call.

Jeremy Brooks: 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.

Jeremy Brooks: A detailed reconciliation of Non-Gap Measures to the Most Directly Comparable Gap Measures appears in Exhibit 1 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 will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura Alber, our President and Chief Executive Officer. Thank you, Jeremy. Good morning, everyone.

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

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

Jeremy Brooks: Finally, a replay of this call will be available on our Investor Relations website.

Jeremy Brooks: Now I'd like to turn the call over to Laura Alber, our President and Chief Executive Officer.

Thank you Jeremy good morning, everyone and thank you for joining the call before we get into our Q4 results I'd like to acknowledge the accomplishments of the entire team at Williams Sonoma, Inc.

Laura J. Alber: And thank you for joining the call. Before we get into our Q4 results, I'd like to acknowledge the accomplishments of the entire team at Williams-Sonoma Inc. The results we are about to share with you today reflect their collaboration, innovation, and dedication. And I want to give everybody on this team a huge shout out and a huge thank you.

Laura J. Alber: We are about to share with you today reflect in their collaboration innovation and dedication and I want to give everybody on this team huge shout out and a huge thank you.

Laura J. Alber: We are pleased with our strong finish to 2023. In Q4, our comp came in above expectations at negative 6.8%, with a two-year comp at negative 7.4%, and a four-year comp at positive 29.1%. In the quarter, we exceeded profitability estimates with an operating margin of 20.1% and earnings per share of $5.44. Turning to the full year, our comp ran down 9.9%, with a two-year comp at negative 3.4%, and a four-year comp at positive 35.6%. We delivered an annual operating margin of 16.4% with full-year earnings per share of $14.85, beating our 2023 comp guidance of negative 10 to negative 12% and hitting our operating margin range of 16 to 16.5%. I think it's worth putting these results in context. Four years ago, the global pandemic changed how we worked and lived, as most of us began to spend an unprecedented amount of time in our homes, and interest rates were at historical lows. As a result of these two dynamics, the demand for home furnishings surged. Our company was well-positioned to meet this demand with its compelling product assortment, supply chain capabilities, and the experience of our tenured management team. But the demand of the pandemic came with complications, including supply chain inefficiencies and higher vendor costs.

Laura J. Alber: We are pleased with our strong finish to 2023.

Laura J. Alber: Q4, our comps came in above expectations.

Laura J. Alber: At a six 8% with a two year comp at negative seven 4% and a four year term at positive 29, 1% in.

Laura J. Alber: In the quarter, we exceeded profitability estimates with an operating margin of 21%.

Laura J. Alber: Earnings per share of $5 44.

Laura J. Alber: Turning to the full year, our comp ran down nine 9% with a two year comp at negative three 4% and a four year comp at positive 35, 6%.

Laura J. Alber: We delivered an annual operating margin of 16, 4% with full year earnings per share of $14 85.

Laura J. Alber: Our 2023 comp guidance of negative 10 to negative, 12% and hitting our operating margin range of 16 to 16, 5%.

Laura J. Alber: I think it's worth putting these results in context four years ago, the global pandemic changed how we work and lift as most of US began to spend an unprecedented amount of time in their homes and interest rates were at historical lows.

Laura J. Alber: As a result of these two dynamics the demand for home furnishing searched our company was well positioned to meet this demand with its compelling product assortment supply chain capabilities.

And the experience of our tenured management team.

But the demand of the pandemic came with complications, including supply chain inefficiencies and higher vendor costs.

Laura J. Alber: Despite these increased costs and complexities, we stay focused on innovating our proprietary products, running a full-price business, and managing ad costs and employment expenses. As we came out of the record year in 2022, we started to see a slowing in our sales trend as interest rates increased and home sales declined. Decreases in furniture demand continue to put pressure on our top line.

Laura J. Alber: Despite these increased costs and complexities, we stay focused on innovating our proprietary products.

Laura J. Alber: Running a full priced business and managing AD costs in employment expenses.

Laura J. Alber: As we came out of the record year in 2022, we started to see slowing in our sales trend.

Laura J. Alber: <unk> rates increased and home sales declined.

Laura J. Alber: Decreases in furniture demand continued to put pressure on our top line, but again with a focus on transforming our operations cutting costs and improving supply chain inefficiencies.

Laura J. Alber: But again, we stay focused on transforming our operations, cutting costs, and improving supply chain inefficiencies, all of which drove us to nearly double our profitability compared to pre-pandemic. Our exceptional results in 2023 were driven by strong operational execution in a challenging environment for home flourishing. While the data suggested that consumers were resilient, they shifted away from home into experiences and entertainment, and they have been hesitant on furniture purchases.

Laura J. Alber: Which drove us to nearly double our profitability compared to pre pandemic.

Laura J. Alber: Our exceptional results in 2023 were driven by strong operational execution in a challenging environment for home furnishings.

Laura J. Alber: While the data suggested that consumers were resilient they shifted away from home and to experiences in entertainment and they have been hesitant on furniture purchases.

Laura J. Alber: Nonetheless, we have continued to drive results. From pre-pandemic, through the pandemic, and to today, we have navigated, learned, optimized, and built, all in preparation for our next chapter of growth. We have developed a strong omni-channel platform and have invested in a distribution network with additional capacity. Going forward, we see another growth opportunity on the horizon for our company, resulting from a more normalized interest rate environment, improved home sales, and a new strategy. As we look to next year and beyond, we are focused on three key priorities. First, returning to growth.

Laura J. Alber: Nonetheless, we have continued to drive results for.

Laura J. Alber: From pre pandemic through the pandemic and to today, we have navigated learned optimized and built on preparation for our next chapter of growth we.

Laura J. Alber: We have developed a strong omnichannel platform and have invested in a distribution network with additional capacity.

Laura J. Alber: Going forward, we see another growth opportunity on the horizon for our company, resulting from a more normalized interest rate environment improved home sales and our strategy.

Laura J. Alber: As you look to next year and beyond we are focused on three key priorities first returning to growth second elevating our world class customer service and three driving margin.

Laura J. Alber: Second, enhancing our world-class customer service. And three, driving margins. Our growth will be driven by our business strategies and each of our core businesses, our B2B program, our emerging brands, and our global business. We will continue to improve our world-class customer service by driving supply chain improvements from reduced out-of-market and multiple shipments, fewer customer accommodations, Low Returns and Damages, and Reduced Replacements. These improvements will continue to contribute meaningfully to our profitability in 2024 and beyond, and we see opportunity to drive margin by continuing our focus on full price selling and cost negotiation. As it relates to other cost efficiencies, we will maintain our employment cost savings that we achieved last year following our comprehensive review of our organization structure.

Laura J. Alber: Our growth will be driven by our business strategies in each of our core businesses, our BTB program, our emerging brands and our global business.

Laura J. Alber: We will continue to improve our world class customer service by driving supply chain improvements from reduced out of market and multiple shipments fewer customer accommodation.

Laura J. Alber: Lower returns and damages and reduced replacements.

Laura J. Alber: These improvements will continue to contribute meaningfully to our profitability in 2024 and beyond.

Laura J. Alber: And we see opportunity to drive margin by continuing our focus on full price selling and costs negotiation.

Laura J. Alber: As it relates to other cost efficiencies, we will maintain our employment cost savings that we achieved last year. Following our comprehensive review of our organization structure.

Laura J. Alber: Regarding marketing, we continue to increase our spend, and we are seeing very effective returns on our paid marketing and on our social strategy. This investment will both drive sales and help us acquire new customers. Our in-house marketing expertise and performance-driven approach continues to serve as a differentiator between us and our peers. Also, our ongoing investment in our proprietary e-commerce technology continues to improve our online experience. We are focused on offering customers inspiring content and dynamic tools to assist with design projects, and AI is accelerating these efforts.

Laura J. Alber: Regarding marketing, we continue to increase our spend and we are seeing very effective returns on our paid marketing and on our social strategy.

Laura J. Alber: This investment will both drive sales and help us acquire new customers.

Laura J. Alber: Our in house marketing expertise and performance driven approach continues to serve as a differentiator between us and our peers.

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

Laura J. Alber: We are focused on offering customers inspiring content and dynamic tools to assist with design projects and AI is accelerating these efforts.

Laura J. Alber: We've seen many opportunities for our business from developments in AI, and we believe our leadership in this area will be yet another competitive advantage. As focused as we are on our digital and e-commerce capabilities, we remain passionate about our best-in-class retail business. We continue to improve our in-store experiences with inspirational products and next-level design services. I truly believe our teams are the best in the industry.

Laura J. Alber: <unk> seen many opportunities for our business from developments in AI and we believe our leadership in this area will be yet another competitive advantage.

Laura J. Alber: As focused as we are on our digital and e-commerce capabilities, we remain passionate about our best in class retail business.

Laura J. Alber: We continue to improve our in store experiences with inspirational product and next level design services.

Laura J. Alber: I truly believe our teams are the best in the industry.

Laura J. Alber: And our continued retail optimization efforts have transformed our fleet to be positioned in the most profitable, inspiring, and strategic locations. On the sustainability front, in Q4, we are proud to be the only home furnishings retailer included in the 2023 Dow Jones Sustainability North America Index. And we started 2024 by being named one of Barron's 100 most sustainable companies. Our commitment to values is embedded in our company's strategy, and we are proud of our recognition as a leader in sustainable home furnishings. Now I'd like to spend a few minutes talking about our brand. Paderborn ran a negative 9.6 comp in Q4 and ran a negative 3.8 on a two-year basis and a positive 38.1 on a four-year basis.

Laura J. Alber: And our continued retail optimization efforts have transformed our fleet to be positioned in the most profitable inspiring and strategic locations.

Laura J. Alber: On the sustainability front in Q4, we are proud to be the only home furnishings retailer included in the 2023, Dow Jones sustainability North America Index.

Laura J. Alber: And we started 2024 by being named one of Barron's 100, most sustainable companies.

Laura J. Alber: Our commitment to values is embedded in our company strategy and we are proud of our recognition as a leader in sustainable home furnishings.

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

Laura J. Alber: Pottery barn ran a negative $9 six comp in Q4 and ran a negative three eight on a two year basis and positive $38, one kind of four year basis.

Laura J. Alber: The comp improved sequentially from Q3, but it still ran negative due to the pullback in consumer spending on furniture. During the holiday season, we saw strength in seasonal decor, entertaining, and home textiles. The brand experienced a strong customer response over the Black Friday-Cyber Monday period, and we continue to reduce discounting and strengthen our merchandise margins. The brand benefits from the Q4 launch of the Potter Barn mobile shopping and design app. This new app allows customers to shop full room designs, share their favorite products, and connect with a design expert all through the convenience of their phone or tablet.

Laura J. Alber: The comp improved sequentially from Q3, but still ran negative due to the pullback in consumer spending and furniture.

Laura J. Alber: During the holiday season, we saw strength in seasonal decor entertaining and home textiles.

Laura J. Alber: The brand experienced a strong customer response over the Black Friday, cyber Monday period, and we continue to reduce discounting and.

Laura J. Alber: And strengthen our merchandise margins.

Laura J. Alber: The brand benefited from Q4 launch of the pottery barn mobile shopping and design App.

Laura J. Alber: This new App allows customers to shop full room designs share their favorite products and connect with the design expert all through the convenience of their phone or tablet.

Laura J. Alber: We anticipate the continued customer adoption of this app will drive conversion for Potter Barn in 2024 and beyond. As we launch our exclusive spring product collections, we're seeing continued strength in fashion bedding, home furnishings, and botanicals. Customers are continuing to gravitate towards easy updates with color, print, and pattern. The Pottery Barn Children's Business ran a negative 2.5 comp in Q4 and was 1.5 positive on a two-year basis and 21.1% positive on a four-year basis.

We anticipate the continued customer adoption of this app will drive conversion for pottery barn, and 2024 and beyond.

Laura J. Alber: As we launch our exclusive spring product collections that were seeing continued strength in fashion bedding home furnishings and botanicals.

Laura J. Alber: Customers are continuing to gravitate towards easy updates with color prints and pattern.

Laura J. Alber: The pilot runs children business ran a negative two five comp in Q4 and was one five positive on a two year basis, and 21, 1% positive on a four year basis.

Laura J. Alber: We continue to be focused on delivering compelling innovation and evolving the customer experience, and we are pleased to see improvement in the comp. Our baby business continued to be very strong and represents a sizable opportunity. We have been delivering growth and registry with our curated assortment, easy-to-use mobile app, and in-store baby experts. We've also introduced new products that are both high in quality and innovation, such as our Dream Deluxe Power Swivel Recliner with heat and massage. Also, we're proud of our collaborations, and we just launched Erin Lauder, who is making her debut line for Baby with whimsical design and keepsake quality.

Laura J. Alber: We continue to be focused on delivering compelling innovation and evolving the customer experience and we are pleased to see improvement in the comp.

Laura J. Alber: Our baby business continues to be very strong and represents a sizable opportunity.

Laura J. Alber: We have been delivering growth in registry with our curated assortment easy to use mobile app and in store baby experts.

Laura J. Alber: We've also introduced new products that are both high quality and innovation such as our dream Deluxe power swivel recliner with heat and massage.

Laura J. Alber: Also we're proud of our collaborations and we just launched Erlander, who is making her debut line for baby with whimsical design and keep safe quality.

Laura J. Alber: Also in Q4, we saw a strong consumer response to our expanded seasonal offerings that ranged from Baby's First Christmas to Grinch-themed bedding for teens. We saw customers return to us for Valentine's Day and Easter with a strong response to our new collaborations, including an expanded collection of Hello Kitty. We're also seeing a particularly strong trend with our NFL offering in teams. And finally, we're seeing strength in nursery furniture, a purchase that is less dependent on new home sales. Moving to West Elm, West Elm is the brand that has been the most impacted by the consumer pullback in furniture. In Q4, West Elm ran a negative 15.3% and was negative 26% on a two-year basis and positive 17.5% on a four-year basis.

Laura J. Alber: Also in Q4, we saw strong consumer response to our expanded seasonal offerings that range from baby's first Christmas to grinch themed betting for teams.

Laura J. Alber: We saw customers returned to us for Valentine's day, and Easter with a strong response to our new collaborations, including an expanded collection of Hello Kitty.

Laura J. Alber: We're also seeing a particularly strong trend with our NFL offering and team.

Laura J. Alber: And finally, we're seeing strengthened nursery furniture.

Laura J. Alber: So there is less dependent on new home sales.

Laura J. Alber: Moving to West Elm West Elm as the brand has been the most impacted by the consumer pullback in furniture in.

Laura J. Alber: In Q4, West Elm ran a negative 15, 3% and was negative 26% on a two year basis and positive 17, 5% on a four year basis.

Laura J. Alber: However, what I'm excited about are our new product sales from this year's holiday assortment, which saw strong growth compared to last year across all categories. The customers responded positively to fresh designs in furniture, textiles, and decorative accessories. We also saw strong sales in holiday decor.

Laura J. Alber: However, what I'm excited about our new product sales from this year's holiday assortment, which has strong growth to last year across all categories.

Laura J. Alber: The customer responded positively to fresh designs in furniture, textiles and decorative accessories.

We also saw strong sales in holiday decor.

Laura J. Alber: And as we move into 2020 for newness continues to accelerate and is performing well.

Laura J. Alber: And as we move into 2024, newness continues to accelerate and is performing well. Given these positive trends and newness, we continue to see a sizable opportunity for West Elm as it rebalances more inventory into these new products. The Williams-Sonoma brand ran a positive 1.6% comp in Q4. On a two-year basis, the brand was negative 0.9% and was positive 29.8% on a four-year basis.

Laura J. Alber: Given these positive trends and newness, we continue to see a sizable opportunity in west Elm as rebalancing more inventory into these new products.

Laura J. Alber: The Williams Sonoma brand ran a positive one 6% comp in Q4 on a two year basis. The brand was negative <unk>, 9% and was positive 29, 8% on a four year basis and.

Laura J. Alber: In Q4, the Williams-Sonoma kitchen business ran a positive comp for the third consecutive quarter, and our Williams-Sonoma home business meaningfully improved. Retail has been very strong, with inspiring in-store events and dramatically improved in-stock. Our seasonal categories grew double digits, and we saw strength in core businesses like cookware and bakeware as customers gravitated toward gifting and entertaining at home. Throughout the quarter, collaborations like our Cookware partnership with Greenpan and Stanley Cucci and the launch of a partnership with one of Netflix's most-watched shows, Bridgerton, continued to drive sales, buzz, and new customer acquisitions. Now I would like to update you on our other initiatives. Business to business ended the year strong with Q4 at positive 5%, bringing the total year to a positive 1%, coming in just under $1 billion.

Laura J. Alber: In Q4, the Williams Sonoma kitchen business ran a positive comp for the third consecutive quarter and our Williams Sonoma home business meaningfully improved.

Laura J. Alber: Retail has been very strong with inspiring in store events and dramatically improved in stocks.

Seasonal categories grew double digits, and we saw strength in core businesses like cookware, and bakeware as customers gravitated towards gifting and entertaining at home.

Laura J. Alber: Throughout the quarter collaborations like our cookware partnership with Green Pan and Stanley Tucci, and the launch of our partnership with one of Netflix most swap shows Richardson continues to drive sales buzz and new customer acquisition.

Speaker Change: Now I would like to update you on our other initiatives.

Speaker Change: Business to business ended the year strong with Q4 at positive 5%, bringing the total year to a positive 1% coming in just under $1 billion.

Laura J. Alber: The contract business exceeded expectations at a positive 31% on the year, due to continued strength in the hospitality and residential sectors, along with early traction in developing segments such as healthcare, gaming, and senior living. Flagship projects in the back half of the year range from providing furnishings for medical office providers across the country, as well as entertainment venues like Dave and Buster's. Our B2B team also provided guest room furniture for the new Fontainebleau Hotel that recently opened in Vegas.

Speaker Change: The contract business exceeded expectations at positive 31% on the year fueled by continued strength in the hospitality and residential sectors, along with early traction in developing segments, such as health care gaming and senior living.

Speaker Change: Flagship projects in the back half of the year range from providing furnishings from medical office providers across the country as well as entertainment venues like Dave and Busters.

Speaker Change: <unk> also provided guestroom furniture, the new Fontainebleau hotel that recently opened in Vegas.

Laura J. Alber: Now I'd like to talk about our global business. While macroeconomic pressures continue to affect our global business, we are pleased with our performance in India, Mexico, and Canada. In India, we are seeing growth from strong marketing and brand awareness campaigns across the brands with a high penetration of our design crew business. In Mexico, the market continues to show strength, driven by improved in-stocks and a strong holiday season.

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

Speaker Change: While macro economic pressures continued to affect our global business. We are pleased with our performance in India, Mexico, and Canada and.

Speaker Change: In India, we are seeing growth from strong marketing and brand awareness campaigns across the brands with a high penetration of our design crew business.

In Mexico, the market continues to show strength, driven by improved in stocks and a strong holiday season.

Laura J. Alber: The Canada business continues to build momentum, fueled by our commitment to enhance the customer experience both online and in retail. Our digital initiatives in the Canadian market continue to gain new customers and drive results for our brands. And we are pleased with the initial positive response to the recent launches of Rejuvenation, Mark and Graham, and Williams-Sonoma Home in Canada. As we continue to expand our omnichannel presence around the globe, India, Mexico, and Canada remain our key strategic growth markets.

Speaker Change: The Canada business continues to build momentum fueled by our commitment to enhance the customer experience both online and in retail.

Speaker Change: Our digital initiatives in the Canadian market continued to gain new customers and drive results for our brands.

Speaker Change: And we are pleased with the initial positive response to the recent launches of rejuvenation, Mark and Graham and Williams Sonoma home in Canada.

Speaker Change: As we continue to expand our omnichannel presence around the Globe, India, Mexico, and Canada remain our key strategic growth markets.

Laura J. Alber: Lastly, I'd like to update you on our emerging brands. Rejuvenation delivered a strong quarter with a double-digit positive comp driven by success in our remodel product categories and new growth initiatives. We continue to see strength in both consumer and B2B sales. Rejuvenation continues to establish itself as a destination for home projects by providing products with great function, high quality, and timeless design details.

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

Speaker Change: Rejuvenation delivered a strong quarter with double digit positive comp driven by success in our remodel product categories and new growth initiatives we.

Speaker Change: We continue to see strength in both consumer and <unk> sales.

Speaker Change: Rejuvenation continues to establish itself as a destination for home projects.

Speaker Change: By providing products with great function high quality and timeless design details.

Laura J. Alber: We're excited by the momentum in the brand and the growth potential in 2024 and beyond and believe rejuvenation can be our next billion-dollar brand. Mark and Graham, our high-quality gifting business, saw strong growth this year with a high single-digit positive growth in the quarter. Our monogramming capabilities, coupled with unique, high-quality gifts and the brand's curated online gift shops, make it easy for customers to find the perfect gift.

Speaker Change: Excited by the mentioned in the brands and the growth potential in 2024 and beyond and believe rejuvenation can be our next billion dollar brand.

Speaker Change: Mark and Graham are high quality gifting business saw strong growth this year with a single high single digit positive comp in the quarter.

Speaker Change: Our motto granting capabilities, coupled with unique high quality gifts and the brand's curated online gift shops make it easy for customers to find the perfect gift.

Laura J. Alber: And finally, our start-up, Greenrow. We continue to gain momentum for this new brand, which utilizes sustainable materials and manufacturing practices to create colorful, heirloom-quality products. We remain optimistic about the potential of this brand and its aesthetics. In 2024, we're planning to grow GreenRow with substantial increases in product assortment. These successful and exciting emerging brands demonstrate our ability to develop new businesses that expand our portfolio and address white space in the market. In summary, we're extremely proud of our accomplishments and financial results this year. We outperformed in 2023, despite the slowest housing market in several decades and massive geopolitical unrest.

Speaker Change: And finally, our startup Green Roe.

Speaker Change: We continue to gain momentum and this new brand, which utilizes sustainable materials and manufacturing practices to create colorful heirloom quality products.

Speaker Change: Main optimistic about the potential of this brand and its a static.

Speaker Change: In 2024, we're planning to grow green row with substantial increases in product assortment. These successful and exciting emerging brands demonstrate our ability to develop new businesses that expand our portfolio and address white space in the market.

Speaker Change: In summary, we're extremely proud of our accomplishments and financial results. This year, we outperformed in 2023, despite the slowest housing market in several decades and massive geopolitical unrest.

Laura J. Alber: Although this pressures our top-line trend, we stay focused on full-price selling, supply chain efficiencies, and best-in-class customer service. We have transformed our business model, and as a result, we deliver an operating margin well above our guidance and well ahead of our pre-pandemic operating margin. We have a powerful portfolio of brands serving a range of categories, aesthetics, and life stages, and we have built a strong omni-channel platform and infrastructure that positions us well for the next stage of growth.

Speaker Change: Although this pressure our top line trend, we stayed focused on full price selling supply chain efficiencies and best in class customer service.

Speaker Change: We have transformed our business model and as a result, we delivered operating margin well above our guidance and well ahead of our pre pandemic operating margin we.

Speaker Change: We have a powerful portfolio of brands, serving a range of categories aesthetics and life stages, and we have built a strong omnichannel platform and infrastructure, which positions us well for the next stage of growth.

Laura J. Alber: It is early, but our reads on Q1 are strong, and we are optimistic about the opportunities that exist ahead. With that, I'll turn it over to Jeff to walk you through the numbers and our outlook in more detail. Thank you, Laura. And good morning, everyone.

Speaker Change: It is early but our reads on Q1 is strong and we are optimistic about the opportunities that exist ahead.

Speaker Change: With that I'll turn it over to Jeff to walk you through the numbers and our outlook in more detail.

Jeff: Thank you Laura and good morning, everyone.

Jeff Howie: As Laura said, we're pleased to deliver a strong finish to fiscal year 23, with Q4 and full year 23 earnings significantly exceeding expectations. We delivered these earnings despite a challenging backdrop for home furnishings, pressuring our top line. Our strong profitability in this environment demonstrates the durability of our operating margin. Our results once again reinforce the themes we consistently communicated in 2023.

Jeff: As Laura said, we're pleased to deliver a strong finish to fiscal year 'twenty, three with Q4 and full year 2003 earnings significantly exceeding expectations.

Jeff: We delivered these earnings despite a challenging backdrop for home furnishings pressuring our topline.

Jeff: Our strong profitability in this environment demonstrates the durability of our operating margins.

Jeff: Our results once again reinforce the themes, we consistently communicated in 2023.

Jeff Howie: First, our steadfast commitment to maintain price integrity and not run site-wide promotions. Second, our first half supply chain cost pressures became tailwinds in the second half. And third, our discipline to control costs and manage inventory levels. Given the strength of our earnings through this challenging period for home furnishings, we're confident we can deliver long-term growth and even stronger earnings as the customer shifts back to home. Now, let's dive into the numbers. I'll start with our Q4 results, followed by our full fiscal year 23 results, then provide guidance for 24. Q4 net revenues finished at $2.28 billion.

Jeff: First our steadfast commitment to maintain price integrity and not run site wide promotions.

Jeff: Second our first half supply chain cost pressures became tailwind in the second half.

Jeff: And third our discipline to control costs and manage inventory levels.

Jeff: Given the strength of our earnings through this challenging period for home furnishings. We're confident we can deliver long term growth.

Jeff: Even stronger earnings as the customer shifts back to home.

Speaker Change: Now, let's dive into the numbers I will start with our Q4 results.

Speaker Change: Followed by our full fiscal year 'twenty three results then provide guidance for 2004.

Speaker Change: Q4, net revenues finished at 228 billion.

Jeff Howie: Our revenues came in at the high end of our expectations, driven by strong holiday performance across our portfolio of brands, partially offset by ongoing customer hesitancy toward big-ticket expenditures. During the quarter, we continued our commitment to maintain price integrity, and we reduced our overall level of promotion. Our Q4 comps came in at negative 6.8%, with our two-year comp at negative 7.4%, and our four-year comp to 2019 at plus 29.1%. From a cadence perspective, our comps reflect a strong Black Friday to Christmas holiday period, bookended by inconsistent and choppy sales on both ends. Moving down the income statement, Q4 gross margin improved 480 basis points over last year to 46% as higher selling margins more than offset the impact of higher occupancy costs.

Speaker Change: Our revenues came in at the high end of our expectations driven by strong holiday performance across our portfolio of brands.

Speaker Change: Partially offset by ongoing customer hesitancy towards big ticket expenditures.

Speaker Change: During the quarter, we continued our commitment to maintain pricing integrity, and we reduced our overall level of promotions.

Speaker Change: Our Q4 comps came in at negative six 8% with our two year comp at negative seven 4%.

Speaker Change: And our full year comp to 2019 at plus 29, 1%.

Speaker Change: From a cadence perspective, our comps reflect a strong black Friday to Christmas holiday period.

Speaker Change: Bookended by inconsistent and choppy sales on both ends.

Speaker Change: Moving down the income statement Q4, gross margin improved 480 basis points over last year.

Speaker Change: For 46% as higher selling margins more than offset the impact of higher occupancy costs.

Jeff Howie: Q4 selling margins, at 55.1%, were 560 basis points higher than last year, reflecting the full impact on our profitability of the supply chain tailwinds we've been guiding for several quarters. Our higher QPOR selling margins were driven by both higher merchandise margins and lower costs from supply chain efficiency. Q4 merchandise margins contributed about half the increase in selling margins, driven by lower input costs and our focus on full price selling. The balance of improvement came directly from supply chain efficiencies, which drove an improved customer experience and lower costs.

Speaker Change: Q4, selling margins at 55, 1% were 560 basis points higher than last year.

Speaker Change: Reflecting the full impact to our profitability of the supply chain tailwind, we've been guiding for several quarters.

Our higher Q4, selling margins were driven by both higher merchandise margins.

Speaker Change: And lower costs from supply chain efficiencies.

Speaker Change: Q4 merchandise margins contributed about half the increase in selling margins.

Speaker Change: Driven by lower input costs, and our focus on full price selling.

Speaker Change: The balance of improvement came directly from supply chain efficiencies, which drove an improved customer experience and lower costs.

Jeff Howie: We're proud to see our focus on execution and investment in the supply chain paying off. Key metrics, including out-of-market shipping, multiple deliveries per order, returns, accommodations, and damages?

Speaker Change: We're proud to see our focus on execution and investment in supply chain paying off.

Speaker Change: Key metrics, including out of market shipping.

Speaker Change: Multiple deliveries per order.

Speaker Change: Terms.

Speaker Change: Accommodations.

Speaker Change: Damages.

Jeff Howie: and replacements are all performing at pre-pandemic levels, if not better. Our higher Q4 selling margins more than offset the 2% growth in Q4 occupancy costs to $208 million, or 9.1% in net revenues of 80 basis points for last year. Turning now to SG&A, our Q4 SG&A expense of $591 million grew 13% and ran at 25.9% of revenue, deleveraging 460 basis points. As a reminder, our Q422 SG&A results benefited from favorable items that we guided would not repeat in Q423. Excluding the favorable items from last year, our SG&A dollars decreased four percent.

Speaker Change: And replacements are all performing at pre pandemic levels, if not better.

Speaker Change: Our higher Q4, selling margins more than offset the 2% growth in Q4 occupancy costs to $208 million.

Speaker Change: Or nine 1% of net revenues up 80 basis points from last year.

Speaker Change: Turning now to SG&A, our Q4 SG&A expense of $591 million grew 13% and.

Speaker Change: And ran at 25, 9% of revenues deleveraging 460 basis points.

Speaker Change: As a reminder, our Q4 'twenty two SG&A results benefited from favorable items that we got it would not repeat in Q4 23.

Speaker Change: Excluding the favorable items from last year.

Speaker Change: SG&A dollars decreased 4%.

Jeff Howie: Q4 employment was 300 basis points higher year over year, driven by higher performance-based incentive compensation in fiscal year 23 than last year. In Q4, we continue to manage variable employment costs in accordance with top-line trends. Q4 advertising expense was 60 basis points higher year-over-year, as we took advantage of opportunities to invest in higher levels of advertising spend. As Laura mentioned, we continue to increase our spend as we are seeing very effective returns on this investment. Our ability to invest in these opportunities is an example of the competitive advantage of our agile, performance-driven marketing organization and our in-house capabilities. First-party data, and Multigrain Platform continue to drive efficient advertising spend. Q4 general expenses dropped the balance of the in- as we lapped the federal insurance settlement received in fiscal year 22.

Speaker Change: Q4, employment was 300 basis points higher year over year, driven by higher performance based incentive compensation in fiscal year 'twenty three than last year.

Speaker Change: In Q4, we continued to manage variable employment costs in accordance with topline trends.

Speaker Change: Q4 advertising expense was 60 basis points higher year over year, as we took advantage of opportunities to invest into higher levels of advertising spend.

Speaker Change: As Laura mentioned, we continue to increase our spend as we are.

Speaker Change: Seeing very attractive returns on this investment.

Speaker Change: Our ability to invest in these opportunities.

Speaker Change: As an example of the competitive advantage of our.

Speaker Change: Agile performance driven marketing organization.

Speaker Change: Our in house capabilities.

Speaker Change: First party data.

Speaker Change: And multi brand platform.

Speaker Change: To drive efficient advertising spend.

Speaker Change: Q4 general expenses drove the balance of the increase.

Speaker Change: We lapped a favorable insurance settlement received in fiscal year 'twenty two.

Jeff Howie: On the bottom line, our Q4 earnings significantly exceeded expectations. Q4 operating income came in at $458 million, and operating margin was 20.1%, 20 basis points above last year, with Q4 diluted earnings per share of $5.44. Turning now to our four-year results, which again exceeded expectations. Full year net revenues finished at $7.75 billion.

Speaker Change: The bottom line, our Q4 earnings significantly exceeded expectations.

Speaker Change: Q4 operating income came in at $458 million and operating margin of 21%.

Speaker Change: 20 basis points above last year.

Speaker Change: With Q4 diluted earnings per share of $5 44.

Speaker Change: Turning now to our full year results, which again exceeded expectations.

Speaker Change: Full year net revenues finished at $7 75 billion.

Jeff Howie: Our full-year revenues reflect a larger home furnishings backdrop and our commitment to maintain price integrity, even if it means foregoing some revenues in the short term. Our full-year COP ran down 9.9%, with our two-year COP at negative 3.4%, and our four-year top to 2019 at plus 35.6 percent. Full-year gross margins ended at 42.7%, a 30 basis point improvement over last year, as our first half supply chain headwinds turned into even stronger tailwinds in the back half.

Speaker Change: Our full year revenues reflect a larger home furnishings backdrop, and our commitment to maintain pricing targeting even if it meant foregoing some revenues in the short term.

Speaker Change: For full year comp ran down nine 9% with our two year comp that negative three 4%.

Speaker Change: And our full year comp to 2019 at plus 35, 6%.

Speaker Change: Full year gross margin ended at 42, 7%, a 30 basis point improvement over last year.

Speaker Change: Our first half supply chain headwinds turned into even stronger tailwind in the back half.

Jeff Howie: So your selling margins, at 53.2%, were 170 basis points over last year and our highest ever selling margin rate, driven by a nearly equal net of higher merchandise margins and supply chain efficiency. These higher selling margins more than offset the 4% increase in our full-year occupancy costs to $814 million. Your SG&A expense decreased 5.8% to $2.04 billion. This decrease was driven by employment reductions taken in Q1 and Q2.

Speaker Change: Full year selling margins at 53, 2% were 170 basis points over last year.

Speaker Change: And our highest ever selling margin rates.

Speaker Change: Driven by a nearly equal mix of higher merchandize margins and supply chain efficiencies.

These higher selling margins more than offset the 4% increase in our full year occupancy costs to $814 million.

Speaker Change: Full year SG&A expense decreased five 8% to $2 4 billion.

This decrease was driven by our employment reductions taken in Q1 and Q2.

Jeff Howie: Are management of variable employment in line with top line trends? and a 20 basis point reduction in advertising for the full year. Foliar SG&AD leverage of 140 basis points was primarily driven by lapping the favorable items recognized in Q422 that I discussed earlier. On the bottom line, full-year operating income finished at $1.27 billion, and operating margin was 16.4%, significantly above our pre-COVID levels and the 15% operating margin floor we established at the start of the year. Full year diluted earnings per share ended at $14.85.

Speaker Change: Our management of variable employment in line with top line trends.

Speaker Change: And a 20 basis point reduction in advertising on the full year.

Speaker Change: Full year SG&A deleverage of 140 basis points was primarily driven by lapping the favorable items recognized in Q4, 'twenty two that I discussed earlier.

On the bottom line full year operating income finished at $1 $2 7 billion.

Speaker Change: Operating margin at 16, 4%.

Speaker Change: Significantly above our pre COVID-19 levels and the 15% operating margin floor, we established at the start of the year.

Speaker Change: Full year diluted earnings per share ended at $14 and 85.

Jeff Howie: On the balance sheet, we ended the year with a cash balance of $1.26 billion with no debt outstanding. This was after we invested $188 million in capital expenditures supporting our long-term growth, and we returned over $545 million to our shareholders through share repurchases and quarterly dividends. Year-end merchandise inventories stood at $1.25 billion, down 14.4% from last year.

Speaker Change: On the balance sheet, we ended the year with a cash balance of $1 6 billion with no debt outstanding.

Speaker Change: This was after we invested $188 million and capital expenditures supporting our long term growth.

Speaker Change: And we returned over $545 million.

Speaker Change: To our shareholders through share repurchases and quarterly dividends.

Speaker Change: Year end merchandise inventories stood at $1 25 billion down 14, 4% to last year.

Jeff Howie: At these levels, we are well positioned to maintain our price integrity as we've proactively managed our inventory levels in line with our top-line trends. We generated a record level of free cash flow in 2023 of $1.49 billion. Driven by the strength of our earnings, Proactive Inventory Management and Financial Discipline. Speaking of financial discipline, a prime example is our fiscal year 23 return on invested capital of 45%, which is among the best in the retail industry. Summing up our 23 results, we're proud to have delivered earnings substantially exceeding expectations. As Laura said, these results reflect the efforts of the entire team at Williams-Sonoma Inc., and I'd like to thank our talented team for delivering these outstanding results in a challenging environment. Now, let's turn to our 24-hour.

Speaker Change: At these levels, we are well positioned to maintain our price integrity as we proactively managed our inventory levels in line with our topline trends.

Speaker Change: We generated a record level of free cash flow in 2023 at 149 billion driven.

Speaker Change: Driven by the strength of our earnings.

Speaker Change: Proactive inventory management and financial discipline.

Speaker Change: Speaking of financial discipline.

Speaker Change: An example is our fiscal year 'twenty three return on invested capital of 45%.

Speaker Change: This is among the best in the retail industry.

Speaker Change: Summing up our 23 results, we're proud to have delivered earnings substantially exceeding expectations.

Speaker Change: As Mark said these results reflect the efforts of the entire team at Williams Sonoma, Inc.

Speaker Change: I'd like to thank our talented team for delivering these outstanding results in a challenging environment.

Speaker Change: Now, let's turn to our 24 outlook.

Jeff Howie: First, let me point out that 2024 is a 53-week year for Williams-Sonoma Inc., so the fourth quarter will consist of 14 weeks. We will report comps on a 53-week versus 53-week comparable basis. All other year-over-year comparisons will be 53 weeks versus 52 weeks.

Speaker Change: First let me point out the 2024 is a 53 week year for Williams Sonoma, Inc. So the fourth quarter will consist of 14 weeks.

Speaker Change: We will report comps on a 53 week versus 53 week comparable basis.

Speaker Change: All other year over year compares will be 53 weeks versus 52 weeks.

Jeff Howie: We anticipate the additional week will contribute 150 basis points to revenue growth and 10 basis points to operating margins, both of which are embedded in our guidance. We anticipate 2024 will be a year of continued macroeconomic uncertainty. Lower interest rates could spur the housing market and shift consumer spending back to homes, but timing is hard to predict.

Speaker Change: We anticipate the additional week will contribute 150 basis points to revenue growth and.

Speaker Change: And 10 basis points to operating margins.

Speaker Change: Both of which are embedded in our guidance.

Speaker Change: We anticipate 2024 will be a year of continued macroeconomic uncertainty.

Speaker Change: Lower interest rates could spur the housing market and shift consumer spending back to home.

Speaker Change: It's hard to predict.

Jeff Howie: And there is also the election and global geopolitical tension. With this in mind, we are providing a wide range of guidance for 24. 24 Net revenues are expected to be in the range of down 3% to up 3%, with comps between down 4.5% to up 1.5%, and operating margins between 16.5% and 16.8%. On the top line, we anticipate sequential improvement across the year, with the first half tougher than the second half as our top line comparisons get easier. On the bottom line, we expect our supply chain tailwinds will continue through at least the first half of 2024, but will be partially offset by higher advertising spend. In the back half, we anticipate our operating margins will be in line with 23 results. Our capital allocation plans for 24 prioritize funding our business operations and investing in long-term growth. We expect to spend $225 million in capital expenditures to invest in the long-term growth of our business.

Speaker Change: There is also the election.

Speaker Change: And global geopolitical tension.

Speaker Change: With this in mind, we are providing a wide range of guidance for 'twenty four.

Speaker Change: 24, net revenues are expected to be in the range of down 3% to up 3%.

Speaker Change: With comps between down four 5% to up one 5%.

Speaker Change: And operating margins between 16, 5% and 16, 8%.

Speaker Change: On the topline, we anticipate sequential improvement across the year with.

Speaker Change: With the first half tougher than the second half as our top line comparisons get easier.

Speaker Change: On the bottom line, we expect our supply chain tailwind will continue through at least the first half of 'twenty four.

Speaker Change: <unk> will be partially offset by higher advertising spend.

Speaker Change: In the back half, we anticipate our operating margins will be in line with 23 results.

Speaker Change: Our capital allocation plans for 'twenty, four prioritized funding our business operations and investing in long term growth.

Speaker Change: We expect to spend $225 million and capital expenditures to invest in the long term growth of our business.

Jeff Howie: 75% of this capital spend will be dedicated to driving our e-commerce leadership and supply chain efficiency. We expect to continue to return excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, today we announced an increase in our quarterly dividend payout of 26%, or $0.23 to $1.13 per share. Fiscal year 24 will be the 15th consecutive year of increased dividend payouts, which we are both proud of and remain committed to.

Speaker Change: 75% of this capital spend will be dedicated to drive our e-commerce leadership and supply chain efficiency.

Speaker Change: We expect to continue to return excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases.

Speaker Change: For dividends today, we announced an increase in our quarterly dividend payout of 26% or 23.

Speaker Change: The $1 13 per share.

Speaker Change: Fiscal year 'twenty four will be the 15th consecutive year of increased dividend payouts, which we're both proud of and remain committed to.

Jeff Howie: For share repurchases, today we also announced our board has approved a new $1 billion share repurchase authorization, replacing the previous authorization, under which we will opportunistically repurchase our stock to deliver returns to our shareholders. Combined, our dividend increase and new share repurchase authorization continue our commitment to return excess cash to our shareholders. In fact, we've returned over $3.8 billion to our shareholders over the last six years.

Speaker Change: For share repurchases today, we also announced our board has approved a new $1 billion share repurchase authorization.

Speaker Change: Replacing previous authorizations, and under which we will opportunistically repurchase our stock to deliver returns to our shareholders.

Speaker Change: Combined our dividend increase and new share repurchase authorization continue our commitment to return excess cash to our shareholders.

Speaker Change: In fact, we've returned over $3 8 billion to our shareholders over the last six years.

Jeff Howie: As we look further into the future beyond 24, we are reiterating our long-term top-line guidance, and we have made high single-digit revenue growth. And in the long term, we now believe we can sustain operating margins in the mid to high teens. We're confident we'll continue to outperform our peers and deliver shareholder growth for these reasons, as well as our ability to gain market share in a fragmented home furnishings industry. The strength of our in-house, proprietary design.

Speaker Change: As we look further into the future beyond 'twenty four we are reiterating our long term top line guidance of mid to high single digit revenue growth.

Speaker Change: And in the long term, we now believe we can sustain operating margins in the mid to high teens.

Speaker Change: We're confident we will continue to outperform our peers.

Speaker Change: And deliver shareholder growth for these reasons.

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

Speaker Change: The strength of our in house for.

Speaker Change: <unk> design.

Jeff Howie: The competitive advantage of our digital-first, but not digital-only channel strategy, the ongoing strength of our growth initiative, and the resiliency of our fortress balance sheet. With that, I'll open the call to questions. At this time, if you would like to ask a question, press the star followed by the number one on your telephone keypad.

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

The ongoing strength of our growth initiatives.

Speaker Change: And the resiliency of our fortress balance sheet.

Speaker Change: With that I will open the call for questions.

Speaker Change: 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 your questions to one and one follow up and return to the queue for any additional questions that you may have our first question will come from the line of Stephens <unk> with Citi. Please go ahead.

Operator: We ask that you please limit your questions to one and one follow-up, then return to the queue for any additional questions that you may have. Our first question will come from the line of Steven Zaccone with Citi. Please go ahead.

Steven Emanuel Zaccone: Great, good morning. Thanks for taking my question. Congratulations on the strong margin execution here in a tough environment. So, Jeff, first question for you, can you talk a bit more about the margin assumptions in the 2024 guide in more detail? You know, you gave commentary about operating margin in the back half. Can you talk about gross margin, in particular? How does that look on the cadence of the year? Good morning, Steve.

Stephens: Hey, good morning, Thanks for taking my question Congrats on the strong margin execution here in a tough environment.

Stephens: So Jeff first question for you can you talk a bit more about the margin assumption in the 2020 core guide in more detail you.

Stephens: You gave the commentary about operating margin in the back half can you talk about gross margin in particular, how does that look on the cadence of the year.

Jeff: Good morning, Steve Yes.

Jeff Howie: Yes, on our Gross Margin Outlook and our Event Margin Outlook, as you know, we don't guide the individual line items. Instead, we provide top-line guidance and bottom-line operating margin guidance. And the reason why is that it gives us the flexibility to react as we see trends evolve in the business and the different levers we can pull along the way. And, you know, as you've seen, as we did in 23, we know the levers to pull to deliver results. We see continued strength in our operating margin, and as we guided today, we see it landing between 16.5 to 16.8% on the year.

Jeff: Our gross margin outlook and our EBIT margin outlook as you know we don't guide individual line items, we provide top line guidance and bottom line operating margin guidance and the reason why is it gives us the flexibility to react.

We see trends evolve in the business and the.

Jeff: And the different levers, we can pull along the way.

And.

Jeff: As you've seen.

We did in 2003, we know the levers to pull to deliver results.

Jeff: We see continued strength in our operating margin and as we guided today, we see Atlanta between 16, 5% to 16, 8% on the year, we do see that the.

Jeff Howie: We do see that the supply chain tailwinds that we've been seeing in the back half of 2023 will continue into the front half of 2024, but will be offset by some additional advertising expenditures as we talked about in Q4 of 2023. But overall, we're very confident in our operating margin and looking forward to delivering these results.

Jeff: Supply chain tailwind that we've been seeing in the back half of 'twenty three will continue into the front half of 'twenty, four but will be offset by some additional advertising expenditures as we talked about we did in 2000.

Jeff: Q4 of 'twenty three.

Jeff: But overall, we're very confident in our operating margin and looking forward to delivering these results.

Speaker Change: Okay great.

Laura J. Alber: Then, second question for you, Laura, I was hoping to get more detail on the West Elm turnaround. You talked about some newness, and that's doing well, but how long do you expect the turnaround to take? And if we think about the performance of that brand relative to the overall guidance for the company, would you expect West Elm to still underperform? Yeah, I'm so excited about West Elm.

Speaker Change: Second question for you Laura I was hoping to get more detail on the west Elm turnaround.

Laura J. Alber: You talked about some newness and that's doing well, but how long do you expect the turnaround to take and if we think about the performance of that brand relative to the overall guidance for the company would you expect to asylum, Brazil underperformed.

Laura J. Alber: Yes, I'm so excited about <unk>.

I've had a chance to see all of the product that's coming in this year and their strategies.

Laura J. Alber: I've had a chance to see all the products that are coming in this year and their strategies. And I think it's a very clear, exciting growth story, again, for us. I think in terms of timing, you know, it's always hard to predict exactly when things will go.

Laura J. Alber: And I think it's a very clear exciting growth story again for us I think tens of timing, that's always hard to predict exactly when.

Laura J. Alber: Things will go but we are seeing as I said really strong results not just in the holiday seasonal decor, but the new product offer that's core.

Laura J. Alber: But we are seeing, as I said, really strong results, not just in the holiday seasonal decor, but the new product offer that's core. And, you know, the new design language that we've brought out, the new modern forms. We are building back our non-furniture business, which drives customer engagement and also new customer acquisition and is very relevant and important for UPTs and repeat purchases. So that is on its way.

Laura J. Alber: <unk>.

Laura J. Alber: The new design language that we brought out the new modern forms we are building back our non furniture business, which drives customer.

Laura J. Alber: Engagement and also new customer acquisition and is very relevant and important for <unk>.

Laura J. Alber: Repeat purchases so that is on its way youre going to see that continue to grow outgrow through the year and then also now that we have success on some of these furniture items.

Laura J. Alber: You're going to see that continue to grow out, grow through the year. And then also, now that we have success on some of the furniture items.

Laura J. Alber: We know that the timeline on when a furniture bestseller will be relevant is a lot longer than if you're a fashion apparel person. So we can then buy into it with confidence versus now. Our newness, although very high over last year, is it's just not a big enough percent of the total. So as we buy back into these winners and they compound through the year, that's when we expect to see them hit the total top line in a meaningful way. Great, thanks very much. Your next question comes from the line of Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot, and good morning.

Laura J. Alber: Know that the timeline on when a furniture best seller will be relevant is a lot longer than if you're a fashion apparel person. So we can then buy into it with confidence versus now our newness, although very high over last year is it's just not a big enough percentage of the total so as we buy back.

Laura J. Alber: Entities winners and they compound through the year, that's when we expect to see.

Laura J. Alber: <unk> hit hit the total top line in a meaningful way.

Speaker Change: Great. Thanks very much.

Speaker Change: Your next question comes from the line of Seth Basham with Wedbush Securities. Please go ahead.

Seth Mckain Basham: Thanks, a lot and good morning, Congrats on another strong quarter. My first question is just thinking about the 2024 outlook, obviously, a lot of uncertainty with the environment and your revenue growth guidance reflects that but you guys have been very good at managing costs and if we were to see revenue.

Seth Mckain Basham: Congratulations on another strong quarter. My first question is just thinking about the 2024 outlook. Obviously, there is a lot of uncertainty in the environment, and your revenue growth guidance reflects that, but you guys have been very good at managing costs. And if we were to see revenue come in a bit below your guidance, will you still be able to hit that 16 and a half operating margin target? Good morning, Seth.

Seth Mckain Basham: Come in a bit below your guidance would you still be able to hit that 16, and a half operating margin target.

Speaker Change: Good morning, Seth.

Jeff Howie: Yes, to simply answer your question, even if revenues were to come a little bit lower, we're confident in our operating margin guidance. There are additional levers that we can pull within the business if that were to be the case. But our outlook is a little bit more positive. You know, we think we're closer to the end of the down cycle on home furnishings rather than the beginning.

Seth Mckain Basham: Yes, Susan I'm going to answer your question, even if revenues were to come in at lower we're confident in our operating margin guidance. There's additional levers that we can pull within the business if that were to be the case.

Speaker Change: Our outlook is a little bit more positive we think we're closer to the end of the downcycle in home furnishings, rather than the beginning and we're focused on delivering results in our business.

Jeff Howie: And we're focused on delivering results in our business and really think that we have opportunities to continue to improve what we're doing. And there are more things that we can do to drive earnings throughout the year. Thanks, that's helpful.

Speaker Change: And really think that we have opportunities to continue to improve what we're doing.

Speaker Change: There's more things that we can do to drive earnings throughout the year.

Speaker Change: Thanks, that's helpful. And then secondly, it seems like Theres been a little bit of a change in how you're approaching advertising you're finding good opportunities to invest there can you give some more color. There and also is that one of the levers you can pull if this topline doesn't play out the way you expected.

Seth Mckain Basham: And then secondly, seems like there's been a little bit of a change in how you're approaching advertising. You're finding good opportunities to invest there. Can you get some more color there?

Laura J. Alber: And also, is that one of the levers you can pull if this top line doesn't play out the way you expect? It's not a difference in approach. It's that when we see more opportunities, we invest more. And so we want to invest in advertising if we're going to get payback. So we are looking at this every day, every week, every brand. And we're so lucky to have a test and learn methodology where we can try something on one brand. And if it works, roll it. And if it doesn't work, shut it down.

It's not a difference in approach.

Speaker Change: When we see more opportunity, we invest tomorrow and so.

Speaker Change: Want to invest in advertising, if we're going to get payback.

Speaker Change: So we are looking at this every day every week every brand and we're so lucky to have a test and learn methodology, where we can try something in one brand and if it works rollout and if it doesn't work shut it down.

Laura J. Alber: And so when we find something that works, you know, you spend more; the ad cost then stays lower, or it goes up with sales in tandem, giving you more on the bottom line. We've done this for years. It's a little more complicated than it used to be when we just had the catalog because there are so many different things to invest in. And we're seeing a lot of opportunity in organic social now. And that is not paid.

Speaker Change: So when we find something that works.

Speaker Change: You spend more the outcast, then stays lower or it goes up with sales and.

Speaker Change: In tandem, giving you more on the bottom line. We've done this for years, it's a little more complicated than it used to be with we just had the catalog is of so many different things to invest in and we're seeing a lot of opportunity in organic social now.

Speaker Change: And that is not paid now helps to have paid social golar with organic social, but we're getting really good at pushing our content not just through our own channels, but into the whole social media world in a very effective way to get new customers into our brands and so it's not just the AD spend is.

Laura J. Alber: Now it helps to have paid social go along with organic social. But we're getting really good at pushing our content, not just through our own channels but into the whole social media world in a very effective way to get new customers into our brands. And so it's not just the ad cost spend; it's the creative spend that goes into building that incredible content, like we did with Stanley Tucci, for example, which continues to be a really wonderful example of a successful collaboration that works both in the short term sales but also in bringing new customers to the brand. And so it's a great example of the kind of things that are changing. And they're really different from 10 years ago when those channels were not available to use. Got it. Thank you very much and good luck.

Speaker Change: The creative spend that goes in building that incredible content like we did with Stanley Tucci for example, which continues to be a really wonderful example of a successful collaboration that's working both.

Speaker Change: In the short term sales, but also in bringing new customers to the brand and so it's a great example of the kind of things that are changing and they are really different from 10 years ago. When those those channels were not available to us.

Speaker Change: Got it thank you very much and good luck.

Seth Mckain Basham: Thanks. Your next question comes from the line of Jonathan Matuszewski with Jeffreys. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Your next question comes from the line of Jonathan <unk> with Jefferies. Please go ahead.

Jonathan Richard Matuszewski: Good morning. Nice results. And thanks for taking my question. The first one is about B2B.

Jonathan: Good morning, Nice results and thanks for taking my questions. The first one is on <unk>, just curious how youre thinking about <unk> in the context of your 2024 guide in terms of sale.

Jonathan Richard Matuszewski: I'm curious how you're thinking about B2B in the context of your 2024 guide in terms of sales or comp and, you know, relatedly, maybe if you could just update us on, you know, what you're doing to make that channel more profitable. It seems like you're doing a lot of good things on the consumer side. Transcripts provided by Transcription Outsourcing, LLC. Good morning, Jonathan.

Speaker Change: Sales of our comp.

Jonathan: Relatedly, maybe if you could just update us on on what Youre doing to make that channel more profitable. It seems like youre doing a lot of good things on the consumer side to take costs out of the business in terms of less accommodations and damages.

Speaker Change: Curious anything to make me to be more profitable. That's my first question. Thanks.

Jeff Howie: We see B2B contributing about 100 basis points to our comp in 24, which is embedded in our guidance. Here's what's exciting. We're really optimistic about B2B growth as we look forward to 24. You know, the business was up 1% overall in 23, with contract up 31%.

Speaker Change: Good morning, Jonathan we see <unk> contributing about 100 basis points to our comp and 24, which is embedded in our guidance.

Here's what's exciting we're really optimistic about <unk> growth as we look forward to 'twenty four.

Speaker Change: This was up 1% overall in 'twenty three with contract up 31%.

Jeff Howie: And while the trade business has been more impacted by the slowed housing market, we've seen some recent improvement in that trend. However, we remain focused on accelerating our contract business. And we're really pleased with the momentum we're seeing. And here, for us, it's really a growth story. Overall, B2B is slightly accretive to our operating margins, and we just see continued growth as we disrupt this $80 billion piece of our TAM. That's really helpful. Thanks.

Speaker Change: And while the trade business has been more impacted by this slowed housing market. We've seen some recent improvement in that trend. However, we remain focused on accelerating our contract business and we're really pleased with the momentum we're seeing.

Speaker Change: And the here for us, it's really a growth story overall b to b.

Speaker Change: Is slightly accretive to our operating margins and we just see continued growth as we disrupt this $80 billion piece of the of our Tam.

Speaker Change: That's really helpful. Thanks, and then just a quick follow up.

Jonathan Richard Matuszewski: And then just a quick follow up on your store fleet. Just maybe update us on the mindset regarding store closures. What's embedded in the 2024 guide?

Speaker Change: Your store fleet, just maybe update us on the mindset regarding store closures.

Speaker Change: What's embedded in the 2024 guide obviously a lot of leases up for renewal.

Laura J. Alber: Obviously, a lot of leases up for renewal. Yeah, it's a really exciting story in our retail stores because we're very successfully leaving certain stores in certain areas and moving to vibrant centers. A great example is Annapolis.

Speaker Change: Thanks, so much.

Speaker Change: Yeah, So that's really exciting.

Speaker Change: Sorry in our retail stores.

Speaker Change: Because we're very successfully leaving certain stores in certain areas and moving to a vibrant centers. A great example is Annapolis I don't know if you've been there.

Laura J. Alber: I don't know if you've been there. But we moved our WS. It's right next, to a whole, which is a really different strategy than your traditional retail placement. And it's really, it's up to Performa, it's up to the previous store, and the four wall is much higher than our average. It's a really good case of where we worked with a landlord to really build a killer store, and we're paying less, and the financials are really strong, and the store is great for the customers. And so that's what we continue to do is, you know, leases come up for renewal, there are amazing centers we're staying in, and we've been successful in reinvesting in the right things so that if you're staying in a center that the stores look really fresh, and also serve the customer in the way they want to be served, and there's new things than when we built stores 10 years ago, new businesses to fund, space allocation, and so across all of our brands we're constantly looking at what's working, what's not working, and how do we continue to optimize, but also keeping that beautiful, inspiring store experience where you go in, and you know, we say the music plays, and you know, you're excited to be there, and you're inspired by the features, and we've got, you know, we've got great sales people who help you, and we're matching that also with very intuitive and uh helpful tech to help build these these rooms, these houses. And just while I'm talking about this, I really, During this time where people are buying less furniture, we've taken the time to really reinvest in how we take our design service to the next level. Because we know that they're dying to buy new houses.

Speaker Change: But we moved our W assets right next to a.

Speaker Change: Whole foods, which is a really different strategy than traditional retail.

Speaker Change: Placement and it's really it's up to pro forma it's up to the previous store and the four wall is much higher than our average it's a really good case of where we worked with the landlord to really build a killer store.

Speaker Change: And we're paying less and the financials are really strong in the store is great for the customers and so that's what we continue to do as leases come up for renewal. There are amazing centers were staying in and we've been successful in reinvesting in the right things so that if you're staying in the center of the stores look really fresh and also.

Speaker Change: Serve the customer and the way they want to be served and there is new things than when we built stores 10 years ago, new businesses to fund space.

Speaker Change: Space allocation and so across all of our brands. We're constantly looking at what's working what's not working and how do we continue to optimize but also keeping that that beautiful inspiring store experience, where you go in and.

Speaker Change: We say the music plays and and.

Speaker Change: Are you excited to be there and youre inspired by the features and we've got you know we've got great salespeople, who help you and we're matching that also with.

Speaker Change: Very intuitive and.

Helpful Tech to help build these.

Speaker Change: These royalties houses and just while I'm talking about this I really.

Speaker Change: During this time, where.

Speaker Change: People are buying less furniture, we've taken the time to really reinvest in how we take our design service to the next level, because we know that they're there.

Speaker Change: The dying to buy new houses and when the market's switches, we're going to be there with it advanced platform for design services.

Laura J. Alber: And when the market shifts, we're going to be there with an advanced platform for design services that we can use and leverage in our stores and also online that I think is game changing for color. Welcome. Your next question comes from the line of Maks Rakhlenko with TD Cowan. Please go ahead. Great, thanks a lot.

Speaker Change: We can use and leverage in our stores and also online that I think is game changing.

Speaker Change: Thanks for the color.

Speaker Change: Youre welcome.

Speaker Change: Your next question comes from the line of Matt <unk> with TD Cowen. Please go ahead.

Matt: Great. Thanks, a lot. So first lora can you just provide any more color on your comment that <unk> reads are strong what brands are you seeing that in and then just how are you thinking about what brands will lead the return back to growth over the coming quarters.

Maksim Rakhlenko: So first, Laura, can you just provide any more color on your comment that 1Q reads are strong? What brands are you seeing that in? And then just how are you thinking about what brands will lead the return to growth over the coming years? Share Maks, you know, we really do have a strong lineup of opportunities in our portfolio of brands. And we're really confident in our outlook. Some examples of things that are working, you know, we were in a color, color. Transcribed by https://otter.ai, in a quality way, the seasonal holidays.

Matt: Sure.

Lora: We really do have a strong lineup of opportunities in our portfolio of brands.

Lora: And we're really confident in our outlook. Some examples of things that are working.

Speaker Change: We're in a color.

Speaker Change: A color.

Speaker Change: <unk> phase and we're seeing print and pattern and color sell across the brands actually.

Speaker Change: Easter strong.

Speaker Change: That's good.

Speaker Change: It's early so just telling me to be careful with his comment because when it's early some hesitance a little differently than you expect but so far so good and even shifted.

Laura J. Alber: And we think they're wonderful. We love to decorate and entertain and show people how to do that across them. And for West Elm, that's been a business they haven't really gone after, so that's really an upside for them. Easy updates, you know, people may not be buying a house, but they might decide to redo one room, and we can see the effects of that on our sales. And also, you know, the projects we have, you know, I mentioned in my prepared remarks about rejuvenation. Bath and kitchen remodels are still happening, and we are getting more attention as someone who can help provide high quality and unique products in those spaces. New furniture, you know, we're seeing strong results in West Elm, as I mentioned, new forms, and that's very exciting, and then collaboration. So whether it's Tucci, I keep talking about Tucci, Colin King, Love Shack Fancy, Sheila Bridges, and Elf.

Speaker Change: That tells you customers we saw Christmas decor be strong too is this is good for our brands.

Speaker Change: Is that a lot of people out there that that serve.

Speaker Change: In a quality way the seasonal holidays.

Speaker Change: And we think that wonderful, we love to to decorate and entertain and show people how to do that across them for west Elm, that's been a a business. They haven't really gone after so it's really upside for them.

Speaker Change: Easy updates people they may not be buying a house that they might decide to redo one room and we can see the effects of that on our sales.

Speaker Change: And also the projects.

Speaker Change: I mentioned in my prepared remarks about rejuvenation.

Speaker Change: Bath and kitchen, Remodels are still happening and we are getting more attention.

As someone who can help provide high quality and unique product in those spaces.

New furniture.

Speaker Change: <unk> strong results in West Elm.

Speaker Change: You mentioned, new forums, and that's very exciting.

Speaker Change: Then collaborations.

Speaker Change: So whether it's tucci I keep talking about to see Colin King loves Shaq fancy.

Laura J. Alber: I mean, we've got a wide range of these collaborations. And they're just, they bring new customers in, and we have a great time with them. They help us think about new design languages that we may not naturally design into.

Speaker Change: Sheila bridges Alf I mean, we've got a wide range of these collaborations and Theyre just they bring new customers in and we have a great time with them. They help us think about new design language that we may not naturally designed into and all of that is really good for the teams and great for the customers and then there is.

Laura J. Alber: And all that is really good for the teams and great for the customers. And then, you know, there's continued, you know, categories that we're pushing as a bigger percent of total and pulling back. And so without going on too long or giving away too much competitive information, we're seeing some pockets where we have a lot of upside. The other thing that's really important in all this that you guys have to realize is that we continue to reduce our promotional offering. So at the same time that we're pushing this growth posture for this year, we are also absolutely determined to continue to pull back on promotions, which is a tricky thing, right? So we did it last year.

Speaker Change: Theres continued.

Speaker Change: Categories that were pushing as a bigger percentage of total and pulling back and so without going on too long or giving away too much competitive information.

Speaker Change: We're seeing some pockets, where we have a lot of upside the other thing Thats really important in all of this that you guys got to realize it.

Speaker Change: Is that we continue to reduce our promotional offerings.

Speaker Change: So at the same time that we're pushing this growth posture for this year. We are also absolutely determined to continue to pull back on promotions, which is a tricky thing right. So we did it last year, you're going to see us continue to push it this year and balancing the two out we really believe strongly that long.

Maksim Rakhlenko: You're going to see us continue to push it this year and balance the two out. We really believe strongly that, long-term, this is the right thing for our business. And we will take markdowns, and we will always try new things. And sometimes they don't work, so you take markdowns, but we do not want to have up-down pricing in our brand. Got it. That's very helpful. Thanks for the color.

Speaker Change: <unk>. This is the right thing for our business and we will take markdowns and we will always trying new things and sometimes they don't work. So you take a markdown, but we do not want to have up down pricing and our brands.

Speaker Change: Got it that's very helpful. Thanks for the color.

Jeff Howie: And so the big update, I think, is the new long-term EBIT margin outlook. So just curious, what are you seeing now that gives you confidence to raise it? And then, as we think about post 2024, is that going to be more gross margin or SG&A? Just curious where you see the big opportunities ahead to continue to march forward. Yeah, good morning, Maks.

Speaker Change: So the big update I think as the new long term EBIT margin outlook. So just curious what are you seeing now that gives you confidence to raise it and then as we think about post 2024 is that going to be more on gross margin or SG&A, just curious where you see the big opportunities ahead to continue to March.

Speaker Change: Forward.

Laura J. Alber: You know, I think the way we think about it is at the start of 23, we established the 15% operating margin floor. And then, in the year-end results, we delivered a 16.4% operating margin, and this year, we're guiding 16 and a half to 16.8. So we remain confident in our operating margin durability, especially as we start to see a growth algorithm of mid to high single-digit growth over the long term. So we're pretty confident in that. And we think that as we get beyond 24, we certainly have the upside to sustain the operating margins longer. In terms of the pieces of margin versus SG&A, we don't, as you know, we don't guide those particular line items, especially over the long term.

Hey, good morning, Max I think the way we think about it is at the start of 'twenty three we established a 15% operating margin floor and then year end results. We delivered a 16, 4% operating margin in this year regarding <unk> and a half to $16 eight so we remain confident in our operating margin.

Speaker Change: Ability, especially as we start to see our growth algorithm of mid to high <unk>.

Speaker Change: Single digit growth over the long term, so we're pretty confident on that and we think that as we get beyond 24.

Speaker Change: We certainly have the upside to sustain these operating margins longer in terms of the pieces of margin versus SG&A. We don't as you know we don't guide those particular.

Speaker Change: And the line items, especially over the long term, but on the bottom line. We have established that we can deliver these results and we remain confident at both for 2000 and for as long as the long term beyond that.

Jeff Howie: But on the bottom line, we've established that we can deliver these results, and we remain confident in both for 24 hours, as well as for the long term beyond. Great. Thanks a lot, Jeff.

Speaker Change: Great. Thanks, a lot Jeff Best regards everyone.

Peter Sloan Benedict: Best regards, everyone. Your next question will come from the line of Peter Benedict with Baird. Please go ahead. Peter, your line might be on mute. Peter, are you there? Correct, it is on mute, I apologize.

Speaker Change: Your next question will come from the line of Peter Benedict with Baird. Please go ahead.

Peter Sloan Benedict: Peter your line might be on mute.

Peter Sloan Benedict: Peter are you there, yes, that's correct. It is on mute I apologize.

Peter Sloan Benedict: Thank you for taking the question, guys. So the first one's just on kind of the supply chain environment. You guys obviously have been doing a great job with what you can control. I'm curious about the things that are maybe out of your control, some of the events going on, some of the costs of ocean freight. Just kind of remind us maybe where you sit there, how you maybe baked some of that into the outlook here for 24. That's my first question. Sure. So, you know, our team, our supply chain team, I'd say, is just phenomenal. And they continue to show that through their results.

Peter Sloan Benedict: Thank you for taking the question guys.

Peter Sloan Benedict: So first one was just on.

Peter Sloan Benedict: Kind of the supply chain environment, you guys are obviously doing a great job on what you can control I'm curious about the things that are maybe out of your control some of the events going on some of the costs.

Speaker Change: On Ocean freight just kind of remind us maybe where you sit there how you maybe baked some of that into the outlook here for 24, that's my first question.

Speaker Change: Sure so our.

Speaker Change: Team our supply chain team I'd say is just phenomenal and they continue to show that through the results.

Speaker Change:

Laura J. Alber: All those things have normalized from the pandemic, but we still have a lot of areas for improvement, which will result in margin upside. We want to continue to drive down returns and replacements and any issue that affects the customer. We want a perfect delivery. We want to take all the friction out of that delivery. And so we're seeing incredible numbers across the board on all those metrics I mentioned in my script. But when a problem comes along, They're real, you know; the Red Sea disruption is pretty terrible.

Speaker Change: Although things have normalized from the pandemic.

Speaker Change:

Speaker Change: We still have a lot of areas for improvement.

Speaker Change: This will result in margin upside.

Speaker Change: We want to continue to drive down returns and replacements and any issue that affects the customer we want a perfect delivery.

Speaker Change: We want to take all the friction out of that delivery.

Speaker Change: So we're seeing incredible numbers across the board.

Speaker Change: All of those metrics I mentioned in my script.

Speaker Change: <unk>.

Speaker Change: When a problem comes along.

Speaker Change: They are real you know.

Speaker Change: The Red Sea disruption.

Speaker Change: Is pretty terrible however, it is not costing us any more money.

Laura J. Alber: However, it is not costing us any more money. So far, it is costing us about 10 days of delivery, give or take. And as I mentioned last time, we padded the deliveries to our customers once we heard about it, so we didn't disappoint them. And, you know, if we outperform and deliver faster, they're always happier than if it's, you know, if it's late. Because they don't, they can't, you know, most people don't connect anything to these world events.

Speaker Change: So far it is costing us about 10 days of delivery give or take.

Speaker Change: As I mentioned last time, we.

Speaker Change: Patterns the deliveries to our customers once we heard about it so we didn't disappoint them.

Speaker Change: And if we if we outperform and deliver faster they're always happier than if it's if it's late because they don't they can't most people don't connect anything with these world events and so we have to really manage our delivery quotes.

Laura J. Alber: And so we have to really manage our delivery quotes very quickly once we hear these things. That's the most recent example. There's no doubt in my mind, Peter, that this year will be met with other things that we have to deal with. We tend to be very proactive about thinking about what those things could be to make sure that we're ahead. And I guess the good news is, if there is any, when these things happen, they affect everyone, and we're usually able to get ahead of them and solve them better than most. Yeah, no, but very true.

Speaker Change: Quickly once we hear these things that's the most recent example, there is no doubt in my mind, Peter that this year will be met with other things that we have to deal with we tend to be very proactive about thinking about what those things today to make sure that we're ahead and I guess the good news is.

Speaker Change: And if there is any.

Speaker Change: When these things happen they affect everyone.

Speaker Change: And we're usually able to get ahead of it and solve it.

Speaker Change: Better than most.

Peter Sloan Benedict: Yes, no very true. Thank you for that and then I guess my next question was around kind of the real estate.

Peter Sloan Benedict: Thank you for that, Laura. And then I guess my next question is around kind of the real estate. The optimization process has been going on for a while here, a couple years now, maybe 10 to 15 stores lower year over year. Is that the cadence we should be expecting kind of going forward? And I'm just curious maybe how the occupancy cost growth is assumed for 2024, another year, maybe mid single-digit increases. Jeff, is that the way to think about it? Just trying to understand where you sit from that standpoint.

Peter Sloan Benedict: I guess optimization process, that's been going on for a while here.

Peter Sloan Benedict: A couple of years now maybe 10 to 15 stores.

Peter Sloan Benedict: Lower year over year is that the cadence we should be.

Peter Sloan Benedict: <unk> kind of going forward and I'm, just curious maybe how have the occupancy cost.

Peter Sloan Benedict: Growth is assumed for 2020 for another year, maybe mid single digit increases Jeff is that the way to think about it just trying to understand where you where you sit from that standpoint. Thank you.

Jeff Howie: Thank you. Yeah, I mean, in terms of where we are in our journey of retail optimization, we're probably in the middle. As I've discussed in the past, we have about 50 percent of our leases coming up during the next five years. So we look to continue to optimize real estate. And usually, we target a higher number of store closures, but they just tend to net out through the way the process works to about where we've been the past few years. So in terms of particular numbers, you can look to the past, say, three or four years as a good guidepost.

Jeff: Yes, I mean in terms of where we are on a journey of retail optimization, we're probably in the middle innings.

Jeff: As I've discussed.

Jeff: In the past, we have about 50% of our leases come due in the next five years. So we look to continue to optimize the real estate.

Jeff: And usually we target a higher number of store closures, but they just tend to net out to do the way the process works to about where we've been in the past few years.

Jeff: So in terms of particular numbers, you're going to look to the past say three or four years is a good a good guidepost.

Jeff Howie: And then in terms of where occupancy is going to go, and I'll go back to we don't guide individual lines. We really guide the top and the bottom lines, so that gives us more levers to pull throughout the year. And though there are fixed costs within occupancy, there are also a lot of variable costs, too.

Jeff: And then in terms of where occupancy is going to go and I'll go back to we don't guide individual line.

Jeff: Really guide the top.

Jeff: And the bottom line, so that gives us more levers to pull throughout the year.

Jeff: There are fixed costs within occupancy there is also a lot of variable cost too. So there's thinking that you can go do throughout the year if necessary.

Jeff Howie: So there are things we can do throughout the year if necessary. So it's all embedded within our full-year guidance. Got it.

Jeff: It's all embedded within our full year guidance.

Speaker Change: Got it okay, great. Thanks best of luck guys.

Peter Sloan Benedict: Okay, great. Thanks. Best of luck, guys. Thank you. Your next question comes from the line of Christopher Horvitz with J.P. Morgan. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Christopher <unk> with Jpmorgan. Please go ahead.

Christopher Michael Horvers: Thanks, and good morning, everyone. Thanks for taking my question. So I guess my first question is, as you talk about the optimism about the bottom of the market and the improvement quarter to date, you know, I would just curious what you're seeing on the furniture side of the business. You mentioned some newness in West Elm responding, but it does sound like a lot of the decor categories are what's been driving the strength.

Christopher: Thanks, and good morning, everyone and thanks for taking my question. So I guess my first question is as you talk about the optimism about the bottom in the market and the improvement quarter to date.

Christopher: I was just curious what youre seeing on the furniture side of the business you mentioned, some newness in west Elm resonating, but it does sound like a lot of the core categories or what's been driving the strength on the other hand, the mixed shift back towards the furniture brands away from Williams, Sonoma and into the first quarter. So.

Christopher Michael Horvers: On the other hand, you know, the mix does shift back towards the furniture brands away from Williams-Sonoma into the first quarter. So, you know, does the implied sort of sequential improvement in the first quarter? Are you seeing, like, better furniture demand trends? Maybe some of it is, you know, some of the deflation working through the system from ocean freight normalizing? So any comment there would be really helpful.

Christopher: Does the implied sort of sequential improvement first quarter or are you seeing like better furniture demand trends, maybe how much of it is some of the deflation working through the system from Ocean freight normalizing. So any any comment there would be really helpful. Thank you.

Jeff Howie: Thank you. Yeah, good morning, Chris. So furniture trends in Q4 were down, but sequentially improved over Q3. And yes, we do see a benefit from the higher penetration of Sonoma in Q4. But overall, and to Laura's comments before, you know, we're very pleased with our quarter to day performance. But it's early. And, you know, as Laura mentioned, there's the Easter shift; it's an earlier Easter, which sometimes, you know, has an impact on the curves.

Speaker Change: Yes, good morning, Chris So furniture trends in Q4 were down but sequentially improved over Q3.

Speaker Change: And yes, we do see a benefit.

Speaker Change: Drive a higher penetration of Sonoma and.

Speaker Change: And.

Speaker Change: In Q4, but overall to Laura's comments before.

Speaker Change: We're very pleased with our quarter to date performance, but it's early.

Speaker Change: As Lauren mentioned, there's the Easter shift Easter, which sometimes.

Speaker Change: Has impacts on the curves.

Christopher Michael Horvers: But, you know, I think the important thing is we're not just a furniture company; we only have about half our assortment in furniture. So we have a powerful portfolio of brands with a wide range of product assortment. And we can really meet the trends as a consumer shopping. And that gives us confidence in where we see our outlook. And we can really service the customers on what they're shopping for today. That's for sure.

Speaker Change: I think the important thing is we're not just for furniture company, we only have about half of our assortment in furniture. So we have a powerful portfolio of brands with a rod major product assortment and we can really meet the trends as the consumer shopping.

Speaker Change: It gives us confidence and where we see our outlook.

Speaker Change: And we can really service the customers to what their shopping to today.

Speaker Change: For sure and then in terms of in terms of the follow up I know I know, you're not jumping that got into individual line items.

Christopher Michael Horvers: And then in terms of the follow-up, I know you're not, Jeffrey, going into individual line items, but could you maybe help us think about, like, on the SG&A line, you've done an incredible job, you know, really managing around incentives and advertising, flexing it with demand, and you had some headcount reductions as well a year ago. Should we think about that being more variable in a recovery, like should you see rate leverage? Should we think about it modeling it from a dollar growth perspective and focus less on rates?

Speaker Change: But could you maybe help us think about like on the G&A line, you've done an incredible job really managing around incentives and the advertising flexing it with demand and you had some head count reductions as well a year ago should we think about that being more variable.

Into a recovery like should there should you see rate leverage should we think about modeling it from a dollar growth perspective.

Speaker Change: And focus less on rates so any color there in terms of just how variable SG&A is into recovery as you start to reinvest back into the business as a topline improves thank you.

Laura J. Alber: So, you know, any color there in terms of just how volatile SG&A is into a recovery as you start to, you know, reinvest back into the business as the top line improves? Thank you. Yeah, Chris. Hi, it's Laura. How are you?

Florida: Yeah, Chris Hi, Florida, how are you.

Laura J. Alber: I just wanted to comment, you know. I think it's important to remember that our focus this year is threefold. It's delivering growth, enhancing customer service, and driving marketing. And we believe we can do all three things.

Speaker Change: I just wanted to comment.

Speaker Change: I think.

Speaker Change: It's important to remember that our focus this year.

Speaker Change: Is threefold, it's delivering growth elevating customer service and driving margin.

Speaker Change: And we believe we can do all three things we have that many opportunities in our model with our platform with our.

Laura J. Alber: We have so many opportunities in our model, with our platform, with our world-class brands to achieve those things. I really, as we look to the year, believe that the natural investments that we need to make will drive the top line. And so, to the extent of the line by line, I know we're not answering your questions about those line by lines, but you've seen what we've produced even in a down cycle, right, with margin improvements. And as I said, I think, on last call, can you imagine what that looks like in an up cycle?

Speaker Change: Class brands to achieve those things I really.

Speaker Change: As we look to the year believe that the natural investments that we need to make we will drive the topline and so.

Speaker Change: To the extent of the line by line.

Speaker Change: I know, we're not answering your questions about those line by line, but.

Speaker Change: You've seen or what we've produced even in a down cycle right with margin improvements.

Speaker Change: And as I said I think last call.

Speaker Change: Imagine what that looks like in an up cycle.

Christopher Michael Horvers: Our investments that we've been making over the last 10 years have gotten us to a place where we are ready for more volume without having to have a step-up infrastructure investment. So while we talk about these things, they're small potatoes compared to distribution costs that others have to put in place or real platform, re-platform costs that others have to put in place. We're ready for the volume to come this year and next.

Speaker Change: Our investments that we've been making.

Speaker Change: Over the last 10 years.

Speaker Change: Have gotten us to a place where we are ready for more volume without having to have a step up infrastructure investment.

Speaker Change: So while we talk about these things theyre small potatoes compared to.

Speaker Change: Distribution costs.

Speaker Change: Others or a real platform re platform cost of others has to put in place we're ready for the volume to come this year and next and it really excited about how that not only flows through but also the opportunities to improve these customer service lines and we love those customer service lines, because they drive margin.

Laura J. Alber: And I'm really excited about how that not only flows through but also the opportunities to improve these customer service lines. And we love those customer service lines because they drive margin. Thank you. Your next question comes from the line of Kate McShane with Goldman Sachs. Please go ahead.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Kate Mcshane with Goldman Sachs. Please go ahead.

Katharine Amanda McShane: Hi, good morning. Thanks for taking our question. The question was around pricing. We wondered where you were on the average price versus last year. I know you talked about adding more opening price points last quarter. We just wondered if we could get an update on how that trended in Q4 and what you expected in 2024. You know, it's interesting, Kate.

Kate Mcshane: Hi, good morning, Thanks for taking our questions.

Kate Mcshane: On pricing we were one.

Kate Mcshane: Whenever you went around the average pay expenses last year I know you talked about.

Kate Mcshane: Adding more opening price points.

Kate Mcshane: Last quarter I, just wondered if we could get an update on how that trended in Q4, and what you expected in 2024.

Speaker Change: Yes, it's interesting.

Laura J. Alber: We try to, you know, glean every piece of information from sales, and then they change. So I don't think it's fair to say right now that there's a specific price point. That's the magic price point.

Speaker Change: We tried to glean every piece of information from sales and then they change. So I don't think it's fair to say right now that there's a specific price point, that's the magic price point.

Laura J. Alber: You know, we're seeing success across all price points. The customer wants value. So we have some really expensive stuff that's really selling, and then we have some value price points that are really selling. And so there's not a pattern there that I'd hang a strategy on for now.

Speaker Change: We're seeing success across the oil prices.

Speaker Change: Customer wants a value. So we have some really expensive stuff, that's really selling and then we have some value price points, Israel that are really selling and so theres not its not a pattern there that I'd hang a strategy on for now.

Laura J. Alber: In all of our brands, we've worked on great value for the consumer and also really new, fresh designs. And so you cannot underestimate how important it is when we get it right on a design. It's not that we take advantage of the price; it's that our price is generally a lot cheaper than other people making the same product, and our quality is better. So that's what we're focused on delivering value to the customer. And, you know, we were talking about this before the call. I can't prove that it's low prices, mid prices, or high prices that are soft or strong. It's the stuff they want, and it's a new, fresh product.

Speaker Change: In all of our brands, we've worked on great value to the consumer and also really new fresh designs and so you cannot underestimate how important that is when they when we get it right on the design, it's not that we take advantage of the price. It is that our price is generally a lot cheaper than other people.

Speaker Change: Making the same product and our quality is better.

Speaker Change: That's what we're focused on is delivering value to the customer and.

Speaker Change: We are talking about this before the call. It I can't prove that it's low prices mid prices are high prices that are soft or strong it's the stuff they want.

Speaker Change: And it's the new fresh products.

Katharine Amanda McShane: Thank you. And we just wanted to ask a follow-up question with regard to tariffs, that if there were to be, again, I know this isn't a risk profile for your guidance, the election, but how are you thinking about managing through a scenario where there could be more tariffs? Good morning, Kate. Well, first of all, we're in an election year. A lot gets said on the campaign trail, and who knows where this conversation really goes in the end?

Speaker Change: Thank you.

Speaker Change: Wanted to ask a follow up question with regards to the parents that if there were to be done.

Speaker Change: No.

Speaker Change: At the risk profile for you got in.

The election, but how you are thinking about managing some renewals.

Speaker Change: A scenario where that could be more tariffs.

Speaker Change: Good morning, Kate well first we're in an election year <unk> said on the campaign trail and who knows where this conversation really goes in the yen.

Jeff Howie: Second, we've transformed our sourcing base since the last time this subject was top of mind six years ago. Today, only 25% of our goods are sourced from China, which is about half of what it was back then. And here's the most important thing. You know, we have some real key competitive advantages that serve us well under these situations. First, 90% of our products are proprietary, designed, and exclusively made for our brand. And then we operate our own in-house, best-in-class global sourcing operation. So, with 12 overseas offices, it's our own boots on the ground, managing sourcing decisions, production, and shipping. And we're the 13th largest container importer into the United States. So, we have scale and relationships that others do not.

Kate Mcshane: Second we've transformed our sourcing base since the last time, the subject was top of mind six years ago today, only 25% of our goods are sourced from China, which is about half of what it was back then.

And here is the most important thing we have some real key competitive advantages that served us well under these situations first 90% of our products are proprietary designing exclusively made for our brands.

Kate Mcshane: And then we operate our own in house best in class Global sourcing operation. So with 12 overseas offices, it's our own boots on the ground managing sourcing decisions production shipping and where the 13th largest container imported into the United States. So we have scale and relationships others do not so punch line being if the land.

Jeff Howie: So, the punchline being, if the landscape changes, we have the ability to respond that others do not. I'll now hand the call back to Laura Alber for any closing remarks. Well, thank you all for joining us. We really appreciate your support and look forward to seeing some of you in New York and talking to you throughout the year. Thank you all for joining us. You may now disconnect.

Kate Mcshane: Skip changes, we have the ability to respond that others do not.

Speaker Change: Thank you.

Speaker Change: I'll now hand, the call back to Laura Alber for any closing remarks.

Laura J. Alber: Well. Thank you all for joining us we really appreciate your support and look forward to seeing some of you in New York and talking to you throughout the year.

Speaker Change: That will conclude today's call. Thank you all for joining you may now disconnect.

Speaker Change: Okay.

Speaker Change: Joining you may now disconnect.

Speaker Change: Okay.

Speaker Change: Okay.