Q1 2024 Williams Sonoma Inc Earnings Call

Operator: Welcome to the Williams-Sonoma Inc. First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

Welcome to the Williams Sonoma, Inc. First quarter fiscal 'twenty 'twenty four earnings conference call. At this time, all participants are in listen only mode.

Speaker Change: 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 first 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 and financial performance, including our updated guidance for fiscal 24 and our long-term outlook. We believe these statements reflect our best...

Speaker Change: Good morning, and thank you for joining our first quarter earnings call.

Jeremy Brooks: However, we cannot make any assurances that these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, for the first quarter of last year, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for, and should be read together with, our GAP results.

Speaker Change: 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 our updated guidance for fiscal 'twenty, four and our long term outlook.

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

Speaker Change: Actual results may differ significantly from our expectations.

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

Speaker Change: Additionally for the first quarter of last year, we will refer to certain non-GAAP financial measures.

Speaker Change: 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 measure appears in Exhibit 1 to the press release we issued earlier this morning. Also, for the first quarter of this year, we will refer to our gap results, both with and without the benefit of an out-of-period adjustment that we recorded during the first quarter. We believe providing these disclosures is useful to understanding our quarterly financial results. Jeff will share the details of this adjustment later in his prepared remarks.

Speaker Change: Detailed reconciliation of non-GAAP measures to the most directly comparable GAAP measure appears in exhibit one so the press release, we issued earlier this morning.

Speaker Change: Also for the first quarter of this year, we will refer to our GAAP results, both with and without the benefit of an out of period adjustment that we recorded during the first quarter.

Speaker Change: We believe providing these disclosures is useful to understanding our quarterly financial results.

Speaker Change: Jeff will share the details of this adjustment later in his prepared remarks. This call should also be considered in conjunction with our filings with the SEC.

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

Speaker Change: And finally, a replay of this call will be available on our Investor Relations website.

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

Laura J. Alber: Thank you, Jeremy. Good morning, everyone.

Laura J. Alber: Thank you Jeremy good morning, everyone and thank you for joining the call before I review, our Q1 results I want to take a moment to thank all of our teams around the globe for their consistent contributions to our company. We could not continue to produce strong earnings without their cross functional collaboration and dedication. We are pleased to deliver strong results in the first quarter of 2024.

Laura J. Alber: Thank you for joining us. Before we review our Q1 results, I want to take a moment to thank all of our teams around the globe for their consistent contributions to our company. We could not continue to produce strong earnings without their cross-functional collaboration and dedication. We are pleased to deliver strong results in the first quarter of 2024, driven by an improving top-line trend and continued strength in our profitability. In Q1, our comp came in above expectations at negative 4.9%, and we exceeded profitability estimates with an operating margin of 19.5% and earnings per share of $4.07.

Laura J. Alber: It is important to note that the results of the first quarter include a benefit of $49 million resulting from the reversal of freight-related accruals that we determined were not required, which contributed 290 basis points to our operating margin and $0.59 to our EPS.

Laura J. Alber: Driven by an improving topline trends and continued strengthen our profitability.

Laura J. Alber: Our comp came in above expectations at negative four 9%.

And we exceeded profitability estimates with an operating margin of 19, 5% and earnings per share of $4 seven.

Laura J. Alber: It is important to note that the results of the first quarter included a benefit of $49 million, resulting from the reversal of freight related accruals that we determined were not required which contributed 290 basis points for operating margin.

Laura J. Alber: <unk> nine cents to our EPS.

Laura J. Alber: Jeff will walk you through this in more detail, but it is worth noting that even without the impact of this benefit, we significantly exceeded profitability expectations. As a result of our outperformance, we are raising our outlook on operating margins to now be in the range of 17.6% to 18% or 17% to 17.4% when excluding the impact of the freight accrual reversal. The strong results of the quarter are a result of our focus on our three key priorities in 2024: returning to growth, enhancing our world-class customer service, and driving margin. I'll start first by returning to growth.

Speaker Change: Jeff will walk you through this in more detail, but it is worth noting that even without the impact of this benefit.

Speaker Change: Significantly exceeded profitability expectations.

Speaker Change: As a result of our outperformance we are raising our outlook on operating margin to now be in the range of 17, 6% to 18% or 17% to 17, 4% when excluding the impact of the freight accrual reversal.

Speaker Change: The strong results of the quarter are a result of our focus on our three key priorities in 2024.

Turning to growth elevating our world class customer service and driving margin.

Speaker Change: I'll start first with returning to growth we are pleased with the improvement in our topline trends and our market share gains in Q1, we are keenly focused on innovation in our product line across brands and our unique in house design capabilities and vertically integrated sourcing organization allows us to offer this high quality does.

Laura J. Alber: We are pleased with the improvement in our top-line trends and our market share gains in Q1. We are keenly focused on innovation in our product line across brands, and our unique in-house design capabilities and vertically integrated sourcing organization allow us to offer this high-quality design innovation at compelling price points. Another key component of our return-to-growth strategy is our marketing capabilities. Our in-house digital marketing optimization, backed by our world-class customer analytics and first-party data collection, serves as a competitive advantage for our company. In the quarter, we increased our ad spend and invested in both our paid marketing and our proven social strategy.

Speaker Change: Innovation at compelling price points.

Speaker Change: Another key component of our return to growth strategy is our marketing capabilities. Our in house digital marketing optimization backed by our world class customer analytics and our first party data collection serves as a competitive advantage for our company.

Speaker Change: In the quarter, we increased our AD spend and invested in both our paid marketing.

Speaker Change: Proven social strategy. This investment allowed us to drive sales improvement to acquire new customers and to gain market share.

Laura J. Alber: This investment allowed us to drive sales improvement, acquire new customers, and gain market share. Additionally, we are continuing to improve our online experience through our investment in proprietary e-commerce technology. From product discovery and selection, to personalization, to content, to customer care, and to the final mile, our team is constantly thinking about how we can improve our best-in-class e-commerce experience. And one way we do this is through AI.

Speaker Change: Additionally, we are continuing to improve our online experience through our <unk>.

Speaker Change: <unk> and our proprietary E Commerce technology.

Speaker Change: From product discovery and selection to personalization to concept to customer care and to the final mile.

Speaker Change: Our team is constantly thinking about how we can improve our best in class E Commerce experience and.

Speaker Change: And one way we do this is through AI, we believe our leadership in AI will be yet another competitive advantage.

Laura J. Alber: We believe our leadership in AI will be yet another competitive advantage. And it's important not to forget that, as focused as we are on our digital capabilities, we are passionate about our service and our best-in-class retail business. We've improved our in-store experience with inspirational products, improved in-stock inventory levels, and next-level in-store services. Our teams are the best in retail, and our retail optimization efforts are transforming our fleet to be positioned in the most profitable, inspiring, and strategic locations.

Speaker Change: And it's important to not forget that as focused as we are on our digital capabilities. We are passionate about our service and our best in class retail business.

Speaker Change: We have improved our in store experience with inspirational products improved in stock inventory levels and next level in store services.

Speaker Change: Our teams are the best in retail and our retail optimization efforts are transforming our fleet to be positioned in the most profitable inspiring and strategic locations.

Laura J. Alber: Moving to our second and third key priorities in 2024, which are inextricably intertwined, we continue to make progress improving our world-class customer service and driving margin. The customer is at the center of everything we do, and their satisfaction is key to our operating performance. We are pleased with our high net promoter scores, both in-store and in-home, but we see more opportunity to improve. We know that providing our associates with new tools and training has a direct impact on our customer experience. And we are thrilled to bring back our annual store manager conference in Q2 of this year. This multi-day off-site meeting is an opportunity for all of our store managers to participate in strategic training.

Speaker Change: Moving to our second and third key priorities in 2024, which are inextricably intertwined we continue to make progress improving our world class customer service and driving margin.

Speaker Change: The customer is at the center of everything we do and our satisfaction is key to our operating performance.

Speaker Change: We are pleased with our high net promoter scores both in store and in home, but we see more opportunity to improve.

Speaker Change: We know that providing our associates with new tools and training has a direct impact on our customer experience and we are thrilled to bring back our annual store manager conference in Q2 of this year.

Speaker Change: This multi day Offsite meeting is an opportunity for all of our store managers to participate in strategic training.

Laura J. Alber: The improvement in customer service also comes from supply chain efficiency. We are reducing costs by limiting out-of-market and multiple shipments, fewer customer accommodations, lower returns and damages, and reduced replacements. These improvements will continue to contribute meaningfully to our profitability in 2024 and beyond. And our ongoing commitment to not running site-wide promotions and the reduction of our promotional offerings have also improved margins. We are focused on delivering a compelling value equation to our customers, which in turn maximizes our full price selling. Now, I'd like to update you on the performance of our brands. Pottery Barn ran a negative 10.8% comp in Q1.

Speaker Change: The improvement in customer service also comes from supply chain efficiencies where.

Speaker Change: We are reducing costs by limiting out of market and multiple shipments fewer.

Speaker Change: Customer accommodations, lower returns and damages and reduce replacement.

Speaker Change: These improvements will continue to contribute meaningfully to our profitability in 2024 and beyond.

Speaker Change: And our ongoing commitment to not running site wide promotions and the reduction of our promotional offerings have also improved margins.

Speaker Change: We are focused on delivering a compelling value equation to our customers, which in turn maximizes our full price selling.

Speaker Change: Now I'd like to update you on the performance of our brands.

Speaker Change: Pottery barn ran a negative 10, 8% comp in Q1, we continue to see softness in higher ticket furniture sales in pottery barn, but we've seen quarter over quarter improvement.

Laura J. Alber: We continue to see softness in higher ticket furniture sales in Pottery Barn, but we've seen quarter-over-quarter improvement. We're having success with our proprietary print and pattern across textiles, and easy decorating updates continue to drive sales. Highlights include minutes in our bloom shop, frames, and decor. Our strength in seasonal celebrations also continues to resonate with our customers. In March, we launched our first ever global collaboration with international icon Deepika Padukone.

Speaker Change: We're having success in our proprietary print and pattern across textiles, and easy decorating updates continue to drive sales higher.

<unk> conclude newness in our bloom shop frames and decor.

Speaker Change: Our strength in seasonal celebrations also continues to resonate with our customers.

Speaker Change: In March we launched our first ever global collaboration with International Icon Jessica Telecom.

Laura J. Alber: Her popularity drove one billion impressions for the Pottery Barn brand. Customers also embraced the launch of our Coastal Lookbook, and they positively engaged with our newly developed app. In the back half of the year, we're excited to introduce new innovation both in-store with compelling new floor sets and online with improved digital shopping experience. The Pottery Barn Children's Business ran a positive 2.8% comp in Q1.

Speaker Change: Her popularity drove 1 billion impressions for the pottery barn brand.

Speaker Change: Customers also embraced the launch of our coastal look book and a positively engaged with our newly developed App.

Speaker Change: In the back half of this year, we're excited to introduce new innovation, both in store with compelling new floor sets and online with improved digital shopping experience.

Speaker Change: The pottery barn children's business ran a positive two 8% comp in Q1.

Laura J. Alber: Across these life stage businesses, we drove widespread comp trend improvement across the business. We've seen excellent customer response to our new product introductions, with collaborations being a particular highlight. Our recent launches with partners such as Love Shack Fancy and Lily Pulsar have driven sales and attracted new customers by tapping into relevant fashion and home decor trends. In baby, we're seeing double-digit registry growth and excellent customer response to our expanded essentials and gifting.

Speaker Change: Across these life stage businesses, we drove widespread comp trend improvement in the business.

Speaker Change: We've seen excellent customer response to our new product introductions with collaborations being in particular highlight our recent launches with partners such as love Shack Fancy in Lilly Pulitzer have driven sales and attracted new customers by tapping into relevant fashion and home decor trends.

Speaker Change: And maybe we're seeing double digit registry growth and excellent customer response to our expanded essentials and gifting.

Laura J. Alber: In DORM, we recently launched our biggest collection to date with expanded XL twin bedding options, new no-nails wall decor, and innovative storage solutions. In addition to the expanded assortment, we are excited to roll out improved dorm product selection functionality, and customers can also ship dorm products to any one of our company-owned stores near their college campus. Moving to West Elm.

Speaker Change: And dorm, we recently launched our biggest collection to date with expanded XL twin betting options, new no nails wall decor and innovative storage solutions.

Speaker Change: In addition to the expanded assortment, we're excited to rollout improved dorm product selection functionality and customers can also shift dorm products to any one of our company owned stores near their college campus.

Laura J. Alber: In Q1, West Elm showed sequential improvement in its top-line trend, running a negative 4.1% comp in the quarter. We're encouraged to see improvement in demand trends, even as we materially pull back on promotions. We are seeing strength in our new product sales, with our spring units driving positive comps to last year, with particularly strong performance in furniture, kits, and decorative accessories. Summer Newness is also off to a great start with double- and triple-digit newness comps. Given these positive trends and newness, we have a sizable opportunity in West Elm as it rebalances more inventory into these new products. The Williams-Sonoma brand ran a positive 0.9% comp in Q1.

Speaker Change: Moving to West Elm, and Q1, West Elm drove sequential improvement in its topline trend running a negative four 1% comp in the quarter.

Speaker Change: We're encouraged to see improvement in west Helms demand trend, even as we materially pull back on promotions.

Speaker Change: We are seeing strength in our new product sales with our spring newness driving positive comp to last year, with particularly strong performance out of furniture kits and decorative accessories.

Speaker Change: <unk> is also off to a great start with double and triple digit newness comps.

Speaker Change: Given the positive trends and newness, we have a sizable opportunity in west Elm as it rebalancing more inventory into these new products.

The Williams Sonoma brand ran a positive 9% comp in Q1. This is the second consecutive quarter. The Williams Sonoma brand ran a positive comp with the Williams Sonoma kitchen business running a positive comp for the fourth consecutive quarter.

Laura J. Alber: This is the second consecutive quarter the Williams-Sonoma brand ran a positive comp, with the Williams-Sonoma kitchen business running a positive comp for the fourth consecutive quarter. During Q1, we inspired customers with exclusive and innovative products. We benefited from new introductions of Williams-Sonoma branded products in categories like bakeware, cutlery, and food. The favorable customer response to these items continues to reinforce the opportunity we have for the Williams-Sonoma branded business. In March, our co-branded collaborations drove media attention and results.

Speaker Change: During Q1, we inspire customers with exclusive and innovative products, we benefited from new introductions of lands from a branded products and categories like bakeware cutlery and food.

Speaker Change: The favorable customer response to these items continues to reinforce the opportunity we have for the Williams Sonoma branded business.

Speaker Change: In March our co branded collaborations drove media attention and results are popular collaboration with Aaron Lauder was expanded to include new items for both land Sonoma and Williams Sonoma home.

Laura J. Alber: Our popular collaboration with Aaron Lauder was expanded to include new items for both Williams-Sonoma and Williams-Sonoma Home. We also partnered with Tricia Yearwood to make our best-selling cocktail collaboration the official drink of her new 55,000-square-foot bar and restaurant in Nashville that she built with her husband, Garth Brooks.

Speaker Change: We also partnered with Trisha Yearwood to make our best selling cocktail collaboration the official drink of her new 55000 square foot bar and restaurant Nashville that she built with her husband Garth Brooks.

Laura J. Alber: Now I'd like to update you on our other initiatives. Business-to-business grew 10% in Q1, driving record-breaking demand in the quarter. We saw improvement in our trade business, running a positive 6% in the quarter, along with continued momentum in our contract business, which represents about a third of the B2B business, up 18%. We're encouraged by our diverse book of businesses, ranging from sofas for UC San Diego dorms to corporate gifting for Pebble Beach Company. We also saw continued growth for our existing large project customers, such as Marriott, Dave & Buster's, and Jamestown Properties. Now, I'd like to talk about our global business.

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

Speaker Change: Business to business grew 10% in Q1 driving record breaking demand in the quarter.

Speaker Change: We saw improvement in our trade business running a positive 6% on the quarter along with continued momentum in our contract business, which represents about a third of the <unk> business up 18%.

We're encouraged by our diverse book of businesses ranging from surface for UC, San Diego dorms, the corporate gifting for Pebble Beach company.

Speaker Change: We also saw continued growth for our existing large project customers, such as Marriott, Dave and Busters and Jamestown properties.

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

Laura J. Alber: Despite ongoing macroeconomic pressures impacting our global business, we're pleased with the performance in key markets, including India, Canada, and Mexico. In India, we are continuing to see strong growth from increased marketing and brand awareness campaigns across brands. In Canada, our business is thriving in both the retail and direct-to-consumer channels, driven by enhanced omni-channel strategies, wider product selection, and the expansion of our business-to-business program across all brands in the market. And in Mexico, the market shows strength, driven by a focus on the design business and an expanded assortment fueled by our improved stock position. We will continue to leverage the knowledge gained from these markets to enhance the global customer experience in our new and emerging markets. Lastly, I'd like to update you on our emerging brands. Rejuvenation delivered another double-digit quarter

Speaker Change: Despite ongoing macroeconomic pressures impacting our global business, we're pleased with the performance in key markets, including India, Canada and Mexico.

Speaker Change: In India, we are continuing to see strong growth from increased marketing and brand awareness campaigns across the brands.

Speaker Change: In Canada, our business is thriving and both the retail and direct to consumer channels, driven by enhanced omnichannel strategies wider product selection and the expansion of our business to business program across all brands in the market.

Speaker Change: And in Mexico, the market show strength, driven by our focus on the design business and expanded assortment fueled by our improved stock position.

Speaker Change: We will continue to leverage the knowledge gained from these markets to enhance the global customer experience and our new and emerging markets.

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

Speaker Change: Rejuvenation delivered another double digit quarter with all categories to drive growth and continue to see success with both consumer and trade customers.

Laura J. Alber: We saw all categories drive growth and continue to see success with both consumer and trade customers. The brand remains focused on delivering high-quality products that support your home remodel and refresh projects. The strongest performance comes from bath, hardware, and lighting, while we also see strength in several of our new growth categories like textiles, organization, window hardware, and outdoor. Customers continue to update their homes, specifically in the kitchen and bath spaces, and add the finishing touches with rejuvenation.

Speaker Change: The brand remains focused on delivering high quality products that support your home remodel and refresh projects.

Speaker Change: The strongest performance comes from Bath hardware and lighting, while we also see strength in several of our new growth categories like textiles organization window hardware and outdoor.

Speaker Change: Customers continue to update their homes, specifically in the kitchen, and bath spaces and at the finishing touches with Ritchie of the nation.

Laura J. Alber: We're excited by the momentum in this brand and the growth potential this year and beyond. Mark and Graham, our monogram gifting business, also drove double-digit comp growth in Q1. The brand is increasingly recognized as an inspirational lifestyle brand, experiencing continued growth as a go-to destination for gifts, including graduations and weddings. Q2 has started strong, with a positive reception to the brand's Mother's Day and Father's Day gift selection. And finally, Green Row, our newest brand, continues to grow and expand its assortment of vintage-inspired, colorful furnishings that are sustainably sourced and designed to last. The second catalog dropped this month with a focus on print and pattern.

Speaker Change: We're excited by the momentum in this brand and the growth potential this year and beyond.

Speaker Change: Mark and Graham our Monogram gifting business also drove a double digit comp growth in Q1. The brand is increasingly recognized as an inspirational lifestyle brand experiencing continued growth as a go to destination for guests, including graduations and weddings Q2 has started strong with a positive reception.

Speaker Change: And to the brand's mother's day and father's day gift selections.

Speaker Change: And finally Green ROE our newest brand continues to grow and expand its assortment of vintages fired colorful furnishings that are sustainably sourced and designed to last.

Speaker Change: The second catalog dropped this month with a focus on print and pattern.

Laura J. Alber: We are seeing a very positive response to its unique offerings in the market and look forward to seeing additional assortment expansions and partnerships in the coming months. 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 are extremely proud of our results. During the last few years, we as a company have navigated, learned, optimized, and built, all in preparation for our next chapter of growth.

Speaker Change: We are seeing a very positive response to its unique offerings in the market and look forward to seeing additional assortment expansions and partnerships in the coming months.

Speaker Change: The 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 are extremely proud of our results.

Speaker Change: During the last few years, we as a company has navigated learned optimized and built all in preparation for our next chapter of growth.

Laura J. Alber: We have a strong omni-channel platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity. However, we recognize that there is continued uncertainty in the environment and with the consumer. But because we operate in a highly fragmented market, we will continue to gain share by inspiring and servicing our customers. We remain committed to driving our three key priorities in 2024. One, returning to growth. Two, enhancing our world-class customer service, and three, driving margins. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail. Thank you.

Speaker Change: We have a strong omni channel platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity.

Speaker Change: We recognize that there is continued uncertainty with the environment and the consumer.

Speaker Change: But because we operate in a highly fragmented market, we will continue to gain share by inspiring and servicing our customers.

Speaker Change: We remain committed to driving our three key priorities in 2024, one returning to growth.

Speaker Change: To elevating our world class customer service.

Speaker Change: And three driving margin.

And with that I will 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. We are pleased to deliver these strong Q1 results. We've seen sequential improvement in our top-line trend, and we continue to exceed expectations on the bottom line. As Laura said, our results this quarter reflect three key priorities we've laid out for fiscal year 24. First, Returning to Grip.

Jeff: Thank you Laura and good morning, everyone.

Jeff: We are pleased to deliver these strong Q1 results.

Jeff: We've seen sequential improvement in our topline trend and we continue to exceed expectations on the bottom line.

Speaker Change: As Morris said.

Speaker Change: Our results this quarter reflect three key.

Speaker Change: We've laid out for fiscal year 'twenty four.

Speaker Change: First returning to growth.

Jeff: Fueled by our brand strategies, emerging brand opportunities, business-to-business expansion, and global footprint. Second, enhancing our world-class service, which drives both customer retention and expense savings. And finally, third, driving earnings as we continue to deliver strong profitability. These three themes resonate across our earnings today. And given our strong Q1 results, 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.

Speaker Change: We'll buy our brand strategy emerging brand opportunities business to business expansion and global footprint.

Speaker Change: Second.

Speaker Change: Elevating our world Class service.

Speaker Change: Which drives both customer retention and expense savings.

Speaker Change: And finally third.

Speaker Change: Driving earnings as we continue to deliver strong profitability.

Speaker Change: These three themes resonate across our earnings today.

Speaker Change: And given our strong Q1 results, we're confident we can deliver long term growth.

Speaker Change: And even stronger earnings as the customer shifts back to home.

Speaker Change: Now, let's dive into the numbers.

Jeff: I'll start with our Q1 results and then provide an update on guidance for the 24th. Net revenue finished at $1.66 billion, in line with our expectations, and a comp of negative 4.9% sequentially improved quarter over quarter. We saw better performance across both furniture and non-furniture categories, even as we reduced our overall level of promotions from last year. From a cadence perspective, our trends were relatively consistent across the quarter.

Speaker Change: I'll start with our Q1 results and then provide an update on guidance for 2004.

Speaker Change: Net revenues finished at $1 66 billion in line with our expectations.

Speaker Change: Our comp of negative four 9% sequentially improved quarter over quarter.

Speaker Change: We saw better performance across both furniture and non furniture categories, even as we reduced our overall level of promotions from last year.

Speaker Change: From a cadence perspective, our trends were relatively consistent across the quarter.

Jeff: Moving down the income statement, gross margin came in at 48.3%, which includes a $49 million, or 290 basis points, benefit from an out-of-period adjustment. Subsequent to filing our 10-K, we identified that we over-accrued freight expense across fiscal years 2021, 2022, and 2023 by $49 million. Following the prescribed accounting rules, we determined the over or cool was not material to any prior period and not material to our projected full year 24 results.

Speaker Change: Moving down the income statement gross margin came in at 48, 3%, which includes a $49 million for 290 basis point benefit from an out of period adjustment.

Speaker Change: Subsequent to filing our 10-K, we identified that we over accrued freight expense across fiscal years 2021.

Speaker Change: <unk> 2022, and 2023 by $49 million.

Speaker Change: Following the prescribed accounting rules, we determined the over accrual was not material to any prior period and not material to our projected full year 'twenty for results.

Jeff: Therefore, we recorded the correction in Q1 as an out-of-period adjustment that benefited our results this quarter. Without the out-of-period adjustment, gross margin came in at 45.4%, 680 basis points higher than last year and substantially exceeding expectations. There were three drivers to the 680 basis point improvement.

Speaker Change: Therefore, we recorded the correction in Q1.

Speaker Change: Out of period adjustment that benefited our results this quarter.

Speaker Change: Without the out of period adjustment gross margin came in at 45, 4%.

Speaker Change: 680 basis points higher than last year and substantially exceeding expectations.

There were three drivers to the 680 basis point improvement.

Jeff: First, merchandise margins include 470 basis points, driven by lower ocean freight as we benefited from lapping last year's pandemic-related ocean freight runoff and our ongoing commitment to full price selling. Second, supply chain efficiencies contributed 240 basis points, driven by lower than pre-pandemic returns, accommodations, damages, replacements, out-of-market shipping, and multiple deliveries per order. These supply chain efficiencies are yielding a notable improvement in customer service and cost savings. And third, occupancy.

Speaker Change: First merchandise margins improved 470 basis points.

Speaker Change: Driven by lower Ocean freight as we benefited from lapping last year's pandemic related ocean freight run off.

Speaker Change: And our ongoing commitment to full price selling.

Speaker Change: Second supply chain efficiencies contributed 240 basis points.

Speaker Change: Driven by lower than pre pandemic returns.

Speaker Change: Accommodations damages replacements.

Speaker Change: Market shipping and multiple deliveries per order.

Speaker Change: These supply chain efficiencies are yielding and notable improvement in customer service and cost savings.

Speaker Change: And third occupancy costs, although down 3% from last year de leveraged 30 basis points.

Jeff: Although down 3% from last year, it leveraged 30 basis points. We continue to optimize our retail fleet while we invest in our world-class technology stack and our supply chain. Wrapping up gross margin, we delivered a substantially higher gross margin this quarter, driven by better merchandise margins, supply chain efficiencies, and lower occupancy costs. Turning now to SG&A, SG&A expense came in at 28.8% of revenues, or 310 basis points higher than last year, driven by higher advertising spend and incentive compensation.

Speaker Change: We continue to optimize our retail fleet, while we invest in our world class technology stack and our supply chain.

Speaker Change: Wrapping up gross margin, we delivered substantially higher gross margin this quarter.

Speaker Change: Driven by better merchandise margins.

Speaker Change: Fly chain efficiencies.

Speaker Change: Lower occupancy costs.

Speaker Change: Turning now to SG&A SG&A expense came in at 28, 8% of revenues were 310 basis points higher than last year, driven by higher advertising spend and incentive compensation.

Jeff: Advertising expense deleveraged 170 basis points as we continue to invest in higher levels of advertising spend to drive sales at an efficient return. Our multibrand portfolio allows us to test the return of this incremental spend. Our own hands-on keyboard approach allows our investment to go further, keeps our learnings in-house, and gives us a competitive advantage in the home furnishings industry. Employment expense was 100 basis points higher year over year, driven entirely by higher performance-based incentive compensation. Without incentive compensation, employment was flat year-over-year on a rate-based basis.

Speaker Change: Advertising expense Deleveraged 170 basis points.

Speaker Change: As we continue to invest in the higher levels of advertising spend to drive sales at an efficient return.

Speaker Change: Our multi brand portfolio allows us to test the return of this incremental spend.

Speaker Change: Our own hands on keyboard approach allows our investment to go further.

Speaker Change: Our learnings in house and gives us a competitive advantage in the home furnishings industry.

Speaker Change: Employment expense was 100 basis points higher year over year, driven entirely by higher performance based incentive compensation.

Speaker Change: With that incentive compensation employment was flat year over year on a rate basis.

Jeff: In Q1, we continued to manage variable employment costs across our stores, distribution centers, and customer care centers in accordance with top line trends. On the bottom line, our earnings significantly exceeded expectations, including the benefit from the out-of-period adjustment. Operating income came in at $323.8 million. Operating margin was 19.5%, and diluted earnings per share was $4.07. The out-of-period adjustment increased operating income by $49 million, operating margin by 290 basis points, and earnings per share by 59 cents. Without the out-of-period adjustment, our earnings still significantly exceeded expectations. Our printed income came in at $274.8 million.

Speaker Change: In Q1, we continued to manage variable employment costs across our stores.

Speaker Change: Distribution centers and customer care centers in accordance with topline trends.

Speaker Change: On the bottom line, our earnings significantly exceeded expectations.

Speaker Change: Including the benefit from the out of period adjustment operating income came in at $323 8 million.

Speaker Change: Operating margin was 19, 5% and diluted earnings per share was $4 seven.

Speaker Change: The out of period adjustment increased operating income by $49 million.

Speaker Change: Operating margin by 290 basis points and earnings per share by 59.

Speaker Change: Without the out of period adjustment our earnings still significantly exceeded expectations.

Operating income came in at $274 8 million.

Jeff: Operating margin was 16.6%, 370 basis points above last year. And diluted earnings per share was $3.48, up 84 cents or 32% year-over-year. On the balance sheet, we ended the quarter with a cash balance of $1.3 billion, with no debt outstanding. This was after we invested $40 million in capital expenditures supporting our long-term growth, and we returned $107 million to our shareholders through quarterly dividends and share repurchases. Merchandise inventories ended the quarter at $1.2 billion, down 13% from last year.

Speaker Change: Operating margin was 16, 6% three.

Speaker Change: 370 basis points above last year.

Speaker Change: And diluted earnings per share was $3 48.

Speaker Change: 84.

Speaker Change: For 32% year over year.

Speaker Change: On our balance sheet, we ended the quarter with a cash balance of $1 3 billion with no debt outstanding.

Speaker Change: This was after we invested $40 million in capital expenditures supporting our long term growth.

Speaker Change: And we returned $107 million to our shareholders through quarterly dividends and share repurchases.

Speaker Change: Merchandise inventories ended the quarter at $1 2 billion down 13% to last year.

Jeff: Overall, our inventories are well positioned to support our business. Summing up our Q1 results, we're proud to have delivered another quarter of earnings substantially exceeding expectations. I'd like to thank our talented and dedicated team at Williams-Sonoma Inc. for delivering these outstanding results. Now, let's turn to our 24 hours.

Speaker Change: Overall, our inventories are well positioned to support our business.

Speaker Change: Summing up our Q1 results, we're proud to have delivered another quarter of earnings substantially exceeding expectations.

Speaker Change: I would like to thank our talented.

Speaker Change: Dedicated team at Williamson, Inc. For delivering these outstanding results.

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

Jeff: Given our Q1 results, we are reiterating our revenue guidance and raising our operating margin guidance for fiscal year 24. On the top line, we continue to expect full-year 24-net revenues to be in the range of down 3% to up 3%, with comps between down 4.5% to up 1.5%. We anticipate sequential improvement across the year, with the first half being tougher than the second half as our top-line comparisons get easier, and our Growth Drivers Accelerator.

Speaker Change: Given our Q1 results we are reiterating our revenue guidance.

Speaker Change: We're raising our operating margin guidance for fiscal year 'twenty four.

Speaker Change: On the topline we continue to expect full year 'twenty four net revenues to be in the range of down 3%.

Speaker Change: To up 3%.

With comps between down four 5%.

Speaker Change: Up one 5%.

Speaker Change: We anticipate sequential improvement across the year.

Speaker Change: With the first half tougher than the second half.

Speaker Change: Top line comparisons get easier.

Speaker Change: And our growth drivers to accelerate.

Jeff: On the bottom line, we are raising our guidance based upon our Q1 results, but we anticipate our operating margins going forward will be relatively in line with 23. We are raising our operating margin guidance to a range of 17.6% to 18%, which includes a 60-basis point benefit from the full-year impact of the out-of-period adjustment. Without the out-of-period adjustment, we expect our full-year operating margin will be in the range of 17% to 17.4%, a rise of 50 basis points due to our strong Q1 results.

Speaker Change: On the bottom line.

Speaker Change: We are raising our guidance based upon our Q1 results.

Speaker Change: Anticipate our operating margins going forward will be relatively in line with 2000 <unk> results.

Speaker Change: We are raising our operating margin guidance to a range of 17, 6% to 18%.

Speaker Change: Which includes a 60 basis point benefit from the full year impact of the out of period adjustment.

Speaker Change: Without the out of period adjustment, we expect our full year operating margin will be in the range of 17% to.

Speaker Change: To 17, 4% a raise of 50 basis points due to our strong Q1 results.

Jeff: Additionally, we expect our full-year interest income to be approximately $40 million, and our full-year effective tax rate to be approximately 25.5%. As a reminder, 2024 is a 53-week year for Williams-Sonoma Inc. So the fourth quarter will consist of 14 weeks. 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 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: Additionally, we expect our full year interest income to be approximately $40 million.

Speaker Change: And our full year effective tax rate to be approximately 25, 5%.

Speaker Change: As a reminder, 2024 is a 53 week year for Williams Sonoma, Inc.

Speaker Change: So the fourth quarter will consist of 14 weeks.

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

Speaker Change: 10 basis points to operating margins.

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

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: Our capital allocation plans for 2024 remain unchanged. We expect to spend $225 million in capital expenditures to invest in the long-term growth of our business. 75% of this capital spend will be dedicated to driving our e-commerce leadership and supply chain efficiency. Additionally, we remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, in March, we announced an increase in our quarterly dividend payout of 26%, or $0.23, to $1.13 per share.

Speaker Change: Our capital allocation plans for 'twenty four remain unchanged.

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

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

Speaker Change: We remain committed to returning excess cash to our shareholders.

Speaker Change: In the form of increased quarterly dividend payouts and ongoing share repurchases.

For dividends in March we announced an increase in our quarterly dividend payout of 26% or 23.

Speaker Change: To $1 13 per share.

Jeff: Fiscal year 24 will be the 15th consecutive year of increased dividend payouts, which we are both proud of and remain committed to. For share repurchase. We have $956 million remaining under our $1 billion share repurchase authorization, through which we will opportunistically repurchase our stock to deliver returns to our shareholders. As we look further into the future, beyond 24, we are reiterating our long-term guidance of mid- to high-single-digit revenue growth and operating margins in the mid to high teens.

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

For share repurchases, we have $956 million remaining under our $1 billion share repurchase authorization through which we will opportunistically repurchase our stock to deliver returns to our shareholders.

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

With operating margins in the mid to high teens.

Jeff: We're confident we'll continue to outperform our peers and deliver shareholder growth for these five reasons that remain consistent. For example, our ability to gain market share in a fragmented home furnishings industry. The Strength of Our In-House Proprietary Design. The competitive advantage of our digital-first, but not digital-only, channel strategy, the ongoing strength of our growth initiatives, and the resiliency of our fortress balance sheet. With that, I'll open the call for questions.

Speaker Change: We're confident we will continue to outperform our peers and deliver shareholder growth for these five reasons that remained consistent.

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

Speaker Change: The strength of our in house proprietary design.

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

Speaker Change: Ongoing strength of our growth initiatives and the resiliency of our fortress balance sheet.

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

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question, please ensure that your phone is not on mute when asking your question. And we do request for today's session that you please limit yourself to 1 question and 1 follow-up. Your first question comes from the line of Kate McShane with Goldman Sachs. Your line is open.

Speaker Change: Thank you the floor is now open for questions. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star one again.

Speaker Change: You are called upon to ask your question. Please ensure that your phone is not on mute when asking your question and we do request for today's session that you. Please limit yourself to one question and one follow up.

Speaker Change: Your first question comes from the line of Kate Mcshane with Goldman Sachs. Your line is open.

Katharine Amanda McShane: Hi, good morning. Thanks for taking our question. I have one kind of bigger picture question and then one question with regard to the accounting that was stated today. So first, we wondered if you could talk a little bit more about the big ticket trends you're seeing. I know you noted better performance in furniture, but we're curious to feel down on that a little bit more in terms of what you saw in Q1 versus maybe what you were seeing in Q4. And then, with regard to the accounting, we're wondering, with regard to the COGS change, why it's only 21 through 23, and why there's not an impact on Q1-24.

Katharine Amanda McShane: Hi, good morning, Thanks for taking our question.

Katharine Amanda McShane: I have one kind of bigger picture question and then one question with regards to <unk>.

Katharine Amanda McShane: The accounting that was stated today.

Katharine Amanda McShane: So first I wondered if you could talk a little bit more about the big ticket trends Youre seeing I know you noted better performance in furniture.

Katharine Amanda McShane: Curious to drill down on that a little bit more in terms of what you saw in Q1 versus maybe what youre seeing in Q4.

Speaker Change: And then with regards to the accounting.

Speaker Change: We are wondering with regards to the Cogs change why it's only 21 through 23.

Speaker Change: And why there is not.

Speaker Change: An impact to Q1 'twenty four.

Laura J. Alber: Hi Kate, good morning. Hi Laura.

Speaker Change: Hey, good morning, Laura.

Laura J. Alber: In terms of big ticket items, Q4 is not a big furniture time of year, of course, it's comparable. We don't bring in a lot of newness in Q4, but we are seeing improvement in our furniture business, and high ticket has always been one of those things. You have to remember, we have electronics in high ticket, we have a lot of other types of products in high ticket that aren't furniture, but we haven't seen a trend for high ticket softness.

Speaker Change: In terms of big ticket.

Speaker Change: Q4 is not a big furniture to EMEA of course, the concept comparable we don't bring in a lot of newness in Q4, but we are seeing improvement.

Speaker Change: Our furniture business and high ticket has always been one of those things you have to remember we have electrics and high ticket. We have a lot of other types of products and high ticket furniture, but we haven't seen a trend.

Speaker Change: In high ticket softness we've seen more of a furniture softness trend.

Laura J. Alber: We haven't seen more of a furniture softness trend that appears to be better. We have had some really wonderful sales on new products in the spring and summer season that are both in Potter Barn and in West Elm, and then also we're seeing better performance out of our kids' furniture business, where we introduced new finishes, which make a huge difference to these furniture collections, and they also have categories in the children's home furnishings business that naturally have a lot of growth. For example, dorm, and then also baby, and those are more life stage versus housing related, so we're seeing more firmness there.

Speaker Change: Peers to be better.

Speaker Change: We have some really wonderful selling on new products in the spring and summer season that are both in pottery barn and in West Elm and then also we're seeing better performance out of our kids furniture business, where we introduced new finishes, which make a huge difference to these furniture can.

Speaker Change: Sections and also they have categories.

Speaker Change: Children's home furnishings business.

Speaker Change: Naturally have a lot of growth for example door and then also.

Speaker Change: And those are more life stage versus housing related so we're seeing more firmness there.

Jeff: All right, Kate, good morning. I'll take the second question on accounting. So you asked why it's only 21 through 23 and not 24. I think for some context, what really drove the out-of-period adjustment was the supply chain volatility that happened during the pandemic, which really hit years 21 through 23. And just to remind everyone, the pandemic put tremendous pressure on international supply chains. We faced disruption, delays, material cost swings, contract renegotiations, changes in terms by vendors, balance renegotiations, and all these pressures added a layer of complexity to the already imprecise process we used to estimate trade expenses. So it was really a pandemic-driven problem, and it would not have impacted Q1-24 because as we cleaned up our balance sheet and reconciled our accruals, it would just cancel itself out in Q1.

Speaker Change: Hey, good morning, I'll take the second question on the accounting. So you ask why it's only 21 through 'twenty three 'twenty four I think for some context, what really drove the out of period adjustment was the supply chain volatility that happened during the pandemic, which really hit.

Speaker Change: 'twenty one through 'twenty, three and just to remind everyone. The pandemic put tremendous pressure on international supply chains, and we face disruption delays material cost.

Speaker Change: Contract renegotiations changes in terms of by vendors balance renegotiations and all these pressures added a layer of complexity to the already in precise process. We use to estimate create expense. So it was really a pandemic driven.

Speaker Change: And it would not have impacted Q1, 'twenty four because as we cleaned up.

Speaker Change: Balance sheet and reconciled our pool.

It would just cancel itself out in Q1.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Christopher Horvers with J.P. Morgan. Your line is open.

Speaker Change: Your next question comes from the line of Christopher <unk> with Jpmorgan. Your line is open.

Christopher Michael Horvers: Thanks and good morning. So my first question is, what are your early reads in the outdoor category? You know, obviously, that's a bigger portion of the second quarter versus Sonoma really shining around the Easter holiday. And it looks like April was pretty tough on the weather. So would you expect some of that outdoor category to shift into the second quarter? And sort of related to Kate's question, you know, had you think about the sequential improvement in the business mix would have an effect? So, you know, does the weather shift, maybe the 2Q sort of offset the fact that, you know, the mix of Williams-Sonoma is lower in the second quarter?

Christopher: Thanks, and good morning. So my first question is what your early reads are on the outdoor category. Obviously, that's a bigger portion of the second quarter versus Sonoma really.

Speaker Change: Chinese around the Easter holiday and it looks like April was pretty tough on the weather. So would you expect some of that outdoor category of the shift in <unk>.

Speaker Change: Then to the second quarter.

Speaker Change: And sort of related to to Kate's question you know.

Speaker Change: Or do you think about like the sequential improvement in our business mix will have an effect so.

Speaker Change: Does the weather shifts maybe that <unk> sort of offset the fact that the <unk>.

Speaker Change: Mix of Williams Sonoma is lower in the second quarter.

Speaker Change: Yes.

Laura J. Alber: Hi, Chris its Laura.

Speaker Change: The outdoor category.

Speaker Change: It's consistent it's consistent with the performance of our furniture category, Okay. Its about lets say.

Speaker Change: And.

Laura J. Alber: The curve, if you're referring to the curve of sales, it's more like before the pandemic than when the pandemic happened, immediately after when there was an early rush to get the outdoor furniture. Now it's a more normalized curve, and we have a really pretty good handle on where we think this is gonna end up, and it's embedded in our guidance.

Speaker Change: The curve, if you're referring to the curve of sales.

Speaker Change: More like before the pandemic than when the pins on the catheter and immediately after when it was it early.

Speaker Change: An early rush to get the home first to get the outdoor furniture now it's a more normalized curve and we have a really pretty good handle on where we think this is going to end up and it's embedded in our guidance.

Laura J. Alber: I would also just add, Chris, that there's been a lot of talk out there in the industry about the impact of weather. We're not really seeing that impact. I think because we are predominantly online, the weather doesn't impact us the same way. So we don't see it as an impact, a shift between quarters, as you alluded to.

Speaker Change: I would also just add Chris that.

Speaker Change: I know there's been a lot of talk out there in the industry about the impact of the weather, we're not really seeing that impact I think because we are predominant online or whether it doesn't impact us the same way. So we don't see it as an impact.

Speaker Change: Between quarters as you alluded to.

Christopher Michael Horvers: Got it. And then just on the margin, I know you don't guide by quarters, but, typically, the back half of the year is a much higher operating margin period than the first half of the year, and you don't guide by quarter, but it would seem to imply that you don't get that historical uptick in the back half based on where you guide the year. It seems like you, you know, in large part just passed along the first quarter beat on the margin side. So is that, is that a fair assessment of how you approach the year guidance? And, you know, was there anything unique in the first quarter that is perhaps not sustainable?

Speaker Change: Got it and then just on the on the margin I know you don't guide by quarters, but.

Typically the back half of the year is a much higher.

Speaker Change: Operating margin period than the first half of the year.

Speaker Change: You don't guide by quarter, but it would imply it would seem to imply that you don't get that.

Speaker Change: Store goal.

Bob: Bob check.

Speaker Change: In the back half based on where you guided the year it seemed like you.

Jeff: Thank you.

Speaker Change: In large part just pass along the first quarter beat on the margin side. So is that is that a fair assessment of how you approach the year guidance and.

Speaker Change: Was there anything unique in the first quarter, then that is perhaps not sustainable. Thank you.

Christopher Michael Horvers: Yeah, Chris, I think you hit the nail on the head in that there were some unique things in Q1, and it really comes down to what we're up against from a last-year comparison basis. Let's remember that in Q1 last year, Q1-22, was the high point of our supply chain headwinds, which really benefited us the most in Q1, and we're quickly coming to the end of that benefit, and we're lapping, starting in Q2 and even being stronger in Q3 and Q4, more benefits that we had last year from those headwinds.

Speaker Change: Yes, Chris I think I think Anthony on the head.

Speaker Change: <unk>.

Speaker Change: There was some unique things in Q1 and it really comes down to what were up against from a last year compare basis, let's remember that in Q1 last year Q1, 2002 was the high point of our supply chain headwinds, which really benefited us. The most in Q1 and we are quickly coming to the end of that benefit and we are lapping.

Speaker Change: Sorry.

Speaker Change: In Q2, and even be stronger in Q3, and Q4 more benefits that we had last year from those headwinds and Additionally, we also start to lap the benefit we saw last year from our focus on full price selling and supply chain efficiencies and while we feel great about our results. Let's remember it's early in the year, there's a lot of uncertainty.

Christopher Michael Horvers: Additionally, we also start to lap the benefit we saw last year from our focus on full-price selling and supply chain efficiencies, and while we feel great about our results, let's remember it's early in the year. There's a lot of uncertainty, so that's why we're guiding our full-year operating margins to be essentially flat year-over-year, Q2 through Q4.

Speaker Change: So thats why regarding our full year operating margins.

Speaker Change: <unk>.

Speaker Change: To be essentially flat year over year Q2 through Q4.

Operator: Got it. Thanks very much.

Speaker Change: Got it thanks very much.

Cristina Fernandez: Your next question comes from the line of Cristina Fernandez with the Telsey Advisory Group. Your line is open.

Speaker Change: Your next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Your line is open.

Laura J. Alber: Hi, good morning, and congratulations on the good results. I wanted to ask you also a big picture question around demand. You call out trade in B2B of 6%. I think that hasn't been up in a few quarters, and the bigger sort of the furniture trends are getting slightly better. Do you feel it's a function of your consumer that's more fluent feeling better about spending on the home, or just more company-specific initiatives that are driving those results?

Cristina Fernandez: Hi, good morning, and congratulations on the good results I wanted to ask a big picture question around the name you call out trade and B to be up 6% I think that Hudson been up in a few quarters and the bigger.

The furniture trends getting slightly better do you feel it's a function of.

Cristina Fernandez: You are a consumer that's more fluid and feeling better about spending on the home or just more company specific initiatives that are driving those results.

Laura J. Alber: You know, I think that, you know, we've been focused on what we can control. And as we've said in the beginning of the year and last year, we're not planning, and we are not dependent on what's going to happen in the macro. I mean, we don't know what's going to happen in the macro.

Speaker Change: No I think.

Speaker Change: I know that we've been focused on what we can control.

Speaker Change: And as we've said in the beginning of the year and last year were not planning and we are not dependent.

Speaker Change: What's going to happen in the macro.

Speaker Change: Who knows what's going to happen in the macro.

Laura J. Alber: We're paying attention to what we can control, which is innovation. And innovation, right, you know, the right product, the right price, shown beautifully. We've improved the photography in our brands. We've improved the website functionality.

We're paying attention to what we can control which is innovation.

Speaker Change: And innovation right the right products the right price shown beautifully we've improved the photography and our brands improve the website functionality and we're looking very closely at how we improve what happens in our stores.

Laura J. Alber: And we're looking very closely at how we improve what happens in our stores. You know, our stores are billboards for our brands, and when you go in now, you're expecting to be able to take things home the minute you go in, not wait for things.

Tom: Stores are billboards for our brands and when you go in now Youre expecting they'll take things Tom.

Laura J. Alber: And so we've stocked them higher, and we've made sure that there's enough newness in our stores to drive excitement again. And those are some of the things that we're really seeing improve our results. As far as B2B goes, remember, there are two parts to this business: trade and contract. And the contract business is less dependent on, you know, housing and consumer. And we have some great wins in the verticals that we're focused on, both in hospitality, you know, sports, and entertainment.

Tom: The minute you go in and not wait to things and so we've stopped Empire and we've made sure that there is enough newness in our stores to drive excitement again.

Tom: Those are some of the things that we're really seeing improve our results as far as beta Bigos remember, there's two parts of this business trade and contract and the contract business is less dependent.

Tom: Housing and consumer and we have some great wins in the <unk>.

Tom: The verticals that we're focused on both in hospitality.

Tom: Entertainment.

Tom: <unk>.

Laura J. Alber: And, you know, the key point here is that B2B is really a very important strategic initiative for us and a huge part of our growth in the future because it's such a fractured market, and nobody has a much share, and yet it's quite big. And it leverages our brands, our ability to design for individual clients, our global sourcing capabilities, and our abilities to serve people with single deliveries versus having things come from a bunch of different suppliers. So we continue to be very confident about B2B, and it is less affected by what's going on with housing.

Tom: The key point here is that <unk> is really a very important strategic initiative for us and a huge part of our growth in the future because.

Tom: As such a fractured market and nobody has much Sharon yet, it's quite big and it leverages our brands our ability to design for individual clients, our global sourcing capabilities and our ability to service people.

Tom: With single deliveries versus having things come from a bunch of different suppliers. So we continue to be very confident about <unk> and it is less affected by what's going on with housing.

Laura J. Alber: And then, as a follow-up, you call out some of the growth initiatives accelerating through the year, giving you confidence to hit the full-year guide. Can you talk about which initiatives are more impactful as we move through the year?

Speaker Change: And then a quick follow up you called out some of the growth initiatives accelerating through the year given you confidence to hit the full year guide can you talk about which initiatives are more impactful as we move through the year.

Laura J. Alber: Sure. I think that the first one, you know, our brands are amazing and high quality. We design our own products, and we have our own proprietary websites. West Elm and the return to growth in West Elm is a big part of our focus. And I could not be more excited about what we're seeing in terms of West Elm. Reeds on newness and where the team is going, the high-quality collaborations that we have in the back here, half of the year, and also just building on what's working now and getting back in stock and being more confident with this new modern aesthetic that we are giving to our customers.

Speaker Change: Sure I think the first one our brands.

Speaker Change: Our amazing high quality.

Speaker Change: We design our own products.

Speaker Change: We have our own proprietary websites.

Speaker Change: And the return to growth in West Elm is a big part of.

Speaker Change: Our focus.

Speaker Change: I could not be more excited about what we're seeing in terms of west Elm.

Speaker Change: Wait on newness and where the team is scaling.

Speaker Change: <unk> high quality collaborations that we have in the back here half of the year and also just building on what's working now and getting back in stock and being more confident with this new modern aesthetic that we are giving to our customers. The other part of west Elm and I think it's very important to know is spend predominantly I think furniture business and.

Laura J. Alber: The other part of West Elm that I think is very important to note is that, you know, it's predominantly a big furniture business, and we know that for repeat purchases and excitement, you want to have things that people can buy to update their house for a dinner party or, you know, just to change the way the living room looks with new pillows. And so we've been very focused on the smalls, when I say that, the things that are easier to buy, easy updates for the home.

Speaker Change: We know that for repeat purchases and excitement you want to have things that people can buy to update their house for a dinner party or.

Speaker Change: Just to change the way the living room with.

With their pillows and so we've been very focused on the small when I say that.

Speaker Change: The things that are easier to buy easy updates for the home.

Laura J. Alber: And we're going to continue to push that percent total, which is good for new customer acquisitions. So West Elm is a key part of our growth strategy in the back half. Of course, I'm really excited about what we're seeing with our new Williams-Sonoma launches. And I don't know if you've been able to go to our website, but we have a new gorgeous Navy Jura collection, which is exclusive to us in the market and another example of, you know, extremely impactful. Collaborations is our collaboration with Shondaland and Netflix on Bridgerton, which is doing very well. And as you know, Bridgerton is the most watched show right now on Netflix.

Speaker Change: We're going to continue to push that percent of total which is just a new customer acquisition. So west L. A is a key part of our growth strategy in the back half of course, I'm really excited about.

Speaker Change: What we're seeing with our new Williams Sonoma launches and I don't know if you've been able to go to our website, where we have a new gorgeous Navy Terra collection, which is exclusive to us in the market and another example is extremely impactful.

Speaker Change: Collaborations is our collaboration with Shadowlands and Netflix on for Jason.

Speaker Change: Which is doing very well and as you know the Richardson is the most watched show right now Netflix. So we're excited to have hit that nail on the head of our kids and teen businesses collaborations are.

Laura J. Alber: So we're excited to have hit that nail on the head. Our Kids and Teen Businesses collaborations are a big part of that comp growth. And we have more in store and are building on those. And, of course, the carve out of Baby and Dorm is so good.

Speaker Change: A big part of that comp growth and we have or in store and building on those and of course, the carve out of babies and dorm saga and then in pottery barn. We're.

Laura J. Alber: And then in Potter Barn, we're seeing some really nice new collections selling, as I referenced earlier, that we're building on for the fall season. And very beautiful floor sets for fall. And then, of course, the holidays, where we own decorating and entertaining. Not anybody else does what we do in a high-quality way for the holidays. So those are our big brands. And then, of course, our emerging brands, which I touched on. Really nice momentum, very different aesthetically, serving a different way to entertain and decorate. And we've seen double-digit comp growth in those brands and are really pushing growth for those in the future.

Speaker Change: We're seeing some really nice new collection selling as I referenced earlier that we're building on for the fall season and their IP to fall floor sets for fall and then of course holiday, where we own decorating and entertaining not anybody else does what we do in a high quality way for the holidays. So those are our big brands and then of course, our emerging brands.

Speaker Change: I touched on really nice momentum very different aesthetics Lee survey.

Speaker Change: Different way to entertain and decorate.

Speaker Change: We've seen double digit comp growth in those brands and are really pushing the growth for those in the future.

Speaker Change: And your next your next.

Operator: You're next. Your next question comes from the line of Michael Lasser with UBS. Your line is open.

Speaker Change: Question comes from the line of Michael Lasser with UBS. Your line is open.

Michael Lasser: Hi, this is Dan Silverson on behalf of Michael. Thank you so much for taking our questions.

Speaker Change: Hi, This is Dan Silverstein on for Michael. Thank you so much for taking our question.

Speaker Change: Bob.

Speaker Change: Im sorry.

Operator: I'm sorry, we... Hey guys, sorry, we got our lines crossed, this is Michael Lasser. Thank you so much for taking our question. Our question is, if you continue to outperform by the magnitude that you did in the first quarter, would you look to reinvest that back into demand-driving initiatives, or would you let it flow to the bottom line?

Speaker Change: Hey, Hey, Barry go ahead Scott.

Speaker Change: Sorry, we got we got our lines crossed this is Michael Lasser. Thank you so much for taking our question.

Speaker Change: Question is you continue to outperform by the magnitude that you did in the first quarter would you look to reinvest that back into demand driving initiatives or would you let it flow to the bottom line.

Laura J. Alber: We're always investing in demand-driving initiatives. You know, we're very aggressive about that.

Speaker Change: We're always investing in demand driving initiatives.

Speaker Change: Yes.

Speaker Change: Very aggressive about that.

Speaker Change: The key is where it really drives incremental sales versus trading sales are just spending more money. So we're very disciplined in how we look at our investments. It's why we have industry leading ROIC.

Laura J. Alber: And, you know, the key is where it really drives incremental sales versus trading sales or just spending more money. So we're very disciplined in how we look at our investments. It's why we have industry-leading ROIC. And, you know, the obvious places you should invest, as you saw us do, were in ad costs. That's the biggest thing.

Speaker Change: And the obvious.

Speaker Change: Places you invest as you saw us do.

Speaker Change: And at cost.

Laura J. Alber: In terms of, you know, big investments, we've mentioned our supply chain is built for more volume than we have. And our proprietary e-commerce platform is, you know, state-of-the-art and doesn't require the kind of step-up investment that other people have had to put in because we've been doing it for so long. We have such a big percent of total in e-commerce already, so it's not a new thing for us. It's something that we can just build incremental, incremental ads for that are helpful to the customer experience.

Speaker Change: That's the biggest thing in terms of big investments.

Speaker Change: <unk> mentioned, our supply chain is built for more volume than we have and our.

Speaker Change: Terry ecommerce platform is.

Speaker Change: <unk> and doesn't require the kind of step up investments to other peoples other people had too.

Speaker Change: Put in because we've been doing it for so long we have such a big percentage of total.

Speaker Change: And e-commerce already so it's not a new thing for us it's something that we can just build incremental.

Laura J. Alber: So it's, you know, when you say incremental investment to drive demand in the short term, that is advertising cost. Promos are not something in our vernacular anymore. We do take markdowns, but that is a demand-driving way that other people take, and it is not one that is sustainable, in our opinion.

Speaker Change: Incremental.

Speaker Change: As to that are that are helpful to the customer experience. So it's when.

Speaker Change: When you say incremental investment to drive demand in the short term that is add cost promos are not something in our vernacular anymore. We do take markdowns, but that is a demand driving way that other people take and it is not one that is sustainable in our opinion.

Michael Lasser: Very helpful. Two follow-ups on that. Can you quantify how much you will be investing in advertising this year, either as a percentage of sales or the dollar amount? And where does full price selling stand today across the different brands versus where that same percentage was prior to the

Speaker Change: Very helpful.

Speaker Change: Two follow ups on that can you quantify how much you will be investing in advertising this year of either as a percentage of sales or the dollar amount and weird.

Speaker Change: Full price selling stand today across the different brands versus where that same percentage was prior to the pandemic. Thank you. So much let's say we're fighting of your question.

Laura J. Alber: We're fighting over your questions. In terms of AdCost, gosh, I wish we knew. It's so dynamic, and we're so lucky to have this amazing team that is so sophisticated at looking at the different AdCost streams and reading the results. And it's a lot about the bids from others and where the demand is going and where it's not, because what is true today might not be true in a month. So we have a monthly, you know, long, full-day meeting where we review every brand and every stream, and we put our investments down where we're seeing returns. We test in one brand and roll it out to others. Jeff can put this more in context if you want on the AdCost. Yeah,

Speaker Change: Yeah. So.

Speaker Change: In terms of AD tasked us.

Speaker Change: I wish we knew.

Speaker Change: It's so dynamic and we're so lucky to have this amazing.

Sophisticated at looking at the different fab cost streams.

Speaker Change: Reading the results and it's a lot about the bids from others in resin demand is going and where its not because.

Speaker Change: What is true today might not be sharing a month. So we have a lumpy.

Speaker Change: One full day meeting, where we review every brand and every screen and we put our investments downward we're seeing returns we test in one brand and roll it out to others.

Speaker Change: Jeff can put this more in context, if you want on the Iqos, Yes, I think it's also just important to remember as you know we guide the topline revenues and bottom line operating margin because it gives us flexibility to respond to changes in the business and as everyone has seen we know the levers to pull to deliver results. So we'll go through the year, it's a very uncertain environment.

Jeff: Yeah, I think it's also important to remember, as you know, we guide the top line revenues and the bottom line offering margin because it gives us flexibility to respond to changes in the business. And, as everyone has seen, we know the levers to pull to deliver results. So while we'll go through the year, it's a very uncertain environment; who knows how the year shapes out, but we can adjust our levers as we see the trends develop to deliver.

Speaker Change: Who knows how the year shapes out, but we can adjust.

Speaker Change: Our levers as we see the trends develop to deliver results for our shareholders.

Laura J. Alber: And then, in terms of full-price stuff... If you want me to... Yeah, yeah, yeah, for sure. Yeah, yeah. Thank you. That is a number we haven't given, but it's a significant overlap.

Speaker Change: And then in terms of sulfate stomach.

Speaker Change: If you want me to.

Speaker Change: Yes, yes for sure.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: That is a number we haven't given but as significant over last year.

Michael Lasser: Thank you very much and good luck with the rest of the season.

Speaker Change: Okay.

Speaker Change: You very much and good luck for the rest of the season.

Michael Lasser: Thank you Michael.

Operator: Your next question comes from the line of Steven Zaccone with Citi. Your line is open.

Speaker Change: Your next question comes from the line of Stephens at Cowen with Citi. Your line is open.

Steven Emanuel Zaccone: All right, good morning. Thanks very much for taking my question. Laura, I wanted to ask you a macro question.

Speaker Change: Great. Good morning, Thanks, very much for taking my question, Laura I wanted to ask a macro question.

Steven Emanuel Zaccone: We've seen some improved data points in the furnishing space, and you mentioned that furniture softness appears to be getting better. So I'm curious for your assessment of like replacement cycles in the industry and this concept of like easy wins with people purchasing on smaller ticket items. Do you think we're starting to see some glimpses of the like replacement cycle?

Laura J. Alber: We've seen some improved data points in the furnishing space and you've mentioned the furniture softness appears to be getting better. So I'm curious for your assessment of like replacement cycles in the industry and this concept of like easy wins that people purchasing on smaller ticket items do you think we're starting to see.

Speaker Change: Some glimpses of replacement cycle and spending on the home very fair assessment.

Laura J. Alber: I have no idea. I think that if everyone believes that interest rates are never going to change, they're going to be more likely to buy than if they believe they're going to go down. They're going to wait. That's one theory I have, but that's just a theory. You know, you can't prove anything. What I know is that where we have innovative products that are priced right, we're winning. And that's exciting to see because that makes me feel like we're more in control than, you know, at the whim of the macro. I mean, but, you know, imagine like, you know, right now we produce these results in Q1. With the soft housing environment, imagine what it could be like when it turns, but when that's going to happen, your guess is as good as mine.

Speaker Change: I have no idea I think that.

Speaker Change: Yes.

Speaker Change: The interest rates are never going to change, they're going to be more likely to buy that if they believe theyre going to go down theyre going away. That's one theory I have but that's just a theory.

Speaker Change: Can't prove anything.

Speaker Change: What I know is that where we have innovative product that's priced right.

Speaker Change: We're winning.

Speaker Change: That's exciting to see because that makes me feel like we're more in control of them.

Speaker Change: The.

Speaker Change: The whim of the of the macro I mean, but.

Speaker Change: Imagine like you know right now we produced these results in Q1.

Speaker Change: With the soft housing environment.

Speaker Change: Imagine what it could be like when it when it turns but when that's going to happen.

Speaker Change: Guess is as good as mine.

Steven Emanuel Zaccone: Okay, fair enough. Jeff, a question for you. On gross margin, you've had a lot of strengths. Could we talk a little about the multi-year opportunity from here? Maybe following up on Michael's question, you know, full price selling is up relative to last year. Is there opportunity for that to still go higher from here? Thanks very much.

Speaker Change: Okay fair enough.

Speaker Change: Jeff a question for you.

Speaker Change: On gross margin you've had a lot of strengths can we talk a lot about the multiyear opportunity from here maybe following up on Michael's question full price selling is up relative to last year is there opportunity for that to still go higher from here. Thanks very much.

Jeff: Well, as you know, as I said before, we don't guide the specific lines. And our overall operating margin guidance for the balance of the year is essentially to be flat year over year. There is more opportunity potentially in gross margin, particularly from supply chain efficiencies and higher full price selling. But we are starting to lose the benefit we got last year from coming up against the headwinds I talked so much about.

Speaker Change: Yeah.

Speaker Change: Well as you know as I said before we don't guide to specific line.

Speaker Change: And our overall operating margin guidance for.

Speaker Change: For the balance of the year is essentially to be flat year over year. There is more opportunity potentially in gross margin, particularly from supply chain efficiencies and higher full price selling but.

Speaker Change: But we are starting to lap the benefit we got last year from coming up against the headwinds I talked so much about.

Jeff: And as Laura mentioned, we have leveraged the pull, and there's a chance that if our gross margin was higher, it would give us more opportunity to reinvest back in the business to drive the top line if we see efficient returns from that investment.

Speaker Change: And as Laura mentioned.

We have levers to pull and there is a chance that if our gross margin was higher because there's more opportunity to reinvest back in the business to drive the top line, if we see efficient returns from that investment.

Speaker Change: Okay. Thanks very much.

Operator: Your next question comes from the line of Seth Basham with Webush. Your line is open.

Speaker Change: Your next question comes from the line of Seth Basham with Wedbush. Your line is open.

Seth Mckain Basham: Thanks a lot, good morning, and congratulations on continued strong results. My question is a follow-up on the last one, just thinking about all the supply chain margin benefits that you've gotten over the last couple quarters. Can you give us a little bit more insight into the key drivers there and the initiatives you have to further improve your outbound supply chain in the U.S.?

Seth Mckain Basham: Thanks, a lot good morning, Congrats on continued strong results.

Seth Mckain Basham: Question is a follow up on the last one just thinking about all the supply chain margin benefit you've gotten over the last couple of quarters can you give us a little bit more insight into the key drivers there and.

Seth Mckain Basham: And the initiatives you have to further improve your outbound supply chain in the U S.

Laura J. Alber: Yes, absolutely. Um, our goal is a perfect order, damage free, on time. And although we have really improved things since the pandemic and, in some cases, hit customer service records, there's still a lot of room to go. And that is the focus of our supply chain team. You know, we did have, as you know, last year, a lot of increases in inbound phrase attention demurrage. But we're no longer incurring those dramatically high costs. In terms of service, the team is really focused on a very low return and replacement rate.

Speaker Change: Yes, absolutely.

Speaker Change: Our goal is to perfect what our damage free on time, and although we have really improve things from the pandemic and in some cases hit customer service records. There's still a lot of room to go and that is the focus of our supply chain team.

Speaker Change: We did have as you know last year, a lot of increases in inbound freights attention to marriage.

Speaker Change: No longer incurring those genetically high cost.

Speaker Change: In terms of service the team is really <unk>.

Speaker Change: Focused on.

Speaker Change: A very low return replacement rate and we are digging into it causing every single incident that we have to make sure that that is not happening again and thats going to continue to go throughout the year and beyond.

Laura J. Alber: And we are digging into and root-cause every single incident that we have to make sure that that is not happening again. And that's going to continue throughout the year and beyond. And, you know, getting the inventory in the right place helps us incur fewer out-of-market and multiple shipments. And, you know, honestly, there's still room to do more of that as we further optimize our inventory buys by DC. And, you know, honestly, there are redundancies that we're finding and better ways to ship things with our use of AI, looking at orders and figuring out, you know, whether we want to optimize for speed or cost or what we want to do for that individual customer in an automated way. So, we've made investments in the supply chain. You know that we opened our Arizona DC. I'm pleased to tell you that it's up and running.

Speaker Change: And getting the inventory in the right place helps us incur less out of market in multiple shipments and you know honestly, there's still room to do more of that as we further optimize our inventory buys by DC and honestly.

There is redundancies that we're finding in that or better.

Speaker Change: Ways to ship things with our use of AI looking at orders and figuring out.

Speaker Change: Yes.

Speaker Change: Whether we want to optimize for Cid are coster.

Speaker Change: We want to do for that individual customer in an automated way. So we are making we've made investments in supply chain that we opened our Arizona DC I'm pleased to tell you that it's up and running.

Laura J. Alber: And that should give us an advantage of time in the back half when we hit our peak season this year and are closer to our West Coast customers. So we have, in previous quarters, absorbed some of those costs. And truthfully, you know, a lot of people ship apparel and small goods well. But there are not a lot of people who can ship furniture well and do it efficiently. And it's not only a huge margin driver for us when we do it well, but it's also incredibly good for customer service.

Speaker Change: And that should give us an advantage at times in the back half when we hit our peak season. This.

Speaker Change: This year and closer to our west coast customers. So we have in previous quarters absorb some of those costs and truthfully you know a lot of people shift apparel and small goods well, there's not a lot of people, who can ship furniture, well and do it efficiently and it's not only a huge.

Speaker Change: Margin driver for Us and we do it well it's also.

Speaker Change: Incredibly vis our customer service and I've always said the person who can deliver the audible when this when this whole market because it is a very frustrating experience.

Laura J. Alber: And I've always said, you know, the person who can deliver the order will win this whole market because it is a very frustrating experience to not receive your furniture on time and damage-free. And it's very difficult to do. So I'm thrilled with our progress. But the truth is, there's still a lot more to do to hit that perfect order.

Speaker Change: Receive your furniture on time and damage free and it's very difficult to do so I'm thrilled with our progress but this is still a lot more to do to hit that perfect order.

Seth Mckain Basham: That's really a helpful color. And then my follow-up question is just on the incentive compensation margin headwind this quarter. Was part of that accrual associated with the out-of-period adjustment, or is it for the underlying results? And how should we think about incentive compensation year-over-year for the balance of the year based on your guidance?

Speaker Change: That's really helpful color and then my follow up question's just on incentive compensation margin headwind. This quarter was part of that accrual associated with the out of period adjustment or is it for the underlying results and how should we think about incentive compensation year over year for the balance of the year based on your guidance.

Jeff: Great question, Seth. So the incentive compensation did not include any benefit from the out-of-period adjustment. It was simply our B and Q1 versus our budget, so we had to take up the accrual. And any additional results from incentive compensation are essentially embedded in our guidance.

Great question Seth.

Speaker Change: Incentive compensation did.

Speaker Change: Did not include any benefit from the out of period adjustment. It was simply our beat in Q1.

Speaker Change: Versus our budget, so we had to take up the accrual.

Speaker Change: Two.

Speaker Change: Any additional.

Speaker Change: <unk>.

Speaker Change: Results from incentive compensation are essentially embedded in our guidance.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Maks Rakhlenko with TD Cowan. Your line is open.

Speaker Change: Your next question comes from the line of Max Rick Linker with TD Cowen Your line is open.

Maksim Rakhlenko: Great, thanks a lot, and congrats on the nice results. So first, can you speak to your level of confidence in Williams-Sonoma's ability to regain lost market share on the upswing? And if peers do remain promotional, even when demand improves, how will that impact your own strategy, as it could make regaining some of that market share tough?

Speaker Change: Great. Thanks, a lot and congrats on a nice results so.

Speaker Change: First can you speak to your level of confidence in Williams Sonoma is ability to regain lost market share on the upswing and appears to remain promotional even when demand improves how will that impact your own strategy as it could make regaining some of that market share.

Laura J. Alber: You know, Max, as you know, this is such a fractured market. And there's not really anybody who wants very much share, and it hasn't moved that much. But the thing that I'm very confident about is the amount that's still done in retail stores, mom and pops, versus online. And it's going to be very hard for people to scale online like we have already. And so that is a big, key competitive moat that we have as we look to the future because I know that it won't be such a low number that is transacted online in the future. When that happens, it's coming to us.

Speaker Change: No.

Speaker Change: As you know this is such a fraction market.

Speaker Change: And there's not really anybody who works very much sure that hasn't moved that much.

Speaker Change: The thing that I'm very confident about it.

Speaker Change: Amount, that's still done in retail stores mom and pops versus online and it's going to be very hard for us.

Speaker Change: People to scale online like we have already and so that is that is a big key competitive moat that we have as we look to the future because I know that it won't be such a low number that is transacted online in the future when that happens it's coming to us So I worry less about some of these other things.

That people bring up and I also know that there's no one who's really designing their own products from soup to nuts like we do in our lifestyle format, which is the other huge advantage that we have and that gives us pricing power. It's not that we are.

Laura J. Alber: So I worry less about some of these other things that people bring up. And I also know that there's no one who's really designing their own products from soup to nuts like we do in a lifestyle format, which is the other huge advantage that we have. And that gives us pricing power. But it's not that we're trying to overprice things. In fact, our value is fantastic. And in each of our brands, you can look at some of the new bestsellers, and the price is so sharp because the competitive set has nothing like it, or it's only done in the highest end designer markets.

Speaker Change: Tried to.

Speaker Change: Over pricing in fact, our value is fantastic and in each of our brands you can look at some of the new bestsellers and the prices. So short because the competitive set has nothing like it or it's only done in the highest and designer markets, so without going through our competitive that sellers.

Laura J. Alber: So without going through our competitive bestsellers with everybody on the call, including our competition, I will tell you that the things that are really working, you cannot find a similar product in the market anywhere close to our prices. So I don't worry as much about the up-down pricing because I think our consumers, especially our target consumers, are extremely smart. They shop around, and they know what they're getting, and they also know the quality differentials.

Speaker Change: With everybody on the call, including our competition I will tell you that the things that are really working it cannot site.

Speaker Change: A similar product in the market anywhere close to oil prices. So I don't worry as much about the uptown pricing because I think our consumers, especially our consumer is extremely smart they shop around and they know what they're getting and they also know the quality differentials.

Maksim Rakhlenko: I would also just add that we compete not just on price; we compete on quality as well, but even more importantly, we compete on service, and these investments we're making in service really resonate with the customer and help with customer retention and are a stronger driver of our customers' purchase decisions than price.

Speaker Change: I would also just add in as we compete not just on price we compete in.

Speaker Change: And quality as well, but even more importantly, we compete on service and these investments we're making in service.

Speaker Change: Really resonate with customers and help with customer retention.

Speaker Change: And our stronger.

Speaker Change: A driver of our customers.

Speaker Change: Purchase decisions as prices.

Laura J. Alber: Got it. That's super helpful. And then just a quick follow up. But any color on quarter to date?

Speaker Change: Got it that's Super helpful. And then just a quick follow up but any color on quarter to date.

Speaker Change: As they gone for you guys is it more of the same with stability or are you potentially seeing any further improvement.

Maksim Rakhlenko: How has May gone for you guys? Is it more of the same with stability, or are you potentially seeing any further improvements?

Speaker Change: Yes, so quarter to date no different than last quarter, we're only like three weeks in so when we gave Q4, we had six weeks than we are who are constantly talk about it in our big weeks are ahead of us so.

Speaker Change: Still very confident in our guidance, but.

Laura J. Alber: Yeah, so quarter to date, you know, different than last quarter, we're only like three weeks in. So when we gave Q4, we had six weeks, and we were more confident talking about it. And our big weeks are ahead of us. So, you know, we're still very confident in our guidance, but I wouldn't read too much into the first three weeks, which is why I don't want to comment on it.

Speaker Change: I wouldn't read too much into the first three weeks, which is why I don't want to comment on.

Maksim Rakhlenko: Great. Thanks a lot, and goodbye.

Speaker Change: Great. Thanks, a lot and the Buck.

Operator: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Speaker Change: Alright. Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Brian William Nagel: Hey, good morning.

Brian William Nagel: Congratulations on another really nice quarter. Thanks, Brian.

Brian William Nagel: Congrats on another really nice quarter.

Speaker Change: Very nicely thanks, Brian.

Brian William Nagel: So the question I have, I look, I think it's limited to one question, but, you know, maybe a bigger picture. But so here we're watching your model unfold. I mean, sales, and top line trends are still soft, maybe getting better, but still soft. But you continue to have these operating margin increases. So I guess the question I have is you look out, you know, recognizing you don't know for certain when, at what point, the top line trends will renormalize, get back to normalized growth rates for your company, your brand, your brand. But is there any reason to believe that if that happens, you wouldn't continue to get a significant lever through that P&L?

Brian William Nagel: So the question I have.

Speaker Change: Look I think it's also limit to one question, but no.

Speaker Change: Maybe bigger picture, but so here, we're watching your model unfold here I mean sales topline trends are still soft maybe getting better but still soft and you continue to have these operating margin increases. So I guess the question. Obviously as you look out you are recognizing you don't know for certain when yes.

Speaker Change: Point to topline trends will reap more wise to get back to normalized growth rates for your copy of your plan your brands, but is there any reason to believe that.

Speaker Change: That happens you wouldn't continue to get a significant leverage through the P&L.

Jeff: Yeah. You know, I understand the question, Brian. Thanks for asking it.

Speaker Change: Yeah.

Bryan: I understand the question Bryan Thanks for asking it.

Speaker Change #101: Wish it was easy to say that in our for every 100 basis points of comp X basis points would drop to the bottom line for me My Monday morning meetings to go a lot easier, but it's just it's just not that way, there's a lot of different levers and.

Brian William Nagel: You know, I wish it was easy to say that, you know, for every 100 basis points of comp, X basis points would drop to the bottom line. Certainly, my Monday morning meetings would go a lot easier. But it's just not that way.

Bryan: In the business.

Bryan: <unk>.

Bryan: Time will tell which is why our long term guidance.

Bryan: Is mid to high teens operating margins and we still feel comfortable in that range.

Bryan: Okay I appreciate that Jonathan maybe I'll slip in one more question just broader sector wise again, you've done a nice very nice job managing your promotions what are you seeing promotional out there, but you are competing with sort of the site.

Speaker Change #102: It is still aggressive is it getting more aggressive any any change on that.

Yes, its very aggressive I looked.

Speaker Change #103: When we look across the board you can see.

Speaker Change #103: That a lot of the specialty smaller.

Brands at 'twenty off the whole site, just take a take a browse through the names.

Speaker Change #103: And.

Speaker Change #104: I'll try and everything.

Speaker Change #104: And then some of the bigger specialty that 'twenty off the whole category.

Speaker Change #104: Just things are slow moving but the whole category.

Speaker Change #104: People are playing with shipping.

Speaker Change #104: Playing with double rewards.

Speaker Change #105: <unk> E Mail offers in the department stores that are 25% off if you give me your E mail.

Speaker Change #105: So it is extremely aggressive out there and particularly in certain categories.

Speaker Change #105: Where that is the only thing people know how to do it.

Speaker Change #105: And Thats I don't know Thats the way its been I don't remember a time in my career that Hasnt been promotional it is it is what it is it doesn't appear to be getting less at all.

Speaker Change #106: Alright, well. Thank you Laurent thanks, everyone I appreciate it.

Speaker Change #106: Okay.

Jeff: There are a lot of different levers in the business, and, you know, time will tell, which is why, you know, our long-term guidance is mid to high team operating margins, and we still feel comfortable in that range.

Speaker Change #107: Your next question comes from the line of Oliver Winter mentor with Evercore ISI. Your line is open.

Oliver Wintermantel: Yes. Thanks.

Oliver Wintermantel: Just wanted to.

Oliver Wintermantel: Get back to the long term guidance and then and then the guide for this year.

Speaker Change #109: On your mid to high teens long term operating margin and then this year's guide of 17% to 17 four.

Speaker Change #110: Without the adjustment that sounds very very consistent is that is that the messaging or how can you can.

Speaker Change #111: Can you maybe explain how you think about your longer term margin versus today's margin guide for the year.

Brian William Nagel: Okay, so I appreciate that. Maybe I will slip in one more question, just broader in terms of sector. Again, you've done a very nice job managing your promotions.

Speaker Change #112: Yes, hi, good morning.

Speaker Change #113: Good to talk to you. So when we think about our current operating margin guidance and our long term operating margin guidance I think the key point is our operating margins sustainable that's been one of the questions. If we think back over the past 18 to 24 months is where does the operating margin growing.

Laura J. Alber: What are you seeing promotionally out there that you're competing with, so to say? Is it still aggressive? Is it getting more aggressive? Any change in that?

Speaker Change #113: In 2023, we established a 15% operating margin floor, we delivered 64% and this year. We started the guide at 55% to 16, eight now regarding 17% to 17, 4% without the operating margin without talking about the out of period adjustment.

Laura J. Alber: Yeah, it's very aggressive. When you look across the board, you can see that a lot of the smaller specialty brands are 20 off the whole site. Just take a browse through the names.

Speaker Change #113: Look we are where we are at a level that is sustainable and I think thats. The key message is we are structurally improve their margin margins for when some of the egg in the mid to high teens is sustainable over the long term.

Speaker Change #113: And it's what.

Speaker Change #113: As our guidance and that's what we've been able to achieve.

Speaker Change #114: Got it. Thank you and then just to follow up on inventory is down 13% was that mostly.

Speaker Change #115: Or or units.

Speaker Change #116: Well, we report in dollars and cost dollars. So it was a dollar metric.

Overall, our message is.

Speaker Change #116: Inventories are well positioned to support our business trends.

Speaker Change #116: Got it thank you.

Laura J. Alber: And, you know, I'm playing everything. And then some of the bigger specialties have 20% off the whole category, not just things that are slow-moving, but the whole category. People are playing with shipping. They're playing with double rewards. They have email offers in the department stores that are 25% off if you give them your email.

Laura J. Alber: So it is extremely aggressive out there, and particularly in certain categories where that is the only thing people know how to do. And that's, I don't, you know, that's the way it's been. I don't remember a time in my career when it wasn't promotional. It is what it is. It doesn't appear to be getting less aggressive at all.

Speaker Change #117: Your final question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Brian William Nagel: Well, thank you, Laura. Thanks, everyone.

Speaker Change #118: Hi, Laura Hi, Jeff.

Simeon Ari Gutman: My first question, it's back on gross margin. So you are lapping some supply chain savings.

Simeon Ari Gutman: This quarter, you still had a significant gain in the merch margin and just to clarify there arent supply chain of shipping in there and what drove the merch margin.

Simeon Ari Gutman: And if it is the fewer fewer.

Simeon Ari Gutman: Fewer promos why shouldn't that level hold and we see merch margin gains continue throughout 2024.

Operator: Your next question comes from the line of Oliver Wintermantel with Evercore ISI. Your line is open.

Oliver Wintermantel: Yeah, thanks. And I just want to get back to the long-term guidance and then the guide for this year on your mid- to high-teens long-term operating margin, and then this year's guide of 17 to 17-4 without the adjustment. That sounds very, very consistent. Is that the messaging, or how can you maybe explain how you think about your longer-term margin versus today's margin guide for the year?

Speaker Change #120: Hey, good morning, Simeon So let's think about this in Q1 of this year, we lost 300 basis points of supply chain headwinds from last year.

Speaker Change #120: So theres about 380 basis points between that and the $6 80 that we reported.

Speaker Change #121: Excluding the out of period adjustment so it was not.

Speaker Change #121: Just merchandise margins there were some those merchandise margins and there were some that were supply chain efficiencies.

Speaker Change #121: Certainly in the merchandize margins, we did benefit benefit from lower ocean freight year over year.

Speaker Change #121: But there is also.

Speaker Change #121: Merchandize margins and there is also a full price selling we did continue to reduce promotions versus last year in the quarter and while there is still some that we can reduce matter and we're starting to lap our efforts last year.

Jeff: Yeah, good morning. It's good to talk to you.

Speaker Change #121: And in supply chain efficiencies and the other piece in here as we started we over delivered their but we also start to lap that improvement year over year as we progress through the year. So there's diminishing margin returns here.

Jeff: So, when we think about our current operating margin guidance, and our long-term operating margin guidance, I think the key point is, are operating margins sustainable? That's been one of the questions we've been asking ourselves over the past 18, 24 months, where is the operating margin going? You know, in 2023, we established the 15% operating margin floor, and we delivered 16.4%. Then this year, we started the guide at 16.5% to 16.8%. Now, we're guiding 17% to 17.4% without the out-of-period adjustment.

Jeff: But look, we are at a level that is sustainable, and I think that's the key message, is that we've structurally improved our margin. Margins for Williams-Sonoma Inc. in the mid to high teens are sustainable over the long term, and that's what our guidance is, and that's what we've been able to achieve.

Oliver Wintermantel: Got it, thank you. And then just to follow up on inventories down 13%, was that mostly dollars or units? (inaudible)

Speaker Change #121: Look we feel great about our results.

Jeff: Well, we report in dollars and cost dollars, so it was a dollar metric. And, you know, overall, our message is that our inventories are well positioned to support our business trends.

Speaker Change #121: We're starting to lap harder comparison, the bottomline, but it's early in the year and Theres a lot of uncertainty.

Operator: Your final question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Simeon Ari Gutman: Hi Laura. Hi Jeff.

Speaker Change #122: And then just a follow up to that the use of the markups and some of the newness if that Overindexes does that a good guide to gross margin or about the same.

Simeon Ari Gutman: My first question is back on gross margin. So, you are lapping some supply chain savings. But this quarter, you still had a significant gain in the merch margin. And just to clarify, there aren't supply chain or shipping costs in there. And what drove the merch margin? And if it is fewer promos, why shouldn't that level hold? And we see merch margin gains continue throughout 2024.

Jeff: Good morning, Simeon. So, let's think about this. In Q1 of this year, we left 300 basis points of supply chain headwinds from last year. So, there's about 380 basis points between that and the 680 that we reported, excluding the adequate adjustment. So, it was not just merchandise margins. There were some of those merchandise margins, and there were some that were supply chain efficiency. Certainly, in the merchandise margins, we did benefit from lower ocean freight year-over-year, but there are merchandise margins, and there is also full-price selling.

Speaker Change #122: It's probably about the same.

Speaker Change #122: And.

Speaker Change #122: There is there is.

Speaker Change #122: Puts and takes between gross margin and SG&A, but it goes back to how we gave our guidance.

Jeff: We did continue to reduce promotions versus last year in the quarter, and while there's still some that we can reduce later on, we're starting to lap our efforts last year. And in supply chain efficiencies, the other piece here is that we started – we overdelivered there, but we also started to lap that improvement year-over-year as we progress through the year. So, there are diminishing marginal returns here, but look, we feel great about our results. We're starting to lap harder compares in the bottom line, but it's early in the year, and there's a lot of uncertainty.

Speaker Change #122: We got to talking the Bottomline regarding that the next three quarters will be essentially flat year over year and that there are levers we can pull within there to drive results.

Jeff: It's probably about the same, and you know, there's puts and takes between gross margin and SG&A, but it goes back to how we give our guidance. We have the top and the bottom line. We're guiding that the next three quarters will be essentially flat year over year and that there are levers we can pull within there to drive results. And the newness doesn't come in higher margins.

Simeon Ari Gutman: And then just to follow up to that, the IMUs or the markups in some of the newness, if that overindexes, is that a good guy to gross margin or about the same?

Speaker Change #122: This doesn't come in in higher margins than something they've been running.

Simeon Ari Gutman: And the newness doesn't come at higher margins than something we've been running. Actually, when we rebuy a new product, we're often able to renegotiate our costs because we're buying more, and there are efficiencies in the supply chain when we buy more. So that would come a little bit later as we increase the orders. And I will just say another component that is in our numbers is the reduction in costs across the board from our vendors, our vendor partners, and really focusing on our efforts to be more accurate on our inventory buys so they can be more efficient in their factories. So that's also been a component of what's been going on and one that should be stable through the back half of the year.

Speaker Change #122: Actually when we we buy a new product or able to often renegotiate costs, because we're buying more of those efficiencies in the supply chain. When we buy in March so that would come a little bit later as we increase the orders and I will just say another component that is in our numbers is the reduction in costs.

Speaker Change #122: Across the board.

Speaker Change #122: From our vendors our vendor partners.

Speaker Change #122: Focusing on our efforts to be more accurate on our inventory buys so that they can be more efficient in their factories. So that that's also been a component of what's been going on and one that.

Speaker Change #122: Should be stable.

Speaker Change #122: For the back half of the year.

Speaker Change #123: Thank you good luck.

Jeff: Thank you. Good luck. Thank you. Well, thank you all for joining us, and I hope you have a wonderful summer, and we look forward to talking to you in the fall. Take care.

Speaker Change #124: Thank you okay.

Speaker Change #125: For joining us.

Speaker Change #125: And I hope you have a wonderful summer and we look forward to talking to you in the fall take care.

Laura J. Alber: This concludes today's conference. We thank you for joining us. You may now disconnect your lines.

Speaker Change #126: This concludes today's goodbye.

Speaker Change #127: Thank you for joining you may now disconnect your lines.

I look forward to talking to you in the fall. Take care.

Speaker Change #128: Are they talking to you in the fall.

Sure.