Q2 2024 Williams Sonoma Inc Earnings Call
Welcome to the Williams-Sonoma Inc. second quarter 2024 earnings conference call.
Welcome to the Williams Sonoma, Inc. Second quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
At this time, all participants are in a listen-only mode.
Your next question comes from the line of Marnie Shapiro with Retail Tracker.
A question and answer session will follow the conclusion of the prepared remarks, I would now like turn the call over to Jeremy Brooks, Chief Accounting Officer, and head of Investor Relations. Please go ahead.
Speaker Change: A question and answer session will follow the conclusion of the prepared remarks.
Speaker Change: Your line is open.
Speaker Change: Good morning, and thank you for joining our second quarter earnings call before.
Speaker Change: I would now, like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations.
Speaker Change: Hey, guys.
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 revised guidance for fiscal 2004, and our long term outlook.
Speaker Change: Please go ahead.
Speaker Change: We believe these statements reflect our best estimate.
Speaker Change: But we cannot make any assurances these statements will materialize and actual results may differ significantly from our expectations.
Speaker Change: Company undertakes no obligation to publicly update or revise any of these statements.
Speaker Change: The events or circumstances that may arise after todays call.
Speaker Change: Additionally, we will refer to certain non-GAAP financial measures.
Speaker Change: Measures should not be considered replacements for and should be read together with our GAAP results.
Speaker Change: A detailed reconciliation of non-GAAP measures to the most directly comparable GAAP measure appears in exhibit one to the press release, we issued earlier this morning.
Speaker Change: This call should also be considered in conjunction with our filings with the SEC.
Speaker Change: 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 Alber: Good morning and thank you for joining our second quarter earnings call.
Laura Alber: Congrats on some great execution in a choppy environment.
Laura Alber: Thank you Jeremy good morning, everyone and thank you for joining the call before we review our Q2 results I wanted to take a minute to recognize our team for their continued contributions. We recently held our general managers conference in Arizona. It was after.
Laura Alber: 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 revised guidance for fiscal 24 and our long-term outlook.
Laura Alber: Laura, I wanted to focus on some of the newness that you keep highlighting because it feels, not only there are a lot of new products like Roller Rabbit, for example, but it's the way you're attacking it.
Laura Alber: We believe these statements reflect our best estimates. However, we cannot make any assurances, these statements will materialize, and actual results may differ significantly from our expectations.
Laura Alber: So I know like at UNC, you had an entire event at one of the buildings with Roller Rabbit.
Laura Alber: 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.
Laura Alber: Or with Rode, I was just drowned in social media about it.
Laura Alber: Leadership conference since the pandemic and all of US have been inspired by the level of passion dedication and talent of our historic management NPL team.
Laura Alber: Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together, with our GAAP results.
Laura Alber: That was really, really great.
Laura Alber: Today, we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved topline trend market share gains and continued delivery on our commitment to profitability.
Laura Alber: A detailed reconciliation of non-GAAP measures to the most directly comparable GAAP measure appears in Exhibit 1 to the press release we issued earlier this morning.
Laura Alber: And it feels like that mix between your merchandising and your marketing has really come together.
Laura Alber: This call should also be considered in conjunction with our filings with the FTC.
Laura Alber: So I'm curious, you know, was that a change or am I just getting hit with it?
Laura Alber: Finally, a replay of this call will be available on our Investor Relations website.
Laura Alber: Is it bringing new shoppers into these brands?
Laura Alber: In Q2, our comp came in at negative three 3% and we exceeded profitability estimates with an operating margin of 16, 2% and earnings per share of $1 74, reflecting the two for one stock split completed in July.
Laura Alber: Now, I'd like to turn the call over to Laura Elbert, our President and Chief Executive Officer.
Laura Alber: Is it bringing them in with more frequency?
Laura Alber: Thank you, Jeremy.
Laura Alber: And how should we think about this in the back half of the year?
Laura Alber: We are pleased with our strong operating results and the operational improvements that produced these results.
Laura Alber: Good morning, everyone, and thank you for joining the call.
Laura Alber: Thank you so much for the question.
We continue to demonstrate the strength of our margin profile, even in a difficult market.
Laura Alber: Yes, newness and innovation are really key parts of our strategy to drive growth.
Laura Alber: There is no doubt that the home furnishings market is challenged due to the uncertainty in the economy, coupled with some housing.
Laura Alber: And we've seen a really strong response to newness.
Laura Alber: This leaves us to believe that we may not see the back half acceleration that we expected. Despite all of the hard work, we've done to improve our product offer and our customer experience.
Laura Alber: In West Elm, we've talked about newness as checking across all categories, but in particular in furniture. And in fact, we've seen double-digit positive comps in both West Elm's summer and fall new furniture introductions.
Laura Alber: Now, why you're not seeing that roll into the bigger number yet is because it's still a small percent of total, because you want to make sure your newness is working before you've got the farm on it.
Laura Alber: Therefore, we believe it is prudent to reduce our top line outlook for the balance of the year, while continuing to deliver on our commitment to profitability and in fact, we are raising our bottom line guidance.
Laura Alber: We've had some great collaborations in West Elm.
Laura Alber: You touched on Rhodes.
Laura Alber: Rhodes this year is double last year.
Laura Alber: We introduced Marcus Samuelson, who's an amazing chef who has incredible furniture designs that we've introduced.
Laura Alber: We are now expecting full year revenues to come in a range of down four to down one five but we are raising our guidance on operating margin to be in the range of 74% to 17, 8%.
Laura Alber: And that's also been a great one.
Laura Alber: Before we review our Q2 results, I want to take a minute to recognize our team for their, continued contributions.
Laura Alber: In Potter Barn, we're seeing a good response to our newness there too, especially in furniture and the seasonal decorating, which we're launching earlier than we've ever launched before.
Laura Alber: Now, let me review progress on our three key priorities that we outlined with you back in March.
Laura Alber: Returning to growth.
Laura Alber: Elevating our world class customer service and third driving margin.
Laura Alber: I'll start with an update on returning to growth our improved top line trends outperformed the industry decline in the second quarter, and we maintained our commitments and our operating site wide promotions.
Operator: Welcome to the Williams-Sonoma Inc, second quarter, 2024 earnings conference call.
Operator: Welcome to the Williams-Sonoma Inc, second quarter, 2024 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the conclusion of the prepared remarks.
Laura Alber: A key element of our return to growth strategy is our focus on innovation of our product lines across brands.
Operator: At this time, all participants are in a listen only mode.
Laura Alber: Adding substantially more newness across our assortments.
Laura Alber: And our unique in house design capability and vertically integrated sourcing organization allows us to offer this high quality design innovation at compelling price points.
Jeremy Brooks: I would now like to put in a call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.
Operator: A question and answer session will follow the conclusion of the prepared remarks.
Jeremy Brooks: Good morning, and thank you for joining our second 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 event and financial performance, including our revised guidance for fiscal 24 and our long-term outlook. We believe these statements reflect our best estimates.
Laura Alber: The next key component of our return to growth strategy is our commitment to improving our channel experiences.
Laura Alber: Our investment in our proprietary E Commerce technology serves as a competitive advantage versus our peers.
Laura Alber: From product discovery and selection to personalization content customer care and the final mile. Our team is constantly thinking about how to elevate and evolve our best in class E Commerce experience.
Jeremy Brooks: However, we cannot make any assurances these statements will materialize and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-gap financial measures. These measures should not be considered replacements for and should be read together with our gap results. A detailed reconciliation of non-gap measures to the most directly comparable gap measure appears in Exhibit one to the press release we issued earlier this morning.
Laura Alber: In the quarter, we have been focused on expanding our online content and providing more information in the shop path to drive conversion.
Laura Alber: And of course, we cannot forget our best in class retail business we.
Laura Alber: We have continued to improve our in store experience with inspirational new products improved in stock inventory levels and next level design services, including our new design tool that allows for three D rendering.
Laura Alber: We recently held our General Managers Conference in Arizona. It was our first leadership conference since the pandemic, and all of us have been inspired by the level of passion, dedication, and talent of our storage management and field teams.
Laura Alber: As our teams reminded us at our general managers conference. This year, we really do have the best team in retail and our retail optimization efforts continued transforming our store fleet to be positioned in the most profitable inspiring and strategic locations.
Jeremy Brooks: This call should also be considered in conjunction with our finalings for the FDC.
Laura Alber: Today, we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved top-line trends, market share gains, and continued delivery on our commitment to profitability.
Laura Alber: In Q2, our comp came in at negative 3.3%, and we exceeded profitability estimates with an operating margin of 16.2% and earnings per share of $1.74, reflecting the two-for-one stock split we completed in July. We are pleased with our strong operating results and the operational improvements that produced these results.
Laura Alber: Now, let's talk to progress on our second and third key priority, which does hand in hand, we continue to make progress improving our world class customer service and driving margin contributing significantly to the operating margin we reported today.
Laura Alber: We continue to demonstrate the strength of our margin profile, even in a difficult market.
Jeremy Brooks: I would now like to put in a call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations.
Operator: Finally, a replay of this call will be available on our Investor Relations website.
Operator: Please go ahead.
Laura Alber: Now, I'd like to serve the call with the Laura Elber, our President and Chief Executive Officer. Thank you, Jeremy.
Laura Alber: There is no doubt that the home furnishings market is challenged due to the uncertainty in the economy, coupled with slow housing.
Laura Alber: Good morning, everyone, and thank you for joining the call. Before we review our Q2 results, I want to take a minute to recognize our team for their continued contributions. We recently held our general managers conference in Arizona. It was our first leadership conference since the pandemic, and all of us have been inspired by the level of passion, dedication, and talents of our historic management and field teams. Today, we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved top line trends, market share gains, and continued delivery on our commitment to profitability.
Laura Alber: This leads us to believe that we may not see the back-half acceleration that we expected, despite all of the hard work we've done to improve our product offer and our customer experience.
Laura Alber: One of the foundational principles upon which this company is built is that.
Jeremy Brooks: Good morning, and thank you for joining our second quarter earnings call.
Laura Alber: The customer is at the center of everything we do and their satisfaction is key to our operating performance.
Laura Alber: Without our customers truly nothing else matters and in Q2, we continued to make meaningful improvements in our customer service metrics.
Speaker Change: The supply chain team continues to reduce costs eliminate out of market and multiple shipments fewer.
Jeremy Brooks: Before we get started, I'd like to remind you that during this call, we will make forward-looking statements with respect to future event and financial performance, including our revised guidance for fiscal 24 and our long-term outlook.
Laura Alber: In Q2, our count came in at negative 3.3%, and we exceeded profitability estimates with an operating margin of 16.2%, and earnings per share of $1.74, reflecting the two-for-one stock split we completed in July. We are pleased with our strong operating results and the operational improvements that produced these results. We continue to demonstrate the strengths of our margin profile even in a difficult market. There is no doubt that the home furnishings market is challenged to the uncertainty in the economy coupled with slow housing.
Speaker Change: Fewer customer accommodation lower returns and damages and reduced replacement.
Speaker Change: And our ongoing commitment to not running sitewide promotion.
Speaker Change: The reduction of our promotional offerings.
Speaker Change: <unk> margins.
Jeremy Brooks: We believe these statements reflect our best estimates.
Speaker Change: We are focused on delivering a compelling value equation to our customers, which in turn maximizes our full price selling.
Speaker Change: Therefore, we believe it is prudent to reduce our top-line outlook for the balance of the year while continuing to deliver on our commitment to profitability, and, in fact, we are raising our bottom-line guidance. We are now expecting full-year revenues to come in at a range of down 4 to down 1.5, but we are raising our guidance on operating margin to be in the range of 17.4% to 17.8%.
Speaker Change: Now I'd like to update you on the performance of our brands.
Jeremy Brooks: However, we cannot make any assurances these statements will materialize and actual results may differ significantly from our expectations.
Speaker Change: Now, let me review progress on our three key priorities that we outlined with you back, in March.
Speaker Change: Pottery barn ran a negative seven 1% comp in Q2.
Speaker Change: First, returning to growth, second, elevating our world-class customer service, and third, driving margin.
Speaker Change: I'll start with an update on returning to growth. Our improved top-line trend outperformed the industry decline in the second quarter, and, we maintained our commitment to not operating site-wide promotions. A key element of our return to growth strategy is our focus on innovation in our product, lines across brands, including substantially more newness across our assortments. And our unique in-house design capability and vertically integrated sourcing organization, allows us to offer this high-quality design innovation at compelling price points.
Speaker Change: Improvements in trends were driven by our compelling product assortments and coastal decorating and entertaining and seasonal holidays we.
Jeremy Brooks: 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.
Laura Alber: This leads us to believe that we may not see the back half acceleration that we expected, despite all the hard work we've done to improve our products offer and our customer experience. Therefore, we believe it is prudent to reduce our top line outlook for the balance of the year while continuing to deliver on our commitment to profitability, and, in fact, we are raising our bottom line guidance. We are now expecting clear revenues to come in range of down 4 to down 1.5, but we are raising our guidance on operating margin to be in the range of 70.4% to 17.8%.
Speaker Change: The next key component of our return to growth strategy is our commitment to improving our, channel experiences.
Speaker Change: We saw success in our new summer furniture launches and are optimistic about our software to newness with a focus on proprietary finishes and design.
Jeremy Brooks: Additionally, we will refer to certain non-gap financial measures. These measures should not be considered replacements for and should be read together with our gap results. A detailed reconciliation of non-gap measures to the most directly comparable gap measure appears in Exhibit one to the press release we issued earlier this morning.
Speaker Change: Looking ahead to the back half we have a strong holiday lineup that is off to a great start there is no one else like us in the market with the incredible assortment of seasonal decorating for Halloween Thanksgiving Christmas and Hanukkah and we are building on our successful new programs that we have launched.
Speaker Change: And I am so thrilled to see people scooping up Christmas this early.
Jeremy Brooks: This call should also be considered in conjunction with our finalings for the FDC.
Jeremy Brooks: Finally, a replay of this call will be available on our Investor Relations website.
Laura Alber: Now let me review progress on our three key priorities that we outlined with you back in March. First, returning to growth, second, elevating our role-class customer service, and third, driving margin. I'll start with an update on returning to growth, our improved top line trend outperforms the industry decline in the second corner, and we maintained our commitment to not offering site-wide promotions. A key element of our return to growth strategy is our focus on innovation of product lines across brands, including substantially more units across our absorbance, and our unique in-house design capabilities and vertically integrated sourcing organizations, allows us to offer this high quality design innovation at compelling price points.
Speaker Change: The pottery barn children's business ran a positive one 5% comp in Q2, a continuation of our positive comp trend in the first quarter of the year.
Laura Alber: Now, I'd like to serve the call with the Laura Elber, our President and Chief Executive Officer.
Speaker Change: Our investment in our proprietary e-commerce technology serves as a competitive advantage, versus our peers. From product discovery and selection to personalization, content, customer care, and the final mile, our team is constantly thinking about how to elevate and evolve our best-in-class e-commerce experience.
Innovation across our product offering and improvement in the shopping experience have been key to delivering this growth.
Speaker Change: In the quarter, we've been focused on expanding our online content and providing more inspiration, in the shop path to drive conversion.
Laura Alber: Thank you, Jeremy.
Speaker Change: These life stage brands back to school was a highlight with dorm driving double digit growth.
Speaker Change: In this space, we continue to attract new customers with our market, leading design excellent quality and sustainability promise.
Laura Alber: Good morning, everyone, and thank you for joining the call.
Speaker Change: And of course, we cannot forget our best-in-class retail business. We have continued to improve our in-store experience with inspirational new products, improved in-stock inventory levels, and next-level design services, including our new design tool that allows for 3D rendering.
Speaker Change: We have bolstered the shopping experience with a suite of digital shopping tools and expanded in store services, including free dorm design services and convenient shipping options.
Speaker Change: As our teams reminded us at our general manager's conference this year, we really do have the, best team in retail. And our retail optimization efforts continue transforming our store fleet to be positioned, in the most profitable, inspiring, and strategic locations.
Speaker Change: Now let's talk through progress on our second and third key priorities, which go hand-in-hand.
Speaker Change: Any of our stores near campuses.
Speaker Change: They also have some great new collaborations in the hopper, and are going to have an increased amount of collaborations next year.
Speaker Change: Product collaborations also continue to drive sales with existing and new customers, we're especially pleased with our recent collaboration with roller rabbit and we are seeing continued success with bulk shacks TMT.
Laura Alber: The next key component of our return to growth strategy is our commitment to improving our channel experiences. Our investment in our proprietary e-commerce technology serves as a competitive advantage versus our peers. From product discovery and selection to personalization, content, customer care, and the final mile, our team is constantly thinking about how to elevate and evolve our best-in-class e-commerce experience. In the quarter, we've been focused on expanding our online content and providing more inspiration in the shop cap to drive conversions.
Speaker Change: Kids and Teen have always been, in our company, our leader in collaborations, and just amazing from the license programs that we run, that's Hello Kitty, to incredible designers like Roller Rabbit and Love Chef Fancy.
Speaker Change: They've really been able to hit the nail on the head with what their consumer wants at every life stage.
Speaker Change: We continue to make progress improving our world-class customer service and driving margin, contributing significantly to the operating margin we reported today.
Speaker Change: Now, let's review West, which had a negative four 8% comp in Q2.
The brand continues to see success in new product introductions with the summer and fall units driving double digit positive comp to last year.
Speaker Change: And this month, we are thrilled drop our first catalog and the brand since holiday 2021.
Speaker Change: Additionally, western launch a very exciting second collaboration with a fashion brand road. Following a successful debut last year.
Laura Alber: And of course, we cannot forget our best-in-class retail business. We have continued to improve our in-store experience with inspirational new products, improved in-stock inventory levels, and next level design services, including our new design tool that allows for 3D rendering. As our team reminded us at our general manager's conference this year, we really do have the best team in retail. And our retail optimization efforts continue transforming our store fleet to be positioned in the most profitable, inspiring, and strategic locations.
Speaker Change: This new collection features 120 pieces, including a relaunch of past favorites combined with new textiles, tabletop lighting decorative accessories, Bath rugs, and a collection of items designed for college dorm.
Speaker Change: And kids is different than teens, but we're covering both, and you can really see that we're on trend by the results in dorm.
Laura Alber: Before we review our Q2 results, I want to take a minute to recognize our team for their continued contributions.
Speaker Change: This collaboration is on track to do more than double the initial launch last year.
Laura Alber: We recently held our general managers conference in Arizona. It was our first leadership conference since the pandemic, and all of us have been inspired by the level of passion, dedication, and talents of our historic management and field teams.
Speaker Change: One of the foundational principles upon which this company is built is that the customer, is at the center of everything we do. And their satisfaction is key to our operating performance.
Speaker Change: Given the positive trends and newness and exciting collaborations in the pipeline, we have a sizable opportunity in west Elm as it rebalancing more inventory into these new products.
Laura Alber: Today, we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved top line trends, market share gains, and continued delivery on our commitment to profitability. In Q2, our count came in at negative 3.3%, and we exceeded profitability estimates with an operating margin of 16.2%, and earnings per share of $1.74, reflecting the two-for-one stock split we completed in July.
Laura Alber: Now let's talk through progress on our second and third key priorities which those hand in hand. We continue to make progress improving our world-class customer service and driving margin, contributing significantly to the operating margin we reported today. One of the foundational principles upon which this company is built is that the customer is the center of everything we do, and their satisfaction is key to our operating performance. Without our customers truly nothing else matters.
Speaker Change: Williams-Sonoma, you know, the branded product in Williams-Sonoma is doing incredibly well. I'll give you one very specific example in Williams-Sonoma, which is our Williams-Sonoma branded cutlery.
Laura Alber: We are pleased with our strong operating results and the operational improvements that produced these results.
Speaker Change: The Williams Sonoma brand ran a negative 8% comp in Q2.
Speaker Change: Higher margin, obviously, than the names out there that we all are familiar with, and really rivaling them in volume.
Speaker Change: In the quarter, we benefited from the performance of our new and exclusive products offset by some tough compares and electrics.
Speaker Change: And, you know, there's also a lot of exclusives that we have and launch leads that we have with our key electric partners and premium cookware.
Laura Alber: We continue to demonstrate the strengths of our margin profile even in a difficult market.
Speaker Change: The Tucci collaboration, by the way, continues to be phenomenal.
Speaker Change: Sales from southern units were up double digits to last year, and we're seeing strength in new and premium products found only at Williams Sonoma.
Speaker Change: And we are not done with the innovation that Tucci is going to be bringing, not just for the back half, but through next year.
Speaker Change: Without our customers, truly nothing else matters. And in Q2, we continue to make meaningful improvements in our customer service metrics.
Speaker Change: The strategy to offer our customers quality product they can't find anywhere else is working.
Laura Alber: And in Q2, we continue to make meaningful improvements in our customer service metrics. The supply chain team continues to reduce costs by limiting out-of-market and multiple shittiness, fewer customer accommodations, lower returns and damages, and reduced replacements. And our ongoing commitment to not running site-like promotions from the reduction of our promotional offerings have improved margins. We are focused on delivering a compelling value inflation to our customers which in turn maximizes our full price selling.
Speaker Change: The supply chain team continues to reduce costs by limiting out-of-market and multiple, shipments, fewer customer accommodations, lower returns and damages, and reduced replacements.
Speaker Change: And so we're really excited about our back half lineup in Williams-Sonoma.
Speaker Change: And we are excited about our robust second half lineup of in house design products and exclusive.
Speaker Change: And our ongoing commitment to not running site-wide promotions and the reduction of, our promotional offerings have improved margins.
Speaker Change: We can't go into, I mean, I'd really like to talk about some of those things a little bit more, but I'm always cautious about competition and not giving away too much information.
Speaker Change: The Williams Sonoma brand remains focused on delivering immersive culinary experiences in store online and at key events across the country.
Speaker Change: We are focused on delivering a compelling value equation to our customers, which in, turn maximizes our full-price selling.
Speaker Change: But the punchline is we have seen a very strong response to newness and collaborations.
Speaker Change: And, Marnie, you are right.
Speaker Change: In store, we are inspired thousands of customers through our Sunday skill series and Denver teaching customers from how to Susie to how to make ice cream.
Speaker Change: We are doing things differently with our creator-led content about collaborations. When you combine a collaboration with an influencer on TikTok, you have magic.
Speaker Change: And we are continuing to build that skill and really draw in new customers through those channels.
Speaker Change: So thank you.
Speaker Change: Our tools for change campaign supporting no Kid hungry celebrated its 10th anniversary. This July.
Speaker Change: Your next question comes from the line of Seth Basham with Wedbush Securities.
Speaker Change: Your line is open.
Laura Alber: There is no doubt that the home furnishings market is challenged to the uncertainty in the economy coupled with slow housing. This leads us to believe that we may not see the back half acceleration that we expected, despite all the hard work we've done to improve our products offer and our customer experience. Therefore, we believe it is prudent to reduce our top line outlook for the balance of the year while continuing to deliver on our commitment to profitability, and, in fact, we are raising our bottom line guidance.
Laura Alber: Now I'd like to update you on the performance of our brands. Part of our brand ran a negative 7.1% car in Q2. Improvements in trends were driven by our few telling product assortments in coastal decorating and entertaining and seasonal holidays. We saw success in our new summer furniture launches and our optimistic about our soft furniture units with a focus on proprietary finishes and design. Looking ahead to the back half, we have a strong holiday lineup that is off to a great start.
Speaker Change: Date, we're proud to have raised over $16 million to help no kid hungry and end childhood hunger in America.
Laura Alber: We are now expecting clear revenues to come in range of down 4 to down 1.5, but we are raising our guidance on operating margin to be in the range of 70.4% to 17.8%.
Speaker Change: Thanks a lot, and good morning.
Laura Alber: Now let me review progress on our three key priorities that we outlined with you back in March.
Speaker Change: My first question is just making sure I understand some of the moving pieces of the margin outlook.
Speaker Change: We're grateful to all the chefs and celebrities that have contributed designs to our specialists over the year.
Speaker Change: Obviously expecting a lower sales performance for the balance of the year, but you're holding your back half margin guidance.
Speaker Change: So, Jeff, maybe you could give us some color as to where you see the upside, so to speak, of margins relative to a couple months ago, what areas, whether it be in components of gross margin or SG&A.
Speaker Change: As we look to the second half, we will continue inspiring our customers to cook posts and allocated for the holidays.
Laura Alber: First, returning to growth, second, elevating our role-class customer service, and third, driving margin. I'll start with an update on returning to growth, our improved top line trend outperforms the industry decline in the second corner, and we maintained our commitment to not offering site-wide promotions.
Speaker Change: Thanks.
Speaker Change: Good morning, Seth.
Speaker Change: This fall the brand will launch the art of entertaining where customers can benefit from expert advice on everything from setting a table to hosting Identive party to Florida, ranging techniques and to napkin folding tricks we.
Laura Alber: There is no one else like us in the market with the incredible assortment of seasonal decorating for Halloween, Thanksgiving, Christmas and Hanukkah, and we are building on successful new programs that we have launched. The Pottery Children's Business ran a positive 1.5 percent compliment Q2, a continuation of our positive prompt trend in the first quarter of the year. Innovation across our product offering and improvement in the Shaki experience have been key to delivering this growth.
Speaker Change: We believe this focus on holidays and celebrations will not just drive volume in key categories for also cement brand is the ultimate celebration destination in retail for new and existing customers.
Speaker Change: And lastly, we're excited about the momentum of our Williams Sonoma home business, which ran a slight positive comp in Q2.
Speaker Change: Now I'd like to update you on the performance of our brands. Potter Barn ran a negative 7.1% comp in Q2.
Laura Alber: A key element of our return to growth strategy is our focus on innovation of product lines across brands, including substantially more units across our absorbance, and our unique in-house design capabilities and vertically integrated sourcing organizations, allows us to offer this high quality design innovation at compelling price points.
Speaker Change: Now I'd like to update you on our other initiatives.
Speaker Change: Improvements in trends were driven by our compelling product assortments in coastal, decorating and entertaining and seasonal holidays.
Speaker Change: This is the business continued its momentum in Q2 growing 11, 5% with record quarterly contract volume growing 21, 6%, while trade grew seven 1%.
Laura Alber: The next key component of our return to growth strategy is our commitment to improving our channel experiences.
Laura Alber: And these life-stakes brands back to school was a highlight with dorms driving double-digit rust. In this space we continue to attract new customers with our market-leading design, excellent quality, and sustainability promise. We evolved through the Shaki experience with a suite of digital shopping tools and expanded in-source services including three dorm design services and convenient shipping options to any of our stores near campuses. Product collaborations also continue to drive sales with existing and new customers. We're especially pleased with our recent collaboration with Roller Rabbit and we are seeing continued success with Buff Shaks BFD.
Laura Alber: Our investment in our proprietary e-commerce technology serves as a competitive advantage versus our peers. From product discovery and selection to personalization, content, customer care, and the final mile, our team is constantly thinking about how to elevate and evolve our best-in-class e-commerce experience.
Speaker Change: Hospitality space remained strong with notable wins at the Sheraton Boston, The Hilton Beverly Hills, Renaissance, Las Vegas, and under canvas for Yosemite location.
Laura Alber: In the quarter, we've been focused on expanding our online content and providing more inspiration in the shop cap to drive conversions.
Speaker Change: We have launched a new brand standard program with IHG Hotel Indigo brand being named a preferred vendor for lighting and upholstery categories.
Laura Alber: And of course, we cannot forget our best-in-class retail business. We have continued to improve our in-store experience with inspirational new products, improved in-stock inventory levels, and next level design services, including our new design tool that allows for 3D rendering.
Speaker Change: We're also seeing strong momentum in the multifamily space, including growing partnerships with Corman community from the discovery land company.
Laura Alber: As our team reminded us at our general manager's conference this year, we really do have the best team in retail.
Speaker Change: We are thrilled to partner with St Jude too.
Laura Alber: Now let's review Weston which ran a negative 4.8 percent comp in Q2. The brand contains the state success and new product introductions with both summer and fall units driving double-digit positive comp to last year. And this month we are thrilled to drop our first catalog in the brand since holiday 2021. Additionally, Weston launched a very exciting second collaboration with a fashion brand road following a successful debut last year. This new collection features 120 pieces including a relaunch of past favorites combined with new textiles, tabletop, lighting, decorative accessories, baths, rugs, and a collection of items designed for college dorms.
Speaker Change: Custom beds at night stands for their ranch for children project in Nevada.
Speaker Change: Now I'd like to talk about our global business.
Speaker Change: We saw success in our new summer furniture launches and are optimistic about our fall, furniture newness with a focus on proprietary finishes and design.
Speaker Change: While we continue to navigate a.
Speaker Change: Global macroeconomic catches our strategic initiatives are delivering positive results across key strategic markets, including India, Canada and Mexico.
Speaker Change: The Canadian market continues to show strength.
Speaker Change: By growth from enhanced design services emerging brands and omni channel services.
Laura Alber: This collaboration is on track to do more than double the initial launch last year. Given the positive trends in units and exciting collaborations in the pipeline we have a sizable opportunity and Weston as it rebalances more inventory into these new products. The Williams number brand ran a negative 0.8 percent comp in Q2. In the quarter we benefited from the performance of our new and exclusive products offset by some tough compares in electrics.
Speaker Change: In Mexico, we are optimistic about our brands' performance in the market with strength driven by all brands with the most significant contribution coming from PD kits.
Speaker Change: We will be opening two new stores by the end of the year and three more set to open in early 2025.
Speaker Change: And finally, India remains a key area of growth for US we're excited to expand the west out of brand with two additional locations in new markets by the end of the year.
Speaker Change: Looking ahead to the back half, we have a strong holiday lineup that is off to a great, start. There is no one else like us in the market with the incredible assortment of seasonal, decorating for Halloween, Thanksgiving, Christmas, and Hanukkah, and we are building on successful new programs that we have launched.
Speaker Change: Overall, our market and service strategies are the differentiator for continued growth in our global markets.
Speaker Change: The Powder Barn Children's business ran a positive 1.5% comp in Q2, a continuation of, our positive comp trend in the first quarter of the year. Innovation across our product offering and improvement in the shopping experience have, been key to delivering this growth.
Speaker Change: In these life-stage brands, Back to School was a highlight with Dorm driving double-digit, growth.
Speaker Change: Lastly, I'd like to update you on our emerging brands.
Speaker Change: In this space, we continue to attract new customers with our market-leading design, excellent quality, and sustainability promise. We have bolstered the shopping experience with a suite of digital shopping tools and, expanded in-store services, including free dorm design services and convenient shipping options to any of our stores near campuses.
Speaker Change: <unk> delivered another double digit quarter, we're very optimistic about rejuvenation performance with four consecutive quarters of positive comps.
Speaker Change: Product collaborations also continue to drive sales with existing and new customers. We're especially pleased with our recent collaboration with Roller Rabbit, and we are, seeing continued success with Love Shack Fancy.
Laura Alber: Tailed from summer units were off double digits to last year and we're seeing strength in new and premium products found only at William Sonoma. The strategy to offer our customers quality product they can't find anywhere else is working. And we are excited about our robust second half lineup of in-house design product and exclusive. The delivery immersive culinary experiences in-store online and at key events across the country. In-store we've inspired thousands of customers through our Sunday skill series and demo teaching customers from how to sous vide to how to make ice Our tools for change campaign supporting no-kit hungry, celebrated 10th anniversary of this July.
Speaker Change: Now let's review West Elm, which ran a negative 4.8% comp in Q2.
Speaker Change: The brand continues to see success in new product introductions, with both summer and, fall newness driving double-digit positive comp to last year.
Speaker Change: Their unwavering focus on delivering the highest quality products has allowed them to gain market share.
Speaker Change: And this month, we are thrilled to drop our first catalog in the brand since holiday 2021.
Speaker Change: Additionally, West Elm launched a very exciting second collaboration with the fashion brand, RODE following a successful debut last year. This new collection features 120 pieces, including a relaunch of past favorites, combined with, new textiles, tabletop, lighting, decorative accessories, bath rugs, and a collection of items designed for college dorms.
Speaker Change: The trend of home update, particularly in kitchens, and bathrooms continues with notable growth in cabinets and bath hardware and lighting.
Speaker Change: This collaboration is on track to do more than double the initial launch last year.
Speaker Change: Given the positive trends in newness and exciting collaborations in the pipeline, we have a, sizable opportunity in West Elm as it rebalances more inventory into these new products.
Speaker Change: Additionally, our growth categories, including window hardware textiles home furnishing and organization solutions also performed well, providing our customers with a perfect finishing touches to complete their spaces.
Speaker Change: The William Sonoma brand ran a negative 0.8% comp in Q2. In the quarter, we benefited from the performance of our new and exclusive products, offset, by some tough compares in electrics.
Speaker Change: Sales from summer newness were up double digits to last year, and we're seeing strength in, new and premium products found only at William Sonoma.
Speaker Change: The strategy to offer our customers quality product they can't find anywhere else is working, and we are excited about our robust second-half lineup of in-house design products and exclusives.
Speaker Change: Mark and Graham our Monogram gifting business also drove a high double digit growth in Q2.
We saw success with our coastal in beech products for the home and on the go and had strong gifting sales in golf and personalized game.
Laura Alber: To date, we're proud to have raised over $60 million to help no-kit hungry and end childhood hunger in America. We're grateful to all the chefs and celebrities that have contributed designs to our specialists over the years. As we look to the second half, we'll continue inspiring our customers to cook, host, and entertain for the holidays. This fall, the brand will launch the art of entertaining, where customers can benefit from expert advice on everything, from setting a table, to hosting a dinner party, to floral arranging techniques, and to napkin folding tricks. We believe this focus on holidays and celebrations will not just try volume and key categories, but also cement the brand as the ultimate celebration destination in retail for new and existing customers.
Speaker Change: They have recently launched the monogram wedding shop, as well as Mark and Graham Kid, which will be an exciting incremental growth strategy for the brand.
Speaker Change: And finally green row, our newest brand continues to grow and expand its assortments vintage inspired colorful furnishings that are sustainably sourced and designed to last.
Speaker Change: The William Sonoma brand remains focused on delivering immersive culinary experiences, in-store, online, and at key events across the country. In-store, we've inspired thousands of customers through our Sunday Skills Series and demos, teaching customers from how to sous vide to how to make ice cream.
Speaker Change: This month Greenwell launched a new collection of thoughtfully made products over 150, new items and a new catalog.
Speaker Change: The brand continues to innovate and create unique and differentiated products that fill a void in the market.
We look forward to continued growth and exciting new products and partnerships in the coming months for Greenville.
Speaker Change: So on the operating margin outlook for the back half, we've consistently said all year that we anticipate that our back half operating margins would be flat year over year. What we've done this quarter is we've raised based upon our Q2 outperformance.
Speaker Change: In summary, we are pleased with our strong operating results.
Laura Alber: And lastly, we're excited about the momentum of our Williams-Sonoma home business, which ran a slight positive comm in Q&T.
Speaker Change: In terms of the puts and takes on margin, you know, we don't necessarily guide the individual lines, but we'll give you some color commentary like I did before.
Our revised outlook today reflects a prudent view of the top line and the confidence we have in our profitability profile. Despite.
Speaker Change: You know, the gross margin, some of the benefits that we had coming at us in the front half start to wind down in the back half.
Laura Alber: And our retail optimization efforts continue transforming our store fleet to be positioned in the most profitable, inspiring, and strategic locations.
Laura Alber: Now, I'd like to update you on our other initiatives. Business to business continued its momentum in Q2, growing 11.5 percent, with record quarterly contract volume growing 21.6 percent, while trade grew 7.1 percent. The hospitality space remains strong, with notable wins at the Sheraton Boston, the Hilton Beverly Hills, Renaissance, Las Vegas, and under Canvas for the Yosemite location. We have launched a new brand standard program with IHG's Hotel Indigo brand, being named a preferred vendor for lighting and a poultry categories.
Speaker Change: Our Tools for Change campaign, supporting No Kid Hungry, celebrated its 10th anniversary, this July. To date, we're proud to have raised over $16 million to help No Kid Hungry and end, childhood hunger in America. We're grateful to all the chefs and celebrities that have contributed designs to our spatulas, over the years.
Speaker Change: That includes the supply chain.
Speaker Change: Despite the macro uncertainty we remain focused on our key priorities for 2024 that are driving the results we announced today.
Speaker Change: As we look to the second half, we'll continue inspiring our customers to cook, host, and, entertain for the holidays. This fall, the brand will launch the Art of Entertaining, where customers can benefit, from expert advice on everything from setting a table, to hosting a dinner party, to floral arranging techniques, and to napkin folding tricks.
Speaker Change: Headwinds were up against the first half, which, as I said before, was worth about 200 basis points.
Speaker Change: And then we start lapping the improved promos in the back half.
Speaker Change: During the last few years, we as a company have navigated learned optimize them built all in preparation for our next chapter of growth.
Speaker Change: We have a strong omnichannel platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity and with that I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.
Laura Alber: We're also seeing strong momentum in the multi-family space, including growing partnerships with corn and communities from the Discovery Land Company. And we're thrilled to partner with St. Jude to develop custom beds and nightstands for their ranch for children project in Nevada.
Jeff: So we see that as being essentially flat.
Jeff: Thank you Laura and good morning, everyone.
Jeff: And then, you know, just overall, this is true for our entire guidance, is, you know, the macroeconomic uncertainty.
We're pleased to deliver another quarter of strong results.
Jeff: Our Q2 improved top line trends.
Jeff: We're taking a very prudent approach to our back half guidance given the macroeconomic backdrop.
Jeff: Share gains in earnings.
Jeff: To exceed expectations.
Laura Alber: Now let's talk through progress on our second and third key priorities which those hand in hand.
Laura Alber: Now, I'd like to talk about our global business. While we continue to navigate global macroeconomic pressures, our strategic initiatives are delivering positive results across key strategic markets, including India, Canada, and Mexico. The Canadian market continues to show strength driven by growth from enhanced design services, emerging brands, and army channel services. In Mexico, we are optimistic about our brand's performance in the market, with strength driven by all brands, with the most significant contribution coming from TV kids.
Speaker Change: We believe this focus on holidays and celebrations will not just drive volume in key categories, but will also cement the brand as the ultimate celebration destination in retail for new and existing customers.
Speaker Change: And if things are better and we see some better performance in holiday, we could surprise the upside.
Speaker Change: Laura touched on our three key priorities for fiscal year 'twenty four.
Laura Alber: We continue to make progress improving our world-class customer service and driving margin, contributing significantly to the operating margin we reported today.
Laura Alber: We'll be opening two new stores by the end of the year, and three more set to open in early 2025. And finally, India remains a key area for us, we're excited to expand the Weston brand with two additional locations in new markets by the end of the year. Overall, our current market and service strategies are the differentiators for continued growth in our global markets.
Laura Alber: And lastly, we're excited about the momentum of our Williams-Sonoma Home Business, which, ran a slight positive comp in Q2.
Laura Alber: But at the same time, if the macroeconomic environment is more challenging, we'll be more at the low end of our guidance.
Laura Alber: One returning to growth.
Laura Alber: Fueled by product innovation and channel experience.
Speaker Change: Now I'd like to update you on our other initiatives. Business-to-Business continued its momentum in Q2, growing 11.5%, with record quarterly, contract volume growing 21.6%, while trade grew 7.1%.
Speaker Change: Seth, we don't guide individual lines, and we do that, just guide top line and operating, margins to give us the flexibility to pull the levers.
Laura Alber: Two.
Speaker Change: <unk>, our world Class service, which produces both customer retention and expense savings.
Laura Alber: One of the foundational principles upon which this company is built is that the customer is the center of everything we do, and their satisfaction is key to our operating performance.
Speaker Change: The hospitality space remained strong, with notable wins at the Sheraton Boston, the Hilton, Beverly Hills, Renaissance Las Vegas, and Under Canvas for the Yosemite location.
Speaker Change: We need to deliver results, and as you've seen, we know how to deliver results.
Speaker Change: We have launched a new brand standard program with IHG's Hotel Indigo brand, being named, a preferred vendor for lighting and upholstery categories.
Speaker Change: We're also seeing strong momentum in the multifamily space, including growing partnerships with, Quorman Communities and the Discovery Land Company.
Speaker Change: In terms of leverage we have, certainly ad cost is flexible, as Laura mentioned before.
Speaker Change: And we're thrilled to partner with St. Jude to develop custom beds and nightstands for, their Ranch for Children project in Nevada.
Speaker Change: And three driving earnings.
Speaker Change: We continue to deliver strong profitability.
Speaker Change: Now I'd like to talk about our global business.
Speaker Change: We evaluate this on almost a weekly basis, depending upon the returns we're seeing and, the effectiveness of the advertising.
Speaker Change: These three priorities connect directly to the five key drivers underpinning our strong profitability in Q2.
Speaker Change: While we continue to navigate global macroeconomic pressures, our strategic initiatives are delivering, positive results across key strategic markets, including India, Canada, and Mexico.
Speaker Change: The Canadian market continues to show strength, driven by growth from enhanced design services, emerging brands, and omni-channel services.
Speaker Change: First.
Speaker Change: In Mexico, we are optimistic about our brand's performance in the market, with strength driven, by all brands, with the most significant contribution coming from PB Kids.
Speaker Change: Our e-commerce sales mix.
Speaker Change: With its higher operating margins sustaining a 66% of total revenues.
Speaker Change: We'll be opening two new stores by the end of the year, and three more set to open in, early 2025.
Speaker Change: And finally, India remains a key area of growth for us.
Speaker Change: Second our retail optimization strategy.
Speaker Change: Every 3% occupancy expense inclusive of additional technology and supply chain investments.
Speaker Change: Third the pricing power and our in house designed proprietary products and our emphasis on full price selling contributing to a 380 basis point improvement in merchandise margins.
Laura Alber: Lastly, I'd like to update you on our emerging brand. Rejuvenation delivered another double digit quarter. We're very optimistic about rejuvenation performance, with four consecutive quarters of positive counts. Their unlavering focus on delivering the highest quality products have allowed them to gain market share. The trend of home updates, particularly in kitchens and bathrooms continues, with notable growth in cabinet and bath hardware and lighting. They saw success with their coastal and beach products for the home and on the go and had strong gifting sales in golf and personalizing games. They've recently launched the monogram wedding shop, as well as marking grand kids, which will be an exciting incremental growth strategy for the brand.
For our supply chain efficiencies.
Speaker Change: From a relentless focus on customer service and operational excellence.
Speaker Change: Producing 180 basis points improvement in selling margin.
Speaker Change: And then our employment, like I've said many times before and in my prepared remarks, our, employment is largely variable.
Speaker Change: And fifth our ability to control costs as we continue to manage variable employment costs materially in line with top line trends.
Speaker Change: We're excited to expand the West Zone brand with two additional locations in new markets, by the end of the year.
Speaker Change: The majority of our employment is in our stores, our distribution centers, and our customer, care centers, and we can flex that in line with top line trends as things evolve.
Speaker Change: Given our strong Q2 results, we're confident we'll continue to gain market share and deliver strong earnings Steven.
Speaker Change: Overall, our assortment, market, and service strategies are the differentiators for continued, growth in our global markets.
Speaker Change: So I think the punchline here is we're driving flat operating margin guidance in the context, of a very uncertain macroeconomic environment.
Speaker Change: Environment.
Steven: Now, let's dive into the numbers.
Steven: Lastly, I'd like to update you on our emerging brands.
Steven: We're taking a very prudent approach with this guidance, and we're giving ourselves, the flexibility to pull levers as we need to deliver the results.
Steven: Rejuvenation delivered another double-digit quarter. We're very optimistic about Rejuvenation's performance, with four consecutive quarters, of positive comps. Their unwavering focus on delivering the highest quality products has allowed them to gain, market share.
Steven: Thanks, Seth, thanks.
Steven: The trend of home updates, particularly in kitchens and bathrooms, continues, with notable, growth in cabinet and bath hardware and lighting.
Steven: I'll start with our Q2 results and then provide an update on guidance for 2004.
Steven: Additionally, our growth categories, including window hardware, textiles, home furnishings, and organization solutions, also performed well, providing our customers with the perfect finishing touches to complete their spaces.
Steven: Your next question comes from the line of Steven Zacon with Citi.
Steven: Net revenues finished at $1 79 billion.
Steven: Nightly below our expectations.
Steven: Mark and Graham, our monogrammed gifting business, also drove a high double-digit growth in Q2. They saw success with their coastal and beach products for the home and on-the-go, and had, strong gifting sales in golf and personalized games.
Steven: Your line is open.
Steven: We gained market share because our comp of negative three 3% outperforming the industry, which declined by approximately 10%.
Steven: They've recently launched the monogrammed wedding shop, as well as Mark and Graham Kids, which will be an exciting incremental growth strategy for the brand.
Steven: Okay, good morning.
Laura Alber: And finally, Green Row, our newest brand, continues to grow and expand its absorbent of vintage inspired, colorful furnishings that are sustainably sourced and designed to last. This month, Green Row launched a new collection of thoughtfully made products over 150 new items and a new catalog. The brand continues to innovate and create unique and differentiated products that fill a void in the market. We look forward to continue growth and exciting new products and partnerships in the coming months for Green Row.
Steven: 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. This month, Green Row launched a new collection of thoughtfully made products, over 150 new, items, and a new catalog.
Steven: The brand continues to innovate and create unique and differentiated products that fill, a void in the market.
Steven: Thanks very much for taking my question.
Steven: Importantly, we accomplished this EBIT because we reduced our overall level of promotions in the quarter.
Steven: We look forward to continued growth and exciting new products and partnerships in the coming, months for Green Row.
Steven: I was going to focus a little bit more on the medium to longer term, because understandably, the macro is challenging for the category.
Steven: In summary, we are pleased with our strong operating results.
Steven: But as we start to see demand recover, right, we're at a point where this business has done, you know, very well on a merchandise margin, overall selling margin, what's the opportunity going forward?
Steven: Our Q2 comps improved from Q1.
Steven: Reflective of better performance with furniture.
Steven: Presumably you've pulled back from promotions in the business.
Steven: And continued growth in our non furniture categories.
Steven: Our revised outlook today reflects our prudent view of the top line and the confidence we, have in our profitability profile.
Steven: Why can't the gross margin rate for this business be much higher as you start to see demand, recover?
Steven: From a cadence perspective, our trends across the quarter were choppy and inconsistent reflecting the uncertain macroeconomic backdrop.
Steven: Despite the macro uncertainty, we remain focused on our key priorities for 2024 that are driving, the results we announce today.
Steven: Great question.
Steven: During the last few years, we as a company have navigated, learned, optimized, and built, all in preparation for our next chapter of growth. We have a strong omni-channel platform with an exclusive lifestyle offering and a sophisticated, distribution network with additional capacity.
Steven: I would say that, you know, housing is clearly a big driver of furniture sales, and we all, know housing is about the worst it's been.
Steven: And with that, I will turn it over to Jeff to walk you through the numbers and our outlook, in more detail.
Steven: But at the same time, there's a lot of people calling for the bottom here.
Steven: And hopefully we see an interest rate in multiple cuts in the next six months.
Steven: Moving down the income statement gross margin came in at 46, 2%.
Steven: Could take a little bit of time for that to flow through, but when people feel better, they tend to shop more, especially in our categories for their homes.
Laura Alber: In summary, we are pleased with our strong operating results. Our revised outlook today reflects a prudent view of the top line and the confidence we have in our profitability profile. Despite the macro uncertainty, we remain focused on our key priorities for 2024 that are driving the results we announced today. During the last few years, we as a company have navigated, learned, optimized, and built all in preparation for our next capture of growth. We have a strong omnicample platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity.
Steven: And I really, I said it before, but we want flexibility because we always want to give, the customer great value, right?
Steven: So we don't want to overprice products, and we want to make sure that our brands are accessible. We want people to be able to come and shop with us and across our brands, not be so expensive, that it's a very small group of people.
Steven: 550 basis points higher than last year.
Speaker Change: Thank you, Laura, and good morning, everyone.
Speaker Change: So we hold that back to say, you know, there is a point at which you don't want to raise, the margin too high and not be competitive.
Speaker Change: Abstention exceeding expectations.
Speaker Change: We're pleased to deliver another quarter of strong results, highlighted by our Q2 improved, top line trend, market share gains, and earnings that continue to exceed expectations.
Speaker Change: On the other hand, we're delivering.
Speaker Change: There were three drivers to this 550 basis point improvement.
Speaker Change: Merchandise margins.
Speaker Change: Laura touched on our three key priorities for fiscal year 24.
Speaker Change: Fly chain efficiencies.
Speaker Change: <unk> costs.
Speaker Change: One, returning to growth, fueled by product innovation and channel experience.
Speaker Change: And finally, this incredible margin against negative sales.
Speaker Change: Let's start with merchandise margins, which improved 380 basis points.
Speaker Change: Two, elevating our world-class service, which produces both customer retention and expense, savings.
Speaker Change: And negative sales couple of years running here.
Speaker Change: This improvement was driven by our ongoing commitment to full price selling.
Speaker Change: And three, driving earnings as we continue to deliver strong profitability.
Speaker Change: So can you imagine what this looks like, when the sales are flat to positive?
Speaker Change: Lower input costs and the residual benefit from lower inbound freight as we lapped last year's pandemic related ocean freight runoff.
Speaker Change: These three priorities connect directly to the five key drivers underpinning our strong, profitability in Q2.
Speaker Change: I said it before, operating model is a coiled spring.
Jeffrey Howie: And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail. Thank you, Laura, and good morning, everyone. We're pleased to deliver another quarter of strong results, piloted by our Q2 improved top line trend, market share gain, and earning that continue to exceed expectations.
Speaker Change: It's very exciting to be sitting here knowing, that we have built an organization with structural margin profitability profiles and a lot of innovation and capacity to grow much bigger than we are today without huge step-up investment.
Speaker Change: First, our e-commerce sales mix, with its higher operating margins, sustaining at 66% of total revenues.
Speaker Change: This concludes the question and answer session.
Speaker Change: Next supply chain efficiencies contributed 180 basis points.
Speaker Change: Second, our retail optimization strategy, delivering 3% less occupancy expense, inclusive, of additional technology and supply chain investment.
Speaker Change: I will turn the call to Laura for closing remarks.
Speaker Change: Our commitment to full price selling is smoothing out the peaks and troughs created by promotional activity.
Laura Alber: Without our customers truly nothing else matters. And in Q2, we continue to make meaningful improvements in our customer service metrics.
Speaker Change: Yeah, well, thank you all for joining us.
Speaker Change: We are entering our favorite time of the year, which is the holidays.
Speaker Change: And I'll remind you that Halloween is right, around the corner.
Speaker Change: This is yielding improved customer service <unk>.
Speaker Change: Reduced customer lead times and significant cost savings through more efficient operations.
Speaker Change: As is Thanksgiving, Christmas and Hanukkah and the new year.
Speaker Change: So I hope you all are out there in our stores, and seeing all the great product lineups.
Jeffrey Howie: Laura Touchdown are three key priorities for fiscal year 24. One, returning to growth, fueled by product innovation and channel experience. Two, elevating our world-class service, which produces both customer retention and expense savings. And three, driving earnings as we continue to deliver strong profitability. These three priorities connect directly to the five key drivers underpinning our strong profitability in Q2. First, our e-commerce salesman, with its higher operating margins, sustaining at 66% of total revenues.
Speaker Change: Key customer service metrics, including returns.
Speaker Change: Combination.
Speaker Change: The images.
Speaker Change: Placements.
Speaker Change: We are very excited about what we have out there, and I look forward to talking to you next time.
Speaker Change: Out of market shipping and multiple deliveries per order are all performing better than pre pandemic levels.
Speaker Change: So thank you for your support.
Speaker Change: Appreciate it.
Speaker Change: Moreover, we are seeing cost savings across the supply chain for more consistent operations.
Speaker Change: This concludes today's conference.
Speaker Change: We thank you for joining.
Speaker Change: <unk> warehouse.
Speaker Change: Manufacturing and delivery expenses.
Speaker Change: You may now- Goodbye.
Speaker Change: And finally occupancy costs, which were down 3% from last year de leveraged 10 basis points.
Speaker Change: We continue to optimize our retail fleet.
Speaker Change: And our World class technology, and our supply chain.
Laura Alber: The supply chain team continues to reduce costs by limiting out-of-market and multiple shittiness, fewer customer accommodations, lower returns and damages, and reduced replacements.
Jeffrey Howie: Second, our retail optimization strategy, delivering 3% less occupancy expense, inclusive of additional technology and supply chain investing. Third, the pricing power of our in-house designed proprietary products, an hour emphasis on full price selling, contributing to our 380 basis point improvement in merchandise margins. Fourth, our supply chain efficiency from our relentless focus on customer service and operational excellence, producing 180 basis points improvement in selling margins. And fifth, our ability to control costs as we continue to manage variable employment costs maturely in line with top line trends.
Speaker Change: During the quarter, we began operating our new Arizona distribution Center.
Speaker Change: This fully automated facility will replace an outdated distribution center.
Speaker Change: <unk> service time to our customers and lower employment and shipping costs.
Speaker Change: Alluded in our occupancy costs. This quarter were the cost of running both the new and old buildings, which will continue for the balance of fiscal year 'twenty four.
Speaker Change: Third, the pricing power of our in-house designed proprietary products and our emphasis, on full price selling, contributing to our 380 basis point improvement in merchandise margins.
Speaker Change: Wrapping up gross margin, we delivered substantially higher gross margin this quarter.
Speaker Change: Fourth, our supply chain efficiency from our relentless focus on customer service and operational, excellence, producing 180 basis points improvement in selling margins.
Speaker Change: Turning now to SG&A, which came in at 30% of revenues were 390 basis points higher than last year.
Speaker Change: And fifth, our ability to control costs as we continue to manage variable employment, costs materially aligned with top line trends.
Speaker Change: Higher employment expense and advertising spend.
Speaker Change: Employment expense was 200 basis points higher year over year, mostly from higher performance based incentive compensation due to our strong EPS performance year to date.
Jeffrey Howie: Given our strong Q2 results, we're confident we'll continue to gain market share and deliver strong earnings even in this uncertain environment. Now, let's dive into the numbers. I'll start with our Q2 results and then provide an update on guidance for 24. Now revenue is finished of 1.79 billion slightly below our expectations. We gained market share as our comp of negative 3.3% outperform the industry which declined by approximately 10%. Importantly, we accomplished this even as we reduced our overall level of promotion in the quarter.
Speaker Change: In Q2, we continued to manage variable employment costs across our stores.
Speaker Change: Distribution centers and customer care centers.
Speaker Change: Nearly in line with topline trends.
Speaker Change: Advertising expense Deleveraged 150 basis points.
Speaker Change: We continue to invest in the iron levels of advertising spend.
Speaker Change: Our multi brand portfolio allows us to test return of our incremental spend.
Speaker Change: And our own hands on keyboard approach allows our investment to go further and keeps our learnings in house.
Speaker Change: Our advertising model is a key competitive advantage in the home furnishings industry.
Jeffrey Howie: Our Q2 comps improved from Q1 reflective of better performance in furniture and continued growth in our non-furniture categories. From occasions perspective, our trends across the quarter were choppy and inconsistent, reflecting the uncertain macro economic backdrop. Moving down the income statement, growth margin came in at 46.2%, 550 basis points higher than last year and substantially exceeding expectations. There were three drivers to this 550 basis point improvement, merchandise margin supply chain efficiencies and occupancy costs.
On the bottom line our earnings once again exceeded expectations.
Speaker Change: Operating income came in at $290 million.
Speaker Change: With operating margin at 16, 2%.
Speaker Change: Which was 160 basis points above last year.
Speaker Change: Diluted earnings per share was $1 74.
Up 18 grew 12% year over year.
Speaker Change: On the 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 31 million in capital expenditures supporting our long term growth.
Speaker Change: And we returned $203 million to our shareholders through share repurchases and quarterly dividends.
Jeffrey Howie: Let's start with merchandise margins, which improved 380 basis points. This improvement was driven by our ongoing commitment to full price selling. Lower input costs and the residual benefits from lower inbound freight as we left last year's pandemic related ocean freight runoff. Next, supply chain efficiencies contributed 180 basis points. Our commitment to full price selling is smoothing out the peaks and troughs created by promotional activity. This is yielding improved customer service, reduced customer lead time and significant cost savings for more efficient operations.
Speaker Change: Merchandise inventories ended the quarter at $1 2 billion down four 1% to last year.
Laura Alber: And our ongoing commitment to not running site-like promotions from the reduction of our promotional offerings have improved margins.
Speaker Change: Our inventory levels are in line with our top line trends and are well positioned to support our business.
Speaker Change: Given our strong Q2 results, we're confident we'll continue to gain market share and deliver, strong earnings even in this uncertain environment.
Speaker Change: Summing up our Q2 results, we're proud to have delivered yet another quarter of earnings exceeding expectations.
Speaker Change: Now, let's dive into the numbers.
Speaker Change: I'll start with our Q2 results and then provide an update on guidance for 24.
Laura Alber: We are focused on delivering a compelling value inflation to our customers which in turn maximizes our full price selling.
Speaker Change: I'd like to thank our team at Williams Sonoma, Inc. For delivering these great results.
Speaker Change: Net revenue is finished at $1.79 billion, slightly below our expectations. We gained market share as our comp of negative 3.3% outperformed the industry, which declined, by approximately 10%. Importantly, we accomplished this even as we reduced our overall level of promotion, in the quarter.
Speaker Change: Our recent general managers conference reminding me our talented dedicated team is the best in retail and the key to our success.
Laura Alber: Now I'd like to update you on the performance of our brands.
Speaker Change: Our Q2 comps improved from Q1, reflective of better performance in furniture and continued, growth in our non-furniture categories.
Speaker Change: From a cadence perspective, our trends across the quarter were choppy and inconsistent, reflecting the uncertain macroeconomic backdrop.
Speaker Change: Now, let's turn to our 24 outlook.
Jeffrey Howie: Key customer service metrics, including returns, accommodation, damages, replacements, out of market shipping and multiple deliveries per order are all performing better than pre-pandemic levels. Moreover, we are seeing cost savings across the supply chain for more consistent operations including warehouse, manufacturing and delivery expense. And finally, Occupancy Cups, which were down 3% from last year, de-leveraged 10 basis points. We continue to optimize our retail fleet while we invest in our world-class technology stack and our supply chain.
Speaker Change: 2024 continues to be a challenging environment for home furnishings due to macroeconomic uncertainty and the slower housing market.
Speaker Change: Moving down the income statement, gross margin came in at 46.2%, 550 basis points higher, than last year, and substantially exceeding expectations. There were three drivers to this 550 basis point improvement, merchandise margins, supply, chain efficiencies, and occupancy costs.
Speaker Change: Let's start with merchandise margins, which improved 380 basis points. This improvement was driven by our ongoing commitment to full-price selling, lower input, costs, and the residual benefits from lower inbound freight as we lapped last year's pandemic-related ocean freight runoff. Next, supply chain efficiencies contributed 180 basis points. Our commitment to full-price selling is smoothing out the peaks and troughs created by promotional, activity. This is yielding improved customer service, reduced customer lead times, and significant, cost savings for more efficient operations.
Speaker Change: This leads us to believe it is prudent to reduce our top line outlook for the balance of the year, we're raising our operating margin guidance and we continued to deliver on our commitment to profitability.
Speaker Change: Key customer service metrics, including returns, accommodations, damages, replacements, out-of-market, shipping, and multiple deliveries per order are all performing better than pre-pandemic levels.
Speaker Change: Moreover, we are seeing cost savings across the supply chain for more consistent operations, including warehouse, manufacturing, and delivery expenses.
It's important to note that our lower sales outlook is offset by a raised operating margin producing materially similar implied EPS guidance.
Speaker Change: And finally, occupancy costs, which were down 3% from last year, deleveraged 10 basis points.
Speaker Change: On the top line, we now expect full year 2004, net revenues to be in the range of down 4% to down one 5% with.
Speaker Change: We continue to optimize our retail fleet while we invest in our world-class technology stack, and our supply chain. During the quarter, we began operating our new Arizona Distribution Center. This fully automated facility will replace an outdated distribution center, improve service, time to our customers, and lower employment and shipping costs. Included in our occupancy costs this quarter were the cost of running both the new and, old buildings, which will continue for the balance of fiscal year 24.
Jeffrey Howie: During the quarter, we began operating our new Arizona Distribution Center, this fully automated facility will replace an outdated distribution center, improve service time to our customers, and lower employment and shipping costs, included in our Occupancy Cups this quarter, where the costs for running both the new and old building, which will continue for the balance of fiscal year 24. Rough enough gross margin, we delivered substantially higher gross margin this quarter, turning out to FGNA, which came in a 30% of revenues with 390 basis points higher than last year from higher employment expense and advertising expense.
Speaker Change: Wrapping up gross margin, we delivered substantially higher gross margin this quarter.
Speaker Change: With comps between down five 5% to down 3%.
Speaker Change: Our updated guidance reflects the macroeconomic uncertainty combined with our choppy and inconsistent trends.
Speaker Change: Turning now to SG&A, which came in at 30% of revenues, worth 390 basis points higher, than last year, from higher employment expense and advertising spend. Employment expense was 200 basis points higher year over year, mostly from higher performance-based, incentives compensation due to our strong EPS performance here today.
Speaker Change: With this backdrop in mind, we are providing updated range of outcomes for our top line.
Speaker Change: In Q2, we continue to manage variable employment costs across our stores, distribution centers, and customer care centers materially in line with top-line trends.
Speaker Change: The midpoint of our guide reflects a continuation of the first half economic and consumer dynamics through the back half of 'twenty four.
Speaker Change: Advertising expense deleveraged 150 basis points as we continue to invest into higher, levels of advertising spend. Our multibrand portfolio allows us to test the return of our incremental spend, and our, own hands-on keyboard approach allows our investment to go further and keeps our learnings in house. Our advertising model is a key competitive advantage in the home furnishings industry.
Speaker Change: The high end of the guide implies some acceleration and industry trends, coupled with increased traction of our growth initiatives.
Speaker Change: The low end of our guide reflects the recognition that the macroeconomic environment may have a greater impact on our results in the back half of 'twenty four.
Jeffrey Howie: Employment expense was 200 basis points higher year over year, mostly from higher performance based incentives compensation due to our strong ETS performance here today. In Q2, we continue to manage variable employment costs across our stores, distribution centers, and customer care centers, materially in line with top line trends. Arriotizing expense, de-leveraged 150 basis points, has been continued to invest into higher levels of advertising spent. Our multi-brand portfolio allows us to test the return of our incremental spend and our own hands-on-keyboard approach that allows our investment to go further and keep our learnings in health.
Speaker Change: On the bottom line, our earnings once again exceeded expectations. Operating income came in at $290 million, with operating margin at 16.2%, which was, 160 basis points above last year.
Speaker Change: On the bottom line, we are raising our full year operating margin guidance 40 basis points based upon our Q2 outperformance.
Speaker Change: Annual earnings per share was $1.74, up 18 cents or 12% 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 $31 million in capital expenditures supporting our long-term, growth, and we returned $203 million to our shareholders through share repurchases and quarterly dividends.
Speaker Change: We continue to anticipate our operating margins in the back half will be materially in line with 2023 results.
Speaker Change: Merchandise inventories ended the quarter at $1.2 billion, down 4.1% to last year. Our inventory levels are in line with our top-line trend and are well-positioned to, support our business.
With a 40 basis point increase we are raising our full year 24 operating margin to a range of 18.0% to 18, 4%, which includes a 60 basis point benefit from the full year impact from the Q1 out of period adjustment with.
Speaker Change: Summing up our Q2 results, we're proud to have delivered yet another quarter of earnings, exceeding expectations.
Speaker Change: I'd like to thank our team at Williamstown, Inc. for delivering these great results.
Speaker Change: Our recent General Manager's Conference reminded me how our talented, dedicated team, is the best in retail and the key to our success.
Speaker Change: Now, let's turn to our 2024 outlook.
Speaker Change: Now for Q1 out of period adjustment, our full year operating margin will now be in the range of 17, 4% to 17, 8%.
Jeffrey Howie: Our advertising model is a key competitive advantage in the home furnishing industry. On the bottom line, our earnings once again exceeded expectations. Operating income came in at $290 million, with operating margin at 16.2%, which was 160 basis points above last year. Deluted earnings per share was $1.74, up $0.18 or 12% in over year. On the balance sheet, we ended the quarter with a cash balance of $1.3 billion with no debt of standing.
Speaker Change: Additionally, we expect our full year interest income to be approximately $45 million and our full year effective tax rate to be approximately 25, 5%.
Speaker Change: As a reminder, 2024 is a 53 week year, Hawaii Sonoma, Inc.
Speaker Change: 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: And 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.
Jeffrey Howie: This was after we invested $31 million in capital expenditures supporting our long-term growth, and we returned $203 million to our shareholders, to share repurchases, and quarterly dividends, merchandise inventory ended the quarter at $1.2 billion, down 4.1% to last year. Our inventory levels are in line with our top line trends and are well positioned to support our business. Some enough of our Q2 results were proud to have delivered yet another quarter of earning exceeding expectations. I'd like to thank our team at William Stone Inc, for delivering these great results.
All other year over year compares will be 53 weeks versus 52 weeks.
Speaker Change: Our capital allocation plans for 2004 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 driving our e-commerce leadership and supply chain efficiency.
Speaker Change: 2024 continues to be a challenging environment, for home furnishings due to macroeconomic uncertainty and the slow housing market. This leads us to believe it's prudent to reduce our top-line outlook for the balance of the year while raising our operating margin guidance as we continue to deliver on our commitment to profitability.
Speaker Change: As we've communicated quarterly we're committed to returning excess cash to our shareholders through dividends and share repurchases.
Speaker Change: It's important to note that our lower sales outlook is offset by our raised operating margin, producing materially similar implied EPS guidance. On the top line, we now expect full-year 2024 net revenues to be in the range of down 4% to down 1.5%, with costs between down 5.5% to down 3%.
Speaker Change: We will continue to pay our quarterly dividend to <unk> 57 per share and have $826 million.
Laura Alber: Our recent General Manager's conference, Romani Mi Power of Talented, Dedicated Team is the best in retail, and the key to our success.
Speaker Change: Remaining under our $1 billion share repurchase authorization.
Speaker Change: Our updated guidance reflects the macroeconomic uncertainty combined with our choppy and inconsistent trends. With this backdrop in mind, we're providing an updated range of outcomes for our top line.
Speaker Change: We'll continue to opportunistically repurchase our stock to deliver returns for our shareholders.
Jeffrey Howie: Now, let's turn to our 24 outlaw. 2024 continues to be a challenging environment for home furnishing due to macroeconomic uncertainty and the slow housing market. This leads us to believe it's proven to reduce our top-line outlook for the balance of the year while raising our operating margin guidance as we continue to deliver on our commitment to profitability. It's important to note that our lower sales outlook is offset by a raised operating margin producing materially similar implied EPS guidance.
Speaker Change: The midpoint of our guide reflects a continuation of the first half economic and consumer dynamics through the back half of 2024.
Speaker Change: As we look further into the future beyond 'twenty four we are reiterating our long term guidance of.
Laura Alber: Part of our brand ran a negative 7.1% car in Q2.
Speaker Change: Mid to high single digit revenue growth with operating margins in the mid to high teens.
Speaker Change: The high end of the guide implies some acceleration in industry trends coupled with increased traction of our growth initiatives.
Speaker Change: We are confident.
We will continue to outperform our peers and deliver shareholder growth.
Speaker Change: For these five reasons that remain consistent.
Speaker Change: The low end of our guide reflects the recognition that the macroeconomic environment may have a greater impact on our results in the back half of 2024.
Our ability to gain market share in the fragmented home furnishing industry.
Speaker Change: The strength of our in house proprietary design.
Speaker Change: On the bottom line, we are raising our full-year operating margin guidance 40 basis points based upon our Q2 outperformance.
Speaker Change: The competitive advantage of our digital first but not digital only channel strategy.
Speaker Change: We continue to anticipate our operating margins in the back half will be materially in line with 2023 results. With a 40 basis point increase, we are raising our full-year 2024 operating margin to a range of 18.0% to 18.4%, which includes a 60 basis point benefit from the full-year impact from the Q1 out-of-period adjustment. Without the Q1 out-of-period adjustment, our full-year operating margin will now be in the range of 17.4% to 17.8%.
Speaker Change: Additionally, we expect our full-year interest income to be approximately $45 million and our full-year effective tax rate to be approximately 25.5%.
Jeffrey Howie: On the top line, we now expect full year 24 net revenues to be in a range of down 4% to down 1.5% with cost between down 5.5% to down 3%. Our updated guidance reflects the macroeconomic uncertainty combined with our choppy and inconsistent trends. With this back off in mind, we're providing an updated range of outcomes for our top line. The midpoint of our guide reflects a continuation of the first half economic and consumer dynamics to the back half of 24.
Speaker Change: As a reminder, 2024 is a 53-week year for William Stoneman 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 compares will be 53-week versus 52-weeks.
Speaker Change: 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.
Speaker Change: As we've communicated quarterly, we're committed to returning excess cash to our shareholders through dividends and share repurchases. We will continue to pay our quarterly dividend of $0.57 per share and have $826 million remaining under our $1 billion share repurchase authorization. We will continue to opportunistically repurchase our stock to deliver returns for our shareholders.
Speaker Change: As we look further into the future beyond 24, we are reiterating our long-term guidance of mid-to-high single-digit revenue growth with operating margins in the mid-to-high teens.
Speaker Change: The ongoing strength of our growth initiatives.
Speaker Change: And the resiliency of our fortress balance sheet.
Speaker Change: We're confident we'll continue to outperform our peers and deliver shareholder growth for these five reasons that remain consistent. Our ability to gain market share in the 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.
Speaker Change: With that I'll open the call for questions.
Speaker Change: With that, I'll open the call for questions.
Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Thank you.
Speaker Change: To withdraw your question simply press Star one again.
We ask that you please limit yourself to one question and one follow up.
Speaker Change: The floor is now open for questions.
Speaker Change: Your first question comes from the line of.
Jeffrey Howie: The high end of the guide implies some acceleration in industry trends coupled with increased traction of our growth initiatives. The low end of our guide reflects the recognition that the macroeconomic environment may have a greater impact than our results in the back half of 24. On the bottom line, we are raising our full year operating margin guidance 40 basis points based upon our Q2 out performance. We continue to anticipate our operating margins in the back half will be materially in line with 2023 results.
Speaker Change: Chuck Grom with Gordon Haskett Your line is open.
Chuck Grom: If you would like to ask a question, please press star 1 on your telephone keypad.
Chuck Grom: Hi, Thanks, good morning.
Chuck Grom: Hoping you guys could talk about the cadence of sales throughout the quarter across banners and also any early readings on back to school back to college in recent weeks.
Jeff: If you would like to withdraw your question, simply press star 1 again.
Jeff: Hi, Jeff Good morning.
Speaker Change: The cadence of sales for us doesn't isn't really irrelevant.
Speaker Change: We ask that you please limit yourself to one question and one follow-up.
Speaker Change: Indicators.
Speaker Change: Always I know you all up to ask the question and also how this quarter is going but it doesn't it doesn't really amount to much in terms of predicting where were going to be remember as we look to the back half.
Speaker Change: Your first question comes from the line of Chuck Grohm with Gordon Haskett.
Jeffrey Howie: With a 40 basis point increase, we are raising our full year 24 operating margin to a range of 18.0% to 18.4%, which includes a 60 basis point benefit from the full year impact from the Q1 out of period adjustment. Without the Q1 out of period adjustment, our full year operating margin will now be in the range of 17.4% to 17.8%. Additionally, we expect our full year interest income to be approximately $45 million and our full year effect of tax rate to be approximately 25.5%.
Speaker Change: We have a big ramp in seasonal.
Speaker Change: Your line is open.
Speaker Change: Businesses.
Speaker Change: And that is not so what's happening now is not the same as what could happen then and back to school is a great example, innovation is a key part of our strategy and especially in our life stage and seasonal holidays, where we're seeing great response in back to school is no different is actually one of our highlights.
Speaker Change: Hi.
Speaker Change: Thanks.
Speaker Change: Good morning.
Speaker Change: We've really seen us.
Speaker Change: Initiatives, particularly in dorm really gain traction and we are really gaining share in the door and market serving the customer with very high quality products.
Speaker Change: Was something you guys could talk about the cadence of sales throughout the quarter across banners and also any early readings on back-to-school, back-to-college in recent weeks?
Speaker Change: It's significantly positive or chasing inventory, it's high margin and it's driven by both the products in bedding also are no nail solutions.
Jeffrey Howie: As a reminder, 2024 is a 53-week year for Williams-Knowley 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 comp on a 53-week versus 53-week comparable basis. All other year-over-year compares will be 53 weeks versus 52 weeks.
Speaker Change: Hi, Chuck.
Speaker Change: And flooring is also driven by our exclusive collaborations such as love Shack, scanty and roller rebate, which has been fantastic for that demo and then our channel functionality. So for example.
Speaker Change: Good morning.
Speaker Change: Doron functionality launched earlier on the site this year, which we think was really good for.
Speaker Change: Our customers to be able to consider what they would buy before they actually get into school and we had a shareable dorm wishlist of bedding visualize their and then retail we've really pushed on the door.
Speaker Change: The cadence of sales for us isn't really a relevant indicator.
Jeffrey Howie: Our capital allocation plan for 24 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. As this communicated quarterly, we're committed to returning excess cash to our shareholders through dividends and share repurchases. We will continue to pay our quarterly dividend at 57 cents per share and have $826 million for many under a $1 billion share repurchase authorization. We will continue to opportunistically repurchase our stock to deliver returns for our shareholders.
Speaker Change: Arm at retail both in our kids stores, our chain stores and we did a small setup in our pottery barn stores to really help drive awareness to build that market share. We've also worked with partners and Influencers to drive awareness and.
Speaker Change: I know you all love to ask the questions and also how this quarter is going, but it doesn't really amount to much in terms of predicting where we're going to be.
Speaker Change: Driving traffic off the polygon website to the dual arm and Baptist School shop, how to spend another critical part of what we're doing.
Speaker Change: Remember, as we look to the back half, we have a big ramp in seasonal businesses.
Speaker Change: Okay.
Speaker Change: Thanks, Laura that's right I'll, just actually is moving my daughter, I apologize if I have the bond businesses is very real.
Speaker Change: Jeff just wanted to you looking ahead into the back half of the year I mean any thoughts on the phasing of comps.
Speaker Change: In the third and fourth quarter and any impacts.
Speaker Change: With the five fewer shopping days this year. Thank you.
Jeffrey Howie: As we look further into the future beyond 24, we are reiterating our long-term guidance of mid-to-high single-digit revenue with operating margins in the mid-to-high teens. We're confident we'll continue to outperform our peers and deliver shareholder growth for these five reasons that remain consistent. Our ability to gain market share in the fragmented home furnishing 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.
Speaker Change: What's happening now is not the same as what could happen then.
Speaker Change: Yes, let me start with is the shorter holiday season.
Speaker Change: Back-to-school is a great example.
Speaker Change: Quick answer on that is that the impact is already embedded in our guidance. There is a lot of puts and takes on this one for us for one a shorter holiday season, each HCA has to work harder, especially at retail.
Speaker Change: Innovation is a key part of our strategy and especially in our life stage and seasonal holidays where we're seeing great response.
Speaker Change: Back-to-school is no different.
Speaker Change: This year's calendar with Christmas moving from Monday to Wednesday is more favorable for ecommerce and I think everyone knows our mix is 66% E. Commerce. So that is actually a good guy for US then when you think about the back half for US. This year is a 53 week year. So our fourth quarter has 14 Leaseman punch.
Speaker Change: It's actually one of our highlights.
Speaker Change: We've really seen our initiative, particularly in dorms, really gain traction, and we're really gaining share in the dorm market, serving the customer with very high-quality products.
Speaker Change: It's significantly positive.
Speaker Change: We're chasing inventory. It's high margin, and it's driven by both the product embedding, also our no-nail solutions, bath and flooring.
Speaker Change: Punch line on this is there is a lot of puts and takes the shorter holiday season, but its in our guidance and as we think about the back half as I said in my prepared remarks, we the way we set up our guidance.
Speaker Change: It's also driven by our exclusive collaboration, such as Love Shack Fancy and Roller Rabbit, which has been fantastic for that demo, and then our channel functionality.
Speaker Change: For example, dorm functionality launched earlier on the site this year, which we think was really good for our customers to be able to consider what they would buy before they actually get into school. We had a shareable dorm wish list, a bedding visualizer, and then retail.
Speaker Change: We really pushed dorm at retail, both in our kid stores, our teen stores, and we did a small setup in our Pottery Barn stores to really help drive awareness to build that market share.
Operator: With that, I'll open the call for questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up.
Speaker Change: Is the midpoint of our guide reflects the continuation of the first half economic and consumer dynamics through the back half the high end of our guide implies some acceleration and industry trends, coupled with increased traction of our growth initiatives and if holiday proves out to be better there could even be upside there and low end of our guide recognizes the macro economic environment.
Speaker Change: We've also worked with partners and influencers to drive awareness and driving traffic off the Pottery Barn website to the dorm and back-to-school shop house has been another critical part of what we're doing.
Speaker Change: May have a greater impact on our results in the back half.
Chuck Grom: Your first question comes from the line of Chuck Grom with Gordon Haskett. Your line is open. Hi, thanks. Good morning. With something you guys could talk about the cadence of sales throughout the quarter across banners and also any early readings on back to school, back to college in recent weeks. Hi, Chuck. Good morning. You know, the cadence of sales for us isn't really a relevant indicator. And I always I know you all love to ask the questions and also how this quarter is going but it doesn't it doesn't really amounts in much in terms of predicting where we're going to be.
Speaker Change: But it's so uncertain, we provided really wide range of guidance with.
Speaker Change: With those possible outcomes.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from the line of Peter Benedict with Baird. Your line is open.
Peter Benedict: Jeff, any thoughts on the phasing of comps in the 3rd and 4th quarter and any impact, with the five fewer shopping days this year?
Peter Benedict: Hey, guys. Good morning, Thanks for taking the questions first one just Jeff Ron advertising.
Peter Benedict: Thank you.
Peter Benedict: Historically, I think you guys running the six 5% to 7% of sales.
Peter Benedict: Yeah, let me start with the shorter holiday season.
Peter Benedict: At least on an annual basis for advertising I know its delever in the first part of this year, just curious how you or how youre thinking about that.
Peter Benedict: Our quick answer on that is that the, impact is already embedded in our guidance.
Peter Benedict: Thanks.
Chuck Grom: Remember, as we look to the back half, we have a big ramp in seasonal businesses. And that is not so, you know, what's happening now is not the same as what could happen then. And back to school is a great example. You know, innovation is a key part of our strategy and especially in our life stage in seasonal holidays where we're seeing great response. And back to school is no different. It's actually one of our highlights.
Speaker Change: The increased investment in advertising right now when you need to see the return on that and just maybe can we expect a period, where you are maybe above that 7% range for a bit.
Speaker Change: There's a lot of puts and takes on this one for us.
Speaker Change: You know, for one, a shorter holiday season means each day has to work harder, especially at retail.
Speaker Change: As we go through this kind of period of softer demand. That's my first question.
Speaker Change: But this year's calendar with Christmas moving from Monday to Wednesday is more favorable for e-commerce.
Laura Alber: Improvements in trends were driven by our few telling product assortments in coastal decorating and entertaining and seasonal holidays.
Speaker Change: Thanks Pierre.
Speaker Change: Our multi brand portfolio is clearly an advantage in a lot of ways, but particularly in marketing.
Speaker Change: And, yeah, I think everyone knows our mix is 66% e-commerce.
Laura Alber: We saw success in our new summer furniture launches and our optimistic about our soft furniture units with a focus on proprietary finishes and design.
Speaker Change: Our cross brand customers perform significantly better than other customers in fact at four times more valuable.
Speaker Change: So that is actually a good guy for us.
Chuck Grom: We've really seen our initiative particularly in dorm really gain traction and we're really gaining share in the dorm market serving the customer with very high quality products. It's it's significantly positive. We're chasing inventory. It's high margin. And it's driven by both the product and betting also are no-neil solutions. Bath and flooring. It's also driven by our exclusive collaboration such as Love Shack's Fancy and Roller Rabbit, which has been fantastic for that demo.
Speaker Change: We've really been committed as you all know to not running a promotional business.
Speaker Change: Then, you know, when you think about the back half for us, this year is a 53-week year, so our 4th quarter has 14 weeks in it.
Speaker Change: The punchline on this is there's a lot of puts and takes the shorter holiday season, but it's in our guidance.
Speaker Change: There's a lot of people out there that pilot pushing tibor comp place.
Speaker Change: By running markets. Please.
Speaker Change: And as we think about the back half, as I said in my prepared remarks, the way we set up our guidance is the midpoint of our guide reflects the continuation of the first half economic and consumer dynamics to the back half. The high end of our guide implies some acceleration in industry trends coupled with increased traction of their growth initiatives.
Speaker Change: We've chosen not to do that we know having done this for a long time that is a long term investment in the fundamentals is more important than the short short term markdowns that gives you an immediate pop and create all sorts of peaks and valleys, which anchor for operations.
Speaker Change: And if holiday proves to be better, there could even be upside there.
Speaker Change: The low end of our guide recognizes the macroeconomic environment may have a greater impact on our results in the back half, but it's still uncertain. We've provided a really wide range of guidance with those possible outcomes.
Chuck Grom: And then our channel functionality. So for example, dorm functionality launched earlier on the site this year, which we think was really good for for our customers to be able to consider what they would buy before they actually get into school. And we had a shareable dorm wish list of betting visualizer. And then retail. We've really pushed on dorm at retail. Both in our kid stores, our chain stores, and we did a small setup in our partner store to really help try to awareness to build that market share.
Speaker Change: Great.
Speaker Change: <unk> investment done correctly bill customer growth.
Speaker Change: So they also drive short term sales. So it's a short term sales and our long term plan with new customers like anything else. We do we are constantly looking for opportunities to spend the last dollar more effectively and that change it season by season brand by brand and marketing program by marketing programs.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Peter Benedict with Baird.
Speaker Change: Your line is open.
Speaker Change: Hey, guys.
Our loyalty program is another key part of this.
Speaker Change: Good morning.
Speaker Change: Very effective these again, our best customers and we have the credit card program and we also have the non credit card key rewards program, which has been very effective.
Chuck Grom: We've also worked with partners and influencers to drive awareness and driving traffic off the partner on website to the dorm and back to school shoppads to spend another critical part of what we're doing. Thanks, Laura, that's great. I just actually moved my daughter into college and I could tell you the dorm business is very real. Jeff, just more for you, I'm looking ahead into the back half of the year. Any thoughts on the phasing of comps in the third and fourth quarter and any impact with the five fewer shopping days this year.
Speaker Change: Thanks for taking the question.
Speaker Change: The last thing that we are doing that is I think a competitive advantage and something that we're doing more than we did last year substantially is amplifying our creative our creator less content.
Laura Alber: Looking ahead to the back half, we have a strong holiday lineup that is off to a great start. There is no one else like us in the market with the incredible assortment of seasonal decorating for Halloween, Thanksgiving, Christmas and Hanukkah, and we are building on successful new programs that we have launched.
Speaker Change: First one, just maybe, Jeff, around advertising.
Speaker Change: So creator led content Youtube Tictoc Nader is helping us reach new audiences and is very effective.
Laura Alber: The Pottery Children's Business ran a positive 1.5 percent compliment Q2, a continuation of our positive prompt trend in the first quarter of the year. Innovation across our product offering and improvement in the Shaki experience have been key to delivering this growth.
Speaker Change: I mean, historically, I think you guys run in the 6.5 to 7% of sales, at least on an annual basis for advertising.
Speaker Change: The area that we're building in house and we're really excited about our leadership position as we go forward because we think this is gary very relevant for our customers.
Chuck Grom: Thank you. Yeah, let me start with the shorter holiday season. Our quick answer on that is that the impact is already embedded in our guidance. There's a lot of puts on takes on this one for us, you know, for one, a shorter holiday season each day has to work harder, especially a retail. But this year's calendar with Christmas moving from Monday to Wednesday is more favorable for e-commerce. And yeah, I think everyone knows our mixes 66% e-commerce.
Speaker Change: I know it's delivered in the first part of this year.
Laura Alber: And these life-stakes brands back to school was a highlight with dorms driving double-digit rust.
Speaker Change: That's helpful. Thanks, Laura My follow up question is around freight.
Speaker Change: Freight cost in that environment.
Speaker Change: Just curious how you're thinking about the increased investment in advertising right now, when you need to see the return on that.
Speaker Change: I'm just curious maybe your view has reached maybe turn to 'twenty five freight rates have been coming up does that how does that kind of play into that.
Laura Alber: In this space we continue to attract new customers with our market-leading design, excellent quality, and sustainability promise.
Laura Alber: We evolved through the Shaki experience with a suite of digital shopping tools and expanded in-source services including three dorm design services and convenient shipping options to any of our stores near campuses.
Speaker Change: The margin structure as we think about next year and remind us just maybe your exposure to China.
Laura Alber: Product collaborations also continue to drive sales with existing and new customers. We're especially pleased with our recent collaboration with Roller Rabbit and we are seeing continued success with Buff Shaks BFD.
Chuck Grom: So that is actually a good guy for us. Then, you know, when you think about the back half for us this year is a 53 week year or a fourth quarter has 14 weeks. Punch line on this is a lot of puts and takes the short holiday seasons, but it's in our guidance. And as we think about the back half, as I said in my prepared remarks, the way we set up our guidance is the midpoint of our guide reflects the continuation of the first half economic and consumer dynamics to the back half.
Laura Alber: Now let's review Weston which ran a negative 4.8 percent comp in Q2.
Speaker Change: With all the talk of potential tariffs that type of thing just maybe level set us on that front. Thanks, so much.
Speaker Change: And just maybe, should we expect a period where you're maybe above that 7% range for a bit as we go through this kind of period of software demand?
Yes, Peter Good morning couple of questions in there. So first one on ocean freight, yes, we're not seeing an impact from higher spot market and the higher spot market rates for on our ocean freight were mostly insulated from the fluctuations in the spot market with our contracted rates Here's a thing as you know one of our competitive advantages is our global supply chain.
Speaker Change: That's my first question.
Laura Alber: The brand contains the state success and new product introductions with both summer and fall units driving double-digit positive comp to last year.
Speaker Change: Thanks, Peter.
Laura Alber: And this month we are thrilled to drop our first catalog in the brand since holiday 2021.
Speaker Change: Our multi-brand portfolio is clearly an advantage, in a lot of ways, but particularly in marketing.
Speaker Change: Our cross-brand customers perform significantly better than other customers. In fact, they're four times more valuable.
Speaker Change: And we've really been committed, as you all know, to not running a promotional business.
Laura Alber: Additionally, Weston launched a very exciting second collaboration with a fashion brand road following a successful debut last year. This new collection features 120 pieces including a relaunch of past favorites combined with new textiles, tabletop, lighting, decorative accessories, baths, rugs, and a collection of items designed for college dorms. This collaboration is on track to do more than double the initial launch last year.
Chuck Grom: Now, I never died in class and acceleration industry trends. Couple was in tree traction of their growth initiatives and if holiday presenting better, there could even be upside there. The low end of regard recognizes the macro economic environment may have a greater impact on our results in the back half. But it's so uncertain we provided really wide range of guidance with those possible outcomes. Great. Thank you.
Speaker Change: There's a lot of people out there that probably would push a few more comp points by running markups.
Speaker Change: For the 11th largest container imports into the United States. So we have scale and relationships others do not so while there may be challenges in the broader market, especially with smaller competitors, it's not been a factor for us and any impact is already embedded in our results and our guidance.
Laura Alber: Given the positive trends in units and exciting collaborations in the pipeline we have a sizable opportunity and Weston as it rebalances more inventory into these new products.
Speaker Change: We've chosen not to do that. We know, having done this for a long time, that the long-term investment in the fundamentals is more important than the short-term markdowns that give you an immediate pop and create all sorts of peaks and valleys, which aren't good for operations.
Laura Alber: The Williams number brand ran a negative 0.8 percent comp in Q2. In the quarter we benefited from the performance of our new and exclusive products offset by some tough compares in electrics.
Laura Alber: Tailed from summer units were off double digits to last year and we're seeing strength in new and premium products found only at William Sonoma. The strategy to offer our customers quality product they can't find anywhere else is working.
Speaker Change: As far as China goes.
Speaker Change: We significantly reduced our China sourced goods from the last time. This came up back in 2018 back down it was 50% of Oliver imports from China, and now that number is down to 25% and of that 25% and a third of them already have a trump tariff on them, which we've been paying and or so.
Laura Alber: And we are excited about our robust second half lineup of in-house design product and exclusive.
Peter Benedict: Your next question comes from the line of Peter Benedict with Baird. Your line is open. Good morning. Thanks for the question. First one, just in general on advertising. I mean, historically, I think you guys run in the six and a half, seven cent of sales, at least on an annual basis for advertising. I know it's the lever in the first part of this year. Just curious how you're thinking about the increase investment in advertising right now.
Speaker Change: So the fact that if this does come up in tariffs or expanded we're prepared to reduce it further we've mapped out a category by category plan introduced China sourcing at the landscape changes.
Speaker Change: And I think the important point here is with 90% of our products, our proprietary design and exclusively made for our brands and we operate.
Peter Benedict: When you need to see the return on that, and just maybe I should we expect a period where you're maybe above that seven percent range for a bit as we go through this kind of period of software demand. That's my first question.
Speaker Change: Our own in house best in class Global sourcing operation was 12 overseas offices is engaged on the ground managing sourcing decisions production shipping. So if the landscape changes were well positioned to pivot.
Laura Alber: The delivery immersive culinary experiences in-store online and at key events across the country.
Laura Alber: Thank you. Our multi brand portfolio is clearly an advantage in a lot of ways, but particularly in marketing. Our cross brand customers perform significantly better than other customers. In fact, there's four times more valuable. And we've really been committed, as you all know, to not running a promotional business. There's a lot of people out there that probably would push you see more comp points by running markets. We've chosen not to do that.
Laura Alber: In-store we've inspired thousands of customers through our Sunday skill series and demo teaching customers from how to sous vide to how to make ice Our tools for change campaign supporting no-kit hungry, celebrated 10th anniversary of this July.
Speaker Change: Good stuff. Thanks, so much.
Laura Alber: To date, we're proud to have raised over $60 million to help no-kit hungry and end childhood hunger in America.
Speaker Change: Your next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Your line is open.
Laura Alber: We're grateful to all the chefs and celebrities that have contributed designs to our specialists over the years.
Laura Alber: As we look to the second half, we'll continue inspiring our customers to cook, host, and entertain for the holidays. This fall, the brand will launch the art of entertaining, where customers can benefit from expert advice on everything, from setting a table, to hosting a dinner party, to floral arranging techniques, and to napkin folding tricks. We believe this focus on holidays and celebrations will not just try volume and key categories, but also cement the brand as the ultimate celebration destination in retail for new and existing customers.
Cristina Fernandez: Advertising investment, done correctly, builds customer growth. And so, they also drive short-term sales. So, it's a short-term sales and a long-term plan with new customers.
Cristina Fernandez: Hi, Good morning, I wanted to see if you can talk about any changes in customer behavior that you saw this quarter was so far here in August several.
Laura Alber: And lastly, we're excited about the momentum of our Williams-Sonoma home business, which ran a slight positive comm in Q&T.
Laura Alber: Now, I'd like to update you on our other initiatives. Business to business continued its momentum in Q2, growing 11.5 percent, with record quarterly contract volume growing 21.6 percent, while trade grew 7.1 percent.
Laura Alber: We know, having done this for a long time, that the long term investment in the fundamentals is more important than the short, short term markdowns that give you an immediate pop and create all sorts of peaks and valleys, which aren't good for operations. Advertising investment done correctly builds customer growth. And so they also drive short term sales. So it's a short term sales and a long term flat with new customers. And like anything else we do, we are constantly looking for opportunities to spend the last dollar more effectively.
Speaker Change: Tours have talked about the consumer being more hesitant.
Cristina Fernandez: Yes.
Paulson: Paulson during non peak periods.
Paulson: Mark Let's just keep your price are you seeing any of those factors in your Chinese.
Laura Alber: The hospitality space remains strong, with notable wins at the Sheraton Boston, the Hilton Beverly Hills, Renaissance, Las Vegas, and under Canvas for the Yosemite location.
Speaker Change: And like anything else we do, we are constantly looking for opportunities to spend the last dollar more effectively.
Speaker Change: Thanks for the question Kristina.
Laura Alber: We have launched a new brand standard program with IHG's Hotel Indigo brand, being named a preferred vendor for lighting and a poultry categories.
Speaker Change: We're constantly studying all the customer metrics.
Laura Alber: We're also seeing strong momentum in the multi-family space, including growing partnerships with corn and communities from the Discovery Land Company.
Speaker Change: And that changes season by season, brand by brand, and marketing program by marketing program.
Speaker Change: To find anything that we can read into and build upon its interesting finished actually picked up from Q1.
Laura Alber: And we're thrilled to partner with St.
Speaker Change: Our loyalty program is another key part of this, and very effective.
Speaker Change: As much as we wanted it to but it's better than it was.
Laura Alber: Jude to develop custom beds and nightstands for their ranch for children project in Nevada.
Laura Alber: And that changes season by season, brand by brand and marketing program by marketing program. Loyalty program is another key part of this and very effective. These again are our best customers and we have the credit card program and we also have the non credit card key rewards program which has been very effective. I think the last thing that we are doing that is I think a competitive advantage and something that we're doing more of than we did last year substantially is amplifying our creative, our creator, less content.
Speaker Change: These, again, are our best customers, and we have the credit card program, and we also have the non-credit card key rewards program, which has been very effective.
Speaker Change: And the other areas.
Speaker Change: It's still better than furniture, so leading to the strategy of really focus on the seasonal holidays, where no one else really plays and these life stages, while the consumer is still not really buying a lot of new houses.
Laura Alber: Now, I'd like to talk about our global business.
Laura Alber: While we continue to navigate global macroeconomic pressures, our strategic initiatives are delivering positive results across key strategic markets, including India, Canada, and Mexico.
Laura Alber: The Canadian market continues to show strength driven by growth from enhanced design services, emerging brands, and army channel services.
Laura Alber: So, creator, less content, YouTube, TikTok, Mata is helping us reach new audiences and it's very effective and it's an area that we're building in-house and we're really excited about our leadership position as we go forward because we think this is very, very relevant for our customers.
Speaker Change: No.
Speaker Change: In terms of price place interesting question.
Speaker Change: We have a lot of newness, it's working it's very exciting, particularly in west L. A where we have the most amount of newness and it's not in low price points in the medium to high price points and that's also really I think a good piece of information for us.
Laura Alber: In Mexico, we are optimistic about our brand's performance in the market, with strength driven by all brands, with the most significant contribution coming from TV kids.
Operator: That's all.
Speaker Change: Getting the customer a great value. So we're not trying to develop things at higher price points. We are trying to develop the best value products at every price point and I've said it before but.
Speaker Change: The truth is where we have a lot of innovation our prices are the best in the market and no. One has tried to copy us yet on the newness, which is why we're pushing units as a key strategy in the back half as a percentage of total and as we continue to have these seasons click buy and get confidence on the newness, we can buy more into it and we usually have.
Laura Alber: We'll be opening two new stores by the end of the year, and three more set to open in early 2025.
Operator: Well, thanks, Laura.
Speaker Change: I'd say the last thing that we are doing that is, I think, a competitive advantage and something that we're doing more of than we did last year, substantially, is amplifying our creator-led content. So, creator-led content, YouTube, TikTok, Meta, is helping us reach new audiences, and is very effective.
Laura Alber: And finally, India remains a key area for us, we're excited to expand the Weston brand with two additional locations in new markets by the end of the year.
Peter Benedict: My follow-up question is around kind of freight costs in that environment. I'm just curious, maybe your view is we may be turned to 25 freight rates are becoming up. Is that how did that kind of play into the maybe the margin structures we think about next year and remind us just maybe your exposure to China and, you know, with all the talking potential tariffs. That's everything. Just maybe a level set us on that front.
Speaker Change: It's an area that we're building in-house, and we're really excited about our leadership position as we go forward, because we think this is very, very relevant for our customers.
Speaker Change: That's helpful.
Speaker Change: Thanks, Laura.
Speaker Change: A pretty long cycle on that product growing before it declines.
Speaker Change: My follow-up question is around freight costs in that environment.
Speaker Change: Thanks, and then my follow up is for Jack.
Peter Benedict: Thanks so much. Yeah, Peter, good morning. A couple questions in there. So, first one on ocean freight. Yeah, we're not seeing an impact from higher spot market and higher spot market rates for on our ocean freight. We're mostly insulated from the fluctuations in the spot market with our contract rates. I mean, here's a thing. As you know, one of our competitive advantages are global supply chain for the 11th largest container imported into the United States.
Jack: On the operating margin for the quarter I think last call you had talked about being flattish. It was up 160 basis points were.
Jack: I'm just curious, maybe your view, as we maybe turn to 2025, freight rates have been coming up.
Where did the upside come from this quarter and why Wouldnt some.
Jack: How does that kind of play into maybe the margin structure, if you think about next year?
Jack: Those continue in the back half.
Laura Alber: Overall, our current market and service strategies are the differentiators for continued growth in our global markets.
Jack: Yes, thanks for asking that Christina.
Speaker Change: Q2 operating margin exceeded expectations for three reasons. The first is in merchandise margins, which were stronger than anticipated driven by our focus on full price selling that we continue to see positive customer response to our consistent pricing and focus on selling and service versus price.
Speaker Change: And remind us, just maybe your exposure to China, and with all the talk of potential tariffs, that type of thing, just to maybe level-set us on that front.
Laura Alber: Lastly, I'd like to update you on our emerging brand.
Peter Benedict: So we have scale and relationships others do not. So while there may be challenges in the broader market, especially with smaller competitors, it's not been a factor for us. And any impact is already embedded in our results and our guidance.
Speaker Change: Thanks so much.
Speaker Change: Yeah, Peter, good morning.
Peter Benedict: As far as China goes. We've significantly reduced our China source goods from the last time this came up back in 2018 back down. It was 50% of all over and forth from China. Now that numbers down to 25% and of that 25%. The third of them already have a trump tariff on them, which we've been paying and are still on them. So the fact that if this does come up and tariffs are expanded, we're prepared to reduce it further.
Speaker Change: A couple questions in there.
Speaker Change: Second thing is our supply chain efficiencies also came in better really attributable to our commitment to full price selling smoothing out the peaks and troughs driven by promotional activity. This is delivering significant cost savings for more consistent operations across our manufacturing operating and delivery expenses.
Speaker Change: So, first one on ocean freight.
Speaker Change: And third we Deleveraged advertising expense last in Q2 than in Q1.
Peter Benedict: We've mapped out a category by category plan to reduce China sourcing if the landscape changes. And you know, I think the important point here is, you know, with 90% of our products are proprietary design and exclusively made for our brand. And we operate our own in house, best in class global sourcing operation or 12 overseas offices. It's our own booths on the ground, managing sourcing decisions, production and shipping. So if the landscape changes, we're well positioned to pivot. Good stuff.
Speaker Change: As Laura said before we continue to evaluate our spend and adjust weekly as we see the effectiveness.
Speaker Change: Here's what I'd like you to remember as we continue to deliver strong profitability. Despite the tough environment for home furnishings.
Okay.
Speaker Change: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.
Brian Nagel: Yeah, we're not seeing an impact from higher spot market rates on our ocean freight. We're mostly insulated from the fluctuations in the spot market with our contracted rates.
Brian Nagel: Hi, good morning, Thanks for taking my question.
Brian Nagel: So question first question wanted to ask was just with respect to industry wide promotions.
Brian Nagel: Here's the thing.
Cristina Fernandez: Thanks so much. Your next question comes from the line of Christina Fernandez with Chelsea advisory group. Your line is open. Hi, good morning. I wanted to see if you can talk about any changes in customer behavior that you saw this quarter or so far here in August, several retours have talked about the consumer being more hesitant. And less involved during non peak periods, more persistent to price.
Speaker Change: Done a great job of holding.
Speaker Change: As you know, one of our competitive advantages is our global supply chain.
Holding the line on site wide promotions and wage number.
Speaker Change: Throughout this space, we keep on hearing about.
Speaker Change: We're the 11th largest container importer into the United States.
Is it more of a more promotional environment. So the question I'm asking is are you.
Speaker Change: So, we have scale and relationships others do not.
Laura Alber: Rejuvenation delivered another double digit quarter. We're very optimistic about rejuvenation performance, with four consecutive quarters of positive counts.
Speaker Change: Are you seeing more commercial.
Speaker Change: And then are you able to quantify what impact if any of that's happened upon your business at this point.
Speaker Change: So, while there may be challenges in the broader market, especially with smaller competitors, it's not been a factor for us.
Speaker Change: Yes, thanks for the question guys.
We continue to see consistent high levels of promotions in the marketplace and all sorts of forms from sightline promotions free shifting reduction of prices across the board double rewards.
Laura Alber: Their unlavering focus on delivering the highest quality products have allowed them to gain market share.
Laura Alber: The trend of home updates, particularly in kitchens and bathrooms continues, with notable growth in cabinet and bath hardware and lighting.
Laura Alber: Are you seeing any of those factors and you're trying to Thanks for the question, Kristina. We're constantly setting all the customer metrics to find anything that we can read into and build upon. It's interesting, furniture actually picked up from Q1, not as much as we wanted it to, but it's better than it was. And the other areas are still better than furniture. So leading to the strategy of really focused on seasonal holidays where no one else really plays and these life stages while the consumer is still not really buying a lot of new houses.
Speaker Change: And any impact is already embedded in our results and our guidance.
Speaker Change: All of it and.
Speaker Change: We have played those games and know that they don't work and you are competing with yourself more than you are with your peers and your competitors it.
Speaker Change: As far as China goes, we've significantly reduced our China-sourced goods from the last time this came up back in 2018. Back then, it was 50% of all of our imports were from China. Now that number is down to 25%. And of that 25%, a third of them already have a Trump tariff on them, which we've been paying and are still on them.
Speaker Change: It's really important that you give your customer great value.
Speaker Change: Look at that price and I know other things costs similarly to in the market.
Speaker Change: So, the fact that if this does come up and tariffs are expanded, we're prepared to reduce it further.
Speaker Change: But the up and down to get a short term pop that drives the short term comp is not a good way to run your business and so we are committed as I said before to running our business without those those high levels of promotion and Ashley.
Laura Alber: They saw success with their coastal and beach products for the home and on the go and had strong gifting sales in golf and personalizing games.
Speaker Change: We've mapped out a category-by-category plan to reduce China sourcing if the landscape changes.
Speaker Change: As much as we've been saying this for the past couple of years, we're still pushing this out of our base and so in Q1.
Laura Alber: They've recently launched the monogram wedding shop, as well as marking grand kids, which will be an exciting incremental growth strategy for the brand.
Laura Alber: So in terms of price points, interesting question. You know, we have a lot of newness, it's working, it's very exciting, particularly in West Elm, where we have the most amount of newness. And it's not in low price points. It's in the medium to high price points. And that's also really I think a good piece of information for us. We are giving the customer a great value. So we're not trying to develop things at higher price points.
Speaker Change: And I think the important point here is 90% of our products are proprietary, designed, and exclusively made for our brand.
Laura Alber: And finally, Green Row, our newest brand, continues to grow and expand its absorbent of vintage inspired, colorful furnishings that are sustainably sourced and designed to last. This month, Green Row launched a new collection of thoughtfully made products over 150 new items and a new catalog.
Speaker Change: In Q2, we significantly improved our regular price percent to total in a regular price comps are significantly better than the markdown comps.
Laura Alber: The brand continues to innovate and create unique and differentiated products that fill a void in the market.
Laura Alber: We look forward to continue growth and exciting new products and partnerships in the coming months for Green Row.
Laura Alber: In summary, we are pleased with our strong operating results.
Laura Alber: Our revised outlook today reflects a prudent view of the top line and the confidence we have in our profitability profile.
Speaker Change: That's a helpful warm and then the second question I have you.
Laura Alber: Despite the macro uncertainty, we remain focused on our key priorities for 2024 that are driving the results we announced today.
Laura Alber: During the last few years, we as a company have navigated, learned, optimized, and built all in preparation for our next capture of growth. We have a strong omnicample platform with an exclusive lifestyle offering and a sophisticated distribution network with additional capacity.
Laura Alber: We're trying to develop the best value products at every price point. And I said it before, but the truth is when we have a lot of innovation, our prices are the best in the market. And you know, no one has tried to copy us on the newness, which is why we're pushing newness as a key strategy in the back half as a percent total. And as we continue to have these seasons cut by and get confidence on the newness, we can buy more into it. And we usually have a pretty long cycle on that product growing before it declines.
Speaker Change: Recognizing what I can definitely talking about it.
Speaker Change: Cadence of the business through the quarter, but.
Jeffrey Howie: And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.
Speaker Change: It sounds like that's give me your commentary.
Speaker Change: Adjustments to the top line guidance for the balance sheet.
Speaker Change: The business has weakened.
Jeffrey Howie: Thank you, Laura, and good morning, everyone.
Speaker Change: Tracking weaker than you initially anticipated could you can you help us understand if theres any specific areas you see incremental weakness within demand.
Jeffrey Howie: We're pleased to deliver another quarter of strong results, piloted by our Q2 improved top line trend, market share gain, and earning that continue to exceed expectations.
Speaker Change: So the reality is our guidance as Jeff mentioned has a wide range and that we expected the back half to accelerate I think we all thought we'd have an interest rate cut or at least one or two by now which we haven't seen right. So instead of hoping for housing to turn around.
Jeffrey Howie: Laura Touchdown are three key priorities for fiscal year 24.
Jeffrey Howie: One, returning to growth, fueled by product innovation and channel experience.
Jeffrey Howie: And then my follow-up is for Jeff on the operating margins for the quarter. I think, you know, last call, you had talked about being flat edge. It was top 160 basis points where, you know, where did the upside come from this quarter? And why wouldn't some of those continue in the back half? Yeah, thanks for asking that, Christina. Keep your operating margin exceed the expectations for three reasons. The first is the merchandise margins, which were stronger than anticipated, driven by our focus on full price selling.
Put the range together.
Speaker Change: Slash since the back half <unk> first half.
Speaker Change: <unk>.
Speaker Change: Seems I know conservative because of the multiyear comps getting easier in the back half, but we just thought it was prudent.
Speaker Change: Given the uncertainty in the macro.
Speaker Change: <unk>.
Speaker Change: Reduce the top line so that we're not pressures.
Speaker Change: To take promos to hit the number we want to run this business for the long term and that's what we've been doing and Youre seeing the continued performance on the bottom line I will just say this.
Jeffrey Howie: Two, elevating our world-class service, which produces both customer retention and expense savings.
Jeffrey Howie: We continue to see a positive customer response to our consistent pricing and focus on selling and service versus price. The second thing is our supply chain efficiencies also came in better, really attributable to our commitment to full price selling, moving out the peaks and troughs driven by promotional activity. This is delivering significant cost savings from working system operations across our manufacturing, operating, and delivery expenses. And third, we deliver to advertise and spend less than Q2 than in Q1.
Jeffrey Howie: And three, driving earnings as we continue to deliver strong profitability.
Before.
Speaker Change: Uh huh.
Speaker Change: Can you imagine what this thing looks like when you get some positive comps.
Speaker Change: Best way for me to describe it is our operating model is a coiled spring.
Jeffrey Howie: These three priorities connect directly to the five key drivers underpinning our strong profitability in Q2.
Speaker Change: Appreciate all the color. Thank you.
Speaker Change: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.
Jeffrey Howie: And as more said before, we continue to evaluate our spend and adjust weekly as we see the effectiveness. You know, here's what I'd like you to remember is we continue to deliver strong profitability despite the tough environment for our own furnishings.
Simeon Gutman: Hi, there good morning, everyone.
Simeon Gutman: I have a question I guess this is the age old question any difference in posture thinking about the mix between sales and promotion in terms of stimulating sales and given that the backdrop seems to be getting more promotional.
Jeffrey Howie: First, our e-commerce salesman, with its higher operating margins, sustaining at 66% of total revenues. Second, our retail optimization strategy, delivering 3% less occupancy expense, inclusive of additional technology and supply chain investing.
Brian Nagel: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Hi, good morning. Thanks for taking my question. So the first question I want to ask is just with respect to industry-wide promotions. You've done a great job of holding the line on site-wide promotions and waiting to know throughout the space we keep on hearing about signals of more promotional environment. So the question I'm asking is Are you seeing a more promotional indictment broadly and then are you able to quantify what impact if any of that's happening on your business at this point?
Speaker Change: Absolutely not but we are on offense with our product innovation and our marketing.
Speaker Change: And assuming analysis that I talked about it.
Jeffrey Howie: Third, the pricing power of our in-house designed proprietary products, an hour emphasis on full price selling, contributing to our 380 basis point improvement in merchandise margins.
Speaker Change: My prepared remarks in answering procedures question, but.
Speaker Change: And we operate our own in-house, best-in-class global sourcing operation with 12 overseas offices. It's our own boots on the ground managing sourcing decisions, production, and shipping. So, if the landscape changes, we're well-positioned to pivot.
Jeffrey Howie: Fourth, our supply chain efficiency from our relentless focus on customer service and operational excellence, producing 180 basis points improvement in selling margins.
Speaker Change: By not running the promos like we did in smoothing out the peaks and troughs of the promotional activity, it's really driving improved customer service shorter lead times and much more efficient operations across our entire supply chain, which is really flowing through to the bottom line.
Jeffrey Howie: And fifth, our ability to control costs as we continue to manage variable employment costs maturely in line with top line trends.
Speaker Change: Good stuff.
Jeffrey Howie: Given our strong Q2 results, we're confident we'll continue to gain market share and deliver strong earnings even in this uncertain environment.
Brian Nagel: Yeah, thanks for the question, guys. We continue to see consistent high levels of promotions in the marketplace and also the forms from site-wide promotions, free shifting, reduction of prices across the board, double rewards, you know, all of it. And you know, we have played those games. And know that they don't work and you're competing with yourself more than you are with your peers and your competitors. It's really important that you give your customer a great value.
Speaker Change: And if I can ask a quick follow up the runway for merch margin, specifically related to supply chain or transport I don't know if I missed I may have missed earlier in the call but.
Jeffrey Howie: Now, let's dive into the numbers.
Brian Nagel: They look at that price and they know what other things cost similarly to it in the market. But the up and down to get a short-term pop that drives the short-term comp is not a good way to run your business. And so we are committed, as I said before, to running our business without those high levels of promotion. And actually, you know, as much as we've been saying this for the past couple of years, we're still pushing this out of our base.
Speaker Change #100: By the second quarter, it would sort of reach its I don't know if its peak or its Max and then it will start to wane is that still about the right way to think about it.
Jeffrey Howie: I'll start with our Q2 results and then provide an update on guidance for 24.
Speaker Change #101: Thanks so much.
Speaker Change #101: It is it is the right way to think about it and while we don't guide to specific line. We are guiding that our operating margin in back half will be flat.
Speaker Change #101: 2023, really because some of the benefits that we had in the front half.
Speaker Change #101: Your next question comes from the line of Christina Fernandez with Telsey Advisory Group.
Speaker Change #101: Okay.
Particularly we were up against the impact of the pandemic related ocean freight runoff that was worth about 200 basis points. Good guide of the first half.
Jeffrey Howie: Now revenue is finished of 1.79 billion slightly below our expectations. We gained market share as our comp of negative 3.3% outperform the industry which declined by approximately 10%. Importantly, we accomplished this even as we reduced our overall level of promotion in the quarter.
Speaker Change #101: And then our focus on full price selling.
Jeffrey Howie: Our Q2 comps improved from Q1 reflective of better performance in furniture and continued growth in our non-furniture categories.
Laura Alber: And so in Q1 and Q2, we significantly improved our regular price percent to total and our regular price comps are significantly better than the Markdown comps. That's your helpful lore. And then the second question I have, you know, recognizing what I was actually talking about, the cadence of the business through the quarter, but it sounds like it's giving your commentary and the adjustments to the top line guys that balance you. The business is weakened or is at least tracking weaker than you initially anticipated.
Speaker Change #101: Really kicked in in the back half of 'twenty three so we have that upside by focusing on that in the front half and in fact.
Speaker Change #101: If we look at our percentage of full price selling in Q2 of 'twenty four it's about the same rate as it was.
Speaker Change #101: Q3, 23, so that dissipates as well.
Speaker Change #101: So when we said.
Speaker Change #101: We were up against some easier compares in the front half on the margin line start.
Speaker Change #101: So I would anticipate in the back half, which is why we're giving that guidance on operating margin for the back half.
Jeffrey Howie: From occasions perspective, our trends across the quarter were choppy and inconsistent, reflecting the uncertain macro economic backdrop.
Speaker Change #102: Okay. Thank you good luck.
Jeffrey Howie: Moving down the income statement, growth margin came in at 46.2%, 550 basis points higher than last year and substantially exceeding expectations. There were three drivers to this 550 basis point improvement, merchandise margin supply chain efficiencies and occupancy costs.
Laura Alber: Can you help us understand if there's any specific areas you're seeing in Commodal weakness within demand? So, you know, the reality is our guidance is just mentioned has a wide range. And it's that we expected the back half to accelerate. I think we all thought we'd have an interest rate cut, or at least one or two by now, which we haven't seen. Right. So instead of hoping for housing to turn around, we put the range together to reflect if the back half is the widow's first half.
Maxim <unk>: Your line is open.
Maxim <unk>: Your next question comes from the line of Maxim <unk> with TD Cowen Your line is open.
Jeffrey Howie: Let's start with merchandise margins, which improved 380 basis points. This improvement was driven by our ongoing commitment to full price selling. Lower input costs and the residual benefits from lower inbound freight as we left last year's pandemic related ocean freight runoff. Next, supply chain efficiencies contributed 180 basis points. Our commitment to full price selling is smoothing out the peaks and troughs created by promotional activity. This is yielding improved customer service, reduced customer lead time and significant cost savings for more efficient operations.
Maxim <unk>: Hi, good morning.
Maxim <unk>: Hey, good morning, So first Lora can you discuss.
Maxim <unk>: Any learnings about your shoppers reactions as you pulled back on promotions.
Maxim <unk>: Our shoppers reacting how you thought that they would offer incentives your PB shopper may be a little bit more price conscious than you thought or any other call outs.
Speaker Change #104: I wanted to see if you can talk about any changes in customer behavior that you saw this quarter or so far here in August.
Laura Alber: And that, you know, seems I know conservative because of the multi-year comps getting easier in the back half, but we just thought it was prudent, given the uncertainty in the macro to reduce the top line so that we're not pressures to take promos to hit the number. We want to run this business for the long term. And that's what we've been doing. You're seeing the continued performance on the bottom line. I'll just say this, you know, we've said before. Can you imagine what this thing looks like when you get some positive comps. And the best way for me to describe it is our operating model is a coil spring. Appreciate it. I call it.
Maxim <unk>: Yes.
Speaker Change #104: As I said earlier, the does not allow us to read there because.
Speaker Change #105: The newness that's in the mid price points.
Speaker Change #105: Are really working we got we're now seeing a trade down furniture is better than it was the franchise snowfalls anticipate.
Speaker Change #106: Several retailers have talked about the consumer being more hesitant, less involved during non-peak periods, more resistant to price.
Operator: Thank you.
Speaker Change #106: <unk> of both the west Elm and pottery barn businesses, which is why the comp complexion is very different in those versus the more life stage kids and teen brand and also like in Sonoma.
Speaker Change #106: Are you seeing any of those factors in your trend?
Speaker Change #106: Yeah.
Speaker Change #107: There's nothing really to read into that what we do see is that they are not waiting from promotions to the point that they don't they're not worried that theyre going to fill them if they don't.
Speaker Change #107: If they don't wait till the next motion they can buy it when they need it and our sales associates throughout that they can solid confidence and not always be looking into a promo calendars when the next sales.
Simeon Gutman: Your next question comes from the line of Simeon Goodman with Morton Stanley. Your line is open. Hi there. Good morning, everyone. I have a question. I guess this is the age old question. Any difference in posture, thinking about the mix between sales and promotion in terms of simulating sales. And given that the backdrop seems to be getting more promotional. Thanks.
Speaker Change #107: Thanks for the question, Cristina.
Speaker Change #107: Yes, I think Laura got it done and the fact that yes.
Speaker Change #107: When we run promotions, we're really competing with ourselves a lot of time.
Speaker Change #107: You know, we're constantly setting all the customer metrics, to find anything that, you know, we can read into and build upon.
Speaker Change #107: It's interesting, furniture actually picked up from Q1, not as much as we wanted it to, but it's better than it was.
Speaker Change #107: And I think many of you heard me talk about the concept of shift versus left and how much of the promotions are really incremental versus just moving it around and incentivizing the customer that are wafer or two to go on sale. So now we can really focus on serving the customers.
Speaker Change #107: And the other areas, you know, are still better than furniture.
Speaker Change #107: So, leading to the, you know, strategy of really focused on the seasonal holidays, where no one else really plays, and these life stages, while the consumer is still not, you know, really buying a lot of new houses.
Laura Alber: Absolutely not, but we are on offense with our product innovation and our marketing. And Simeon, that was just that. You know, I talked about it in my prepared remarks and answering Prasina's question, but by not running the promos like we did is moving out the peaks and troughs for the promotional activity, it's really driving improved customer service shorter lead times and much more efficient operations across our entire supply chain, which is really flowing through to the bottom line.
Speaker Change #107: Many of them, helping them with their design project.
Speaker Change #107: So, in terms of price points, interesting question.
Speaker Change #107: You know, we have a lot of newness.
Speaker Change #107: And the customer is not waiting for that next promotion they are engaging on the design side.
Jeffrey Howie: Key customer service metrics, including returns, accommodation, damages, replacements, out of market shipping and multiple deliveries per order are all performing better than pre-pandemic levels.
Speaker Change #107: It's working.
Jeffrey Howie: Moreover, we are seeing cost savings across the supply chain for more consistent operations including warehouse, manufacturing and delivery expense.
Jeff Ron: Got it that's helpful. And then Jeff maybe can you bridge the full year EBIT margin guide of 17.
Jeff Ron: 17% to 17, eight and then the long term margin guide of mid to high teens sort of what would need to happen and the key drivers in a bowl of our spare keys.
Jeff Ron: Well look.
Our long term operating margin guidance of mid to high teens and our guidance for this year versus risk smack in the middle of that range.
Jeffrey Howie: And finally, Occupancy Cups, which were down 3% from last year, de-leveraged 10 basis points.
Jeffrey Howie: And if I can ask a quick follow-up, the runway for March margin, specifically related to supply chain or transport. I don't know if I missed, I may have missed earlier in the call, but I thought by the second quarter it would sort of reach its peak or its max and then it would start to wane, is that still about the right way to think about it? It is, it is the right way to think about it.
Jeff Ron: Certainly sales accelerate we expect possibly some more margin expansion.
Jeffrey Howie: We continue to optimize our retail fleet while we invest in our world-class technology stack and our supply chain. During the quarter, we began operating our new Arizona Distribution Center, this fully automated facility will replace an outdated distribution center, improve service time to our customers, and lower employment and shipping costs, included in our Occupancy Cups this quarter, where the costs for running both the new and old building, which will continue for the balance of fiscal year 24.
Jeff Ron: We've provided a range because there's a lot of variables in there.
Jeff Ron: And we're pretty confident in our ability to sustain this profitability demonstrated last year, we delivered a 64 an issue regarding the mid seventeens.
Jeffrey Howie: Rough enough gross margin, we delivered substantially higher gross margin this quarter, turning out to FGNA, which came in a 30% of revenues with 390 basis points higher than last year from higher employment expense and advertising expense. Employment expense was 200 basis points higher year over year, mostly from higher performance based incentives compensation due to our strong ETS performance here today.
Jeffrey Howie: In Q2, we continue to manage variable employment costs across our stores, distribution centers, and customer care centers, materially in line with top line trends.
Jeffrey Howie: While we don't got this specific line, we are guiding that our operating margin in the back hat will be flat with 2023. Really because some of the benefits that we had in the front half. Specifically, we were up against the impact of the pandemic related ocean freight runoff. That was worth about 200 basis points, good guy to the first half. And then our focus on full price selling really kicked in in the back half of 23.
Jeff Ron: So this is sustainable.
Jeff Ron: We're confident in our operating margin going forward.
Jeffrey Howie: Arriotizing expense, de-leveraged 150 basis points, has been continued to invest into higher levels of advertising spent.
Speaker Change #109: Great. Thanks, a lot and good luck second half.
Your next question comes from the line of Marni Shapiro with retail tracker, Sir Your line is open.
Jeffrey Howie: Our multi-brand portfolio allows us to test the return of our incremental spend and our own hands-on-keyboard approach that allows our investment to go further and keep our learnings in health.
Marni Shapiro: Hey, guys. Congrats on some great execution in a choppy environment.
Jeffrey Howie: Our advertising model is a key competitive advantage in the home furnishing industry.
Marni Shapiro: It's very exciting, particularly in West Elm, where we have the most amount of newness.
Marni Shapiro: I wanted to focus on some of the newness that you keep highlighting because it still.
Jeffrey Howie: On the bottom line, our earnings once again exceeded expectations. Operating income came in at $290 million, with operating margin at 16.2%, which was 160 basis points above last year. Deluted earnings per share was $1.74, up $0.18 or 12% in over year. On the balance sheet, we ended the quarter with a cash balance of $1.3 billion with no debt of standing. This was after we invested $31 million in capital expenditures supporting our long-term growth, and we returned $203 million to our shareholders, to share repurchases, and quarterly dividends, merchandise inventory ended the quarter at $1.2 billion, down 4.1% to last year. Our inventory levels are in line with our top line trends and are well positioned to support our business.
Marni Shapiro: And it's not in low price points.
Not only is there a lot of new products like roller Rabbit for example, but it's the way you're attacking it. So I know like at UNC you had an entire event at one of the buildings with Wella rabbits or with Rhode Island.
Marni Shapiro: It's in the medium to high price points.
Jeffrey Howie: Some enough of our Q2 results were proud to have delivered yet another quarter of earning exceeding expectations.
Jeffrey Howie: So we had that upside by focusing on that in the front half. And in fact, if we look at our percentage of full price selling in Q2 of 24, it's about the same rate as it was in Q3, 23. So that dissipates as well. So like we said, you know, we were up against them easier compared in the front half on the margin line. That started to dissipate in the back half, which is why we're giving black guidance on operating margin for the back half. Okay, thank you.
Marni Shapiro: And that's also really, I think, a good piece of information for us.
Operator: Good luck.
Marni Shapiro: We are giving the customer great value.
Marni Shapiro: Just drowned in social media about it that was really really great and it feels like that.
Marni Shapiro: Mix between your merchandising and your marketing has really come together.
I'm curious was that was that a change or might just getting hit with it.
Speaker Change #111: Is it bringing new shoppers into these brands is it bringing the men with more frequency.
Speaker Change #112: How should we think about this in the back half of the year.
Marnie Shapiro: Your next question comes from the line of maximum rec linko with TD talent. Your line is open. Hey, good morning. So first, Laura, can you discuss any learnings about your shoppers reactions as you pull back on promotions? Are shoppers reacting how you thought that they would, for instance, is your PB shopper maybe a little bit more price conscious than you thought or any other call house? Yeah, but, you know, as I said earlier, this is not allowed to read there because, you know, the news is in the mid price points are really working.
Speaker Change #113: Thank you so much for the question, yes, newness and innovation are really key parts of our strategy to drive growth and we've seen a really strong response to newness and when.
Speaker Change #113: So, we're not trying to develop things at higher price points. We're trying to develop the best value products at every price point.
Speaker Change #113: And I've said it before, but the truth is, where we have a lot of innovation, our prices are the best in the market.
Speaker Change #112: And, you know, no one has tried to copy us yet on the newness, which is why we're pushing newness as a key strategy in the back half as a percent total.
Speaker Change #112: <unk>.
Speaker Change #114: Talk about newness is checking across all categories in particular in furniture and in fact, we've seen double digit positive comps in both Westtown summer and fall new furniture introductions.
Speaker Change #114: And as we continue to have these seasons click by and get confidence on the newness, we can buy more into it.
Speaker Change #114: And we usually have a pretty long cycle on that product growing before it declines.
Speaker Change #115: Thanks.
Speaker Change #115: Actions now why youre, not seeing that roll into the bigger number yet because it's still a small percent of total because you want to make sure. You knew this was working before you bet the farm on it.
Speaker Change #115: And then my follow-up is for Jeff.
Speaker Change #115: We've had some great collaborations and west Elm <unk> touched on roads.
Speaker Change #116: Well this year is double last year.
Marnie Shapiro: We're not seeing a trade out, furniture is better than it was, but furniture is still soft, right? And it's a big portion of both the westbound and part of our businesses, which is why the comp complexion is very different in those versus the more life stage kids and teen brand. And also when in cinema. So, yeah, it's there's nothing really to read into that what we do see is that they're not waiting some promotions to the point that they don't, they're not worried that they're going to feel dumb if they don't.
Speaker Change #116: We introduced Marcus Samuelsson his amazing Shack, who has incredible furniture designs that we've introduced.
Speaker Change #117: And that's also been a great one in pottery barn, we're seeing good response to our newness, there too, especially in furniture and seasonal decorating, which we're launching earlier than we've ever launched before.
Speaker Change #117: So thrilled to say people skipping up Christmas necessarily.
Speaker Change #118: They also have some great new collaborations in the Hopper and are going to have an increased amount of collaborations next year.
Marnie Shapiro: If they don't want to look at the next motion, they can buy it when they need it. And our sales associates are thrilled that they can talk with confidence and not always be looking into a promo calendar to see when the next sale. Yeah, I think Laura got it from the fact that when we run promotions, we're really competing with ourselves a lot of time. And I think many of you have heard me talk about the concept of shift versus lift and how much of the promotions are really incremental versus just moving it around and incentivizing the customer to wait for it to go on sale.
Speaker Change #118: <unk>.
Speaker Change #119: <unk> always been in our company our leader in collaborations and just amazing from the license programs that we run that's Hello, Kitty to incredible designers like roller rabbit and love shaft fancy.
Speaker Change #120: They've really been able to hit the nail on the headwinds what the consumer wants at every life stage and kids is different than team, but we're covering both and you can really see that we're on trend by the results and dorm.
Marnie Shapiro: So now we can really focus on serving the customers, you know, signing them helping them with their design project. And the customer is not waiting for that next promotion. They're engaging on the design side. God, that's helpful.
Williams Sonoma.
Speaker Change #121: The branded product in Williams Sonoma is doing incredibly well I'll give you one very specific example in Williams Sonoma, which is our Williams Sonoma branded cutlery.
Marnie Shapiro: And then Jeff, maybe can you bridge the full year even margin guide of 17, 4 to 17, 8, and then the long-term margin guide of mid to high teens. So what would need to happen in the key drivers in a bolivar spare case? Well, look, our long-term operating margin guidance is mid to high teens. And our guidance for this year puts us right smack in the middle of our range. Certainly sale of accelerate, we expect possibly some more margin extension, but we've provided a range because there's a lot of variables in there.
Speaker Change #121: Higher margin, obviously, then the names out there.
Speaker Change #122: We are familiar with.
Speaker Change #123: And really <unk>.
Speaker Change #123: Rivaling them in volume.
Speaker Change #123: And there's also a lot of exclusives that we have launched.
Speaker Change #123: Launched leads that we have with our key electrics partners and premium cookware Tucci collaboration by the way continues to be phenomenal and we are not done with the innovation that <unk> is going to be bringing.
Speaker Change #123: Not just for the back half, but through next year.
Speaker Change #123: And so we're excited about our really extend our back half lineup in Williams Sonoma, We can't go into and I'd really like to talk about some of those things a little bit more but I am always cautious about competition and not giving away too much information, but the punch line is we have seen a very strong response to newness and collab.
Marnie Shapiro: And we're pretty confident in our ability to sustain this profitability. We've demonstrated it. Last year we delivered a 64 this year regarding the mid 17. So this is sustainable. And we're confident in our operating margin going forward. Great. Thanks a lot. Good luck, second half.
<unk> and money you are right, we are doing things differently with our trader led content about collaborations when you combine our collaboration with an Influencer on Peacock you have magic and.
Laura Alber: Your next question comes from the line of Marnie Shapiro with retail tracker. Your line is open. Hey, guys, congrats on some great execution in a choppy environment. I wanted to focus on some of the new news that you keep highlighting because it's not only there are a lot of new products like Roller Rabbit, for example, but it's the way you're attacking it. So I know like at UNC, you had an entire event at one of the buildings with Roller Rabbit or with road, I was just drowned in social media about it. That was really, really great. And it feels like that. Between your merchandising and your marketing has really come together.
Jeffrey Howie: I'd like to thank our team at William Stone Inc, for delivering these great results.
Speaker Change #123: We are continuing to build that scale and really draw in new customers through those channels. So thank you.
Jeffrey Howie: Our recent General Manager's conference, Romani Mi Power of Talented, Dedicated Team is the best in retail, and the key to our success.
Speaker Change #124: Your next question comes from the line of Seth Basham with Wedbush Securities. Your line is open.
Jeffrey Howie: Now, let's turn to our 24 outlaw.
Seth Basham: Thanks, a lot and good morning. My first question is just making sure I understand some of the moving pieces of the margin outlook, obviously, you're expecting a lower sales performance for the balance of the year, but you're holding your back half margin guidance. So Jeff maybe you could give us some color as to where you see the upside.
Laura Alber: So I'm curious, you know, was that was that a change or am I just getting hit with it? Is it bringing new shoppers into these brands? Is it bringing them in with more frequency?
Jeff Ron: So to speak of margins relative to a couple of months ago.
Speaker Change #126: What areas, whether it be in components of gross margin or SG&A.
Jeffrey Howie: 2024 continues to be a challenging environment for home furnishing due to macroeconomic uncertainty and the slow housing market. This leads us to believe it's proven to reduce our top-line outlook for the balance of the year while raising our operating margin guidance as we continue to deliver on our commitment to profitability. It's important to note that our lower sales outlook is offset by a raised operating margin producing materially similar implied EPS guidance. On the top line, we now expect full year 24 net revenues to be in a range of down 4% to down 1.5% with cost between down 5.5% to down 3%.
Laura Alber: And how should we think about this for the back half of the year? Thank you so much for the question. Yes, newness and innovation are really key parts of our strategy to drive growth. And we've seen a really strong response to newness. And we've talked about newness is checking across all categories in particular and furniture. And in fact, we've seen double digit positive comes in both Western summer and fall new furniture introductions.
Speaker Change #126: Yeah.
Jeffrey Howie: Our updated guidance reflects the macroeconomic uncertainty combined with our choppy and inconsistent trends. With this back off in mind, we're providing an updated range of outcomes for our top line. The midpoint of our guide reflects a continuation of the first half economic and consumer dynamics to the back half of 24.
Jeff Ron: Good morning, so on the operating margin outlook for the back half. We've consistently said all year that we anticipate that our back half operating margins would be flat year over year.
Jeff Ron: On the operating margin for the quarter, I think, you know, last call, you had talked about being flattish. It was up 160 basis points.
Jeffrey Howie: The high end of the guide implies some acceleration in industry trends coupled with increased traction of our growth initiatives.
Laura Alber: Now, why you're not seeing that roll into the bigger number yet is because it's still small percent of total because you want to make sure your newness is working before you bet the farm on it. We've had some great collaborations in Western even touched on roads, you know, roads this year is double last year. We cut, we introduced Marcus Samelson, who's amazing chef who has incredible furniture designs that we've introduced. And that's also been a great one in Potter barn.
Jeffrey Howie: The low end of our guide reflects the recognition that the macroeconomic environment may have a greater impact than our results in the back half of 24.
Speaker Change #127: Where, you know, where did the upside come from this quarter?
Speaker Change #127: We've done this quarter is we've raised this on our Q2 outperformance.
Speaker Change #128: And why wouldn't some of those, continue in the back half?
Speaker Change #128: In terms of the puts and takes on margin, we don't necessarily guide the individual lines.
Speaker Change #127: But we.
Speaker Change #127: We will give you some color commentary like I did before gross margin some of the benefits that we had.
Speaker Change #127: Yeah, thanks for asking that, Christina.
Speaker Change #127: Coming at Us in the front half start to wind down in the back half that includes the supply chain headwinds, we're up against the first half, which as I said performance worth about 200 basis points and then we start lapping.
Speaker Change #127: Q2 operating margin exceeded our expectations for three reasons. The first is in merchandise margins, which were stronger than anticipated, driven by our focus on full-price selling.
Speaker Change #127: We continue to see a positive customer response to our consistent pricing and focus on selling and service versus price. The second thing is our supply chain efficiencies also came in better, really attributable to our, commitment to full-price selling, smoothing out the peaks and troughs driven by promotional activity.
The improved from open back half, so we see that as being essentially.
Speaker Change #127: This is delivering significant cost savings for more consistent operations across our manufacturing, operating, and delivery expenses.
Speaker Change #127: Essentially flat.
Speaker Change #127: And third, we do leverage advertising expense less in Q2 than in Q1.
Speaker Change #127: And then just overall this is true for our entire guidance is the macroeconomic uncertainty, we're taking a very prudent approach to our back half guidance given the macroeconomic backdrop.
Laura Alber: We're seeing a good response to our newness there too, especially in furniture and the season of decorating, which we're launching earlier than we've ever launched before. I am so thrilled to see people scooping up Christmas this early. They also have some great new collaborations in the hopper and are going to have an increased amount of collaborations next year. Kids and teen have always been in our company, our leader in collaborations and just amazing from the license programs that we run that's Hello Kitty to incredible designers like Roller Rabbit and Love Chef fancy.
Speaker Change #127: As Laura said before, we continue to evaluate our spend and adjust weekly as we see the effectiveness.
Speaker Change #127: You know, here's what I'd like you to remember, is we continue to deliver strong profitability despite the tough environment for home furnishings.
Speaker Change #127: And if things are better and we see some better performance in holiday, we could surprise the upside from the same time that the macroeconomic environment.
Speaker Change #127: Your next question comes from the line of Brian Nagel with Oppenheimer.
Speaker Change #127: Is more challenging will be more at the low end of our guidance.
Speaker Change #129: Your line is open.
Speaker Change #129: That's helpful color. So just to make sure I understood you were looking for gross margins to be flattish year over year in the back half literally yesterday are the same.
Speaker Change #130: What areas of SG&A do you have the opportunity to reduce in a slower sales environment, we're talking primarily variable labor and advertising or is there anything else. Thank you.
Laura Alber: They've really been able to hit the nail in the head with what their consumer wants at every life stage. And kids is different than teens, but we're covering both and you can really see that we're on trend by the results in dorm. Williams-Sonoma, you know, the brandy product in Williams-Sonoma is doing incredibly well. I'll give you one very specific example in Williams-Sonoma, which is our Williams-Sonoma branded color. [inaudible] very, very, very, very, very,[inaudible] very, very, very, very, very, very, very, very, very, very, very, very, very, very,[inaudible] That's helpful, Tyler.
Speaker Change #131: Yes, I mean look we don't guide individual line and we do that described top line and operating margins that gives us the flexibility to pull the levers we need to deliver results and as you've seen we know how to deliver results.
Speaker Change #131: Hi, good morning.
Speaker Change #131: Thanks for taking my question.
Speaker Change #132: So, the first question I want to ask is just with, respect to industry-wide promotions.
Speaker Change #132: In terms of numbers we have.
Speaker Change #132: Certainly.
Speaker Change #133: <unk> is as flexible as Laura mentioned before.
Speaker Change #134: You've done a great job of holding the line on site-wide promotions at Williams-Snowden, but throughout the space, we keep on hearing about signals of more promotional environments.
Speaker Change #134: Evaluate this on almost a weekly basis, depending upon the returns we're seeing on the effectiveness of the advertising and then our employment.
Speaker Change #134: So, the question I'm asking is, Are you seeing a more promotional environment broadly, and then are you able to quantify what impact, if any, that's having upon your business at this point?
Speaker Change #134: Yeah, thanks for the question, Brian.
Speaker Change #135: <unk> said many times before and in my prepared remarks, and unemployment is largely variable. The majority of our employment is in our stores, our distribution centers and our customer care centers and we can flex that in line with topline trends as things evolve.
Speaker Change #135: We continue to see consistent high levels of promotions in the marketplace in all sorts of forms, from site-wide promotions, free shipping, reduction of prices across the board, double rewards, you know, all of it.
Speaker Change #135: And, you know, we have played those games and know that they don't work, and you're competing with yourself more than you are with your peers and your competitors.
Speaker Change #135: It's really important that you give your customer great value.
Speaker Change #135: They look at that price, and they know what other things cost similarly to it in the market.
Speaker Change #135: So I think the punchline here is.
Speaker Change #135: We're.
Speaker Change #135: Regarding flatter flat operating margin guidance.
Speaker Change #135: In the context of the very uncertain macroeconomic environment, we're taking a very prudent approach with this guidance.
Speaker Change #135: But the up and down to get a short-term pop that drives the short-term comp is not a good way to run your business.
Speaker Change #135: And so we are committed, as I said before, to running our business without those high levels of promotion.
Speaker Change #135: Given ourselves the flexibility to pull levers as we need is we need to to deliver the results.
Speaker Change #136: Makes sense. Thanks.
Your next question comes from the line.
Speaker Change #136: Steven Zaccone with Citi. Your line is open.
Steven Zaccone: And actually, you know, as much as we've been saying this for the past couple of years, we're still pushing this out of our base.
Steven Zaccone: And so in Q1 and Q2, we significantly improved our regular price percent to total, and our regular price comps are significantly better than the markdown comps.
Steven Zaccone: Great. Good morning, Thanks, very much for taking my question.
Steven Zaccone: That's helpful, Lauren.
I was kind of focus a little bit more on the medium to longer term because understandably the macro is challenging for the category, but as.
Steven Zaccone: And the second question I have, you know, recognizing we're not necessarily talking about the cadence of the business through the quarter, but it sounds like it's given your commentary that, you know, the adjustments, the top-line guidance, the balance sheet, that, you know, the business is weakened or is at least tracking weaker than you initially anticipated.
Speaker Change #138: Can you help us understand if there's any specific areas you're seeing incremental weakness within demand?
Speaker Change #138: We start to see demand recover right. We're at a point, where this business is done.
Speaker Change #139: So, you know, the reality is our guidance, as Jeff mentioned, has a wide range.
Speaker Change #139: Very well on our merchandise margin overall selling margin, what's the opportunity going forward, presumably you've pulled back from promotions and the business why can't the gross margin rate for this business to be much higher as you start to see demand recover.
Speaker Change #139: And it's that we expected the back half to accelerate.
Speaker Change #140: Great question.
Speaker Change #141: I would say that.
Speaker Change #142: Housing is clearly.
Speaker Change #143: A big driver of furniture sales and we all know housing about the worst it's been.
Speaker Change #143: But at the same time, there's a lot of people calling for the bottom here and hopefully we see an interest rate and multiple costs in the next six months.
Speaker Change #143: I think we all thought we'd have an interest rate cut or at least one or two by now, which we haven't seen. Right?
Speaker Change #143: So instead of hoping for housing to turn around, we put the range together to reflect if the back half is the winner of the first half.
Speaker Change #143: It could take a little bit time for that to flow through but when people feel better they tend to shop more especially.
Speaker Change #143: And that, you know, seems, I know, conservative because of the multi-year comps getting easier in the back half.
Speaker Change #144: In our categories for their homes and I really instead.
Speaker Change #144: But we just thought it was prudent, given the uncertainty in the macro, to, you know, reduce the top line so that we're not pressured to take promos to hit the number.
Speaker Change #144: I said it before but.
Speaker Change #144: We want flexibility because we always want to give the.
Speaker Change #144: We want to run this business for the long term.
Speaker Change #144: The customer.
Speaker Change #144: Great.
Speaker Change #145: And that's what we've been doing.
Speaker Change #145: Right. So we don't want to.
Speaker Change #145: Overpriced products, we want to make sure that our brands accessible we want people to be able to come and shop with us.
Speaker Change #145: You're seeing the continued performance on the bottom line.
Speaker Change #145: Across our brands not be so expensive that it's a very small group of people.
Speaker Change #145: We hold that back to say, yes.
Speaker Change #145: There is a point at which you don't want to raise the margin too high.
Speaker Change #145: And not be competitive on the other hand, we're delivering.
Speaker Change #145: This incredible margin.
Speaker Change #146: It's negative sales.
Speaker Change #146: And no negative tough couple of years running here so.
Speaker Change #146: I'll just say this, you know, we've said before, can you imagine what this thing looks like when you get some positive comps?
Speaker Change #146: So can you imagine what this looks like when the sales are flat to positive I said before operating model as a coiled spring, it's very exciting to be sitting here knowing that we have built an organization with structural.
Speaker Change #146: And the best way for me to describe it is our operating model is a coiled spring.
Speaker Change #146: Appreciate all the color.
Speaker Change #146: Thank you.
Speaker Change #146: Your next question comes from the line of Simeon Gutmann with Morgan Stanley.
Speaker Change #146: Profitability profiles, and a lot of innovation and capacity.
Speaker Change #146: Your line is open.
Jeffrey Howie: So just make sure I understood you. If you're looking for gross margins to be fly over here in the backpack, listen to yesterday the same. What areas of estimate do you have the opportunity to reduce in a slower sales environment? Are you talking primarily variable labor and advertising or is there anything else?
Speaker Change #146: To grow much bigger than we are today without huge step up investment.
Speaker Change #146: Hi there.
Speaker Change #146: This concludes the question and answer session I will turn the call to Laura for closing remarks.
Laura Alber: Good morning, everyone.
Laura Alber: Yes, well. Thank you all for joining US we are entering our favorite time of the year, which is the holidays.
Laura Alber: I have a question.
Jeffrey Howie: On the bottom line, we are raising our full year operating margin guidance 40 basis points based upon our Q2 out performance.
Jeffrey Howie: Thank you. Yeah, I mean, look, Seth, you know, we don't guide individual lines and we do that. I just got a top line in operating margins, it gives us the flexibility to pull the levers. We need to deliver results. And as you've seen, we know how to deliver results. Well, in terms of what matters we have, certainly ad cost is flexible, as Laura mentioned before. We evaluate this on almost a weekly basis, paying for the returns we're seeing and the effectiveness of the advertising.
Laura Alber: I guess this is the age old question.
Speaker Change #147: Any difference in posture thinking about the mix between sales and promotion in terms of simulating sales and given that the backdrop seems to be getting more promotional?
Speaker Change #147: I'll remind you that Halloween was right around the corner.
Jeffrey Howie: We continue to anticipate our operating margins in the back half will be materially in line with 2023 results. With a 40 basis point increase, we are raising our full year 24 operating margin to a range of 18.0% to 18.4%, which includes a 60 basis point benefit from the full year impact from the Q1 out of period adjustment. Without the Q1 out of period adjustment, our full year operating margin will now be in the range of 17.4% to 17.8%.
Speaker Change #148: Thanks.
Speaker Change #148: Simeon Gutman, Christopher Horvers, Charles Grom, Anthony Chukumba, Laura Alber, Bradley, Thomas, Brian Nagel, Steven Zaccone, Jeremy Brooks, Michael Lasser, Jeffrey Howie, Williams-Sonoma, Inc.
Speaker Change #148: But by not running the promos like we did and smoothing out the peaks and troughs of the promotional activity, it's really driving improved customer service, shorter lead times, and much more efficient operations across our entire supply chain, which is really flowing through to the bottom line.
Speaker Change #148: Thanks, giving Christmas and Hanukkah and the new year.
Speaker Change #148: And if I can ask a quick follow-up, the runway for merch margin is specifically related to supply chain or transport.
Speaker Change #148: I Hope you all are out there in our stores and seeing all the great product lineups. We are very excited about what we have out there and I look forward to talking to you next time. So thank you for your support appreciate it.
Speaker Change #148: I don't know if I missed – I may have missed earlier in the call, but I thought by the second quarter, it would sort of reach its – I don't know if its peak or its max, and then it would start to wane.
Speaker Change #148: Is that still about the right way to think about it?
Speaker Change #148: It is the right way to think about it.
Speaker Change #148: And while we don't guide the specific lines, we are guiding that our operating margin in the back half will be flat with 2023, really because some of the benefits that we had in the front half – Specifically, we were up against the impact of the pandemic-related ocean freight runoff. That was worth about 200 basis points.
Speaker Change #148: Good guide to the first half.
Speaker Change #148: And then our focus on full price selling really kicked in in the back half of 23.
Speaker Change #149: So, we had that upside by focusing on that in the front half.
Speaker Change #149: And in fact, if we look at our percentage of full price selling in Q2 of 24, it's about the same rate as it was in Q3, 23.
Speaker Change #149: Your next question comes from the line of Maxim Reklenko with TD Towin.
Speaker Change #149: So, that dissipates as well.
Speaker Change #149: This concludes today's conference we thank you for joining you may now goodbye.
Speaker Change #149: So, like we said, we were up against some easier compares in the front half on the margin line.
Speaker Change #149: Your line is open.
Speaker Change #149: That starts to dissipate in the back half, which is why we're giving flat guidance on operating margin for the back half.
Speaker Change #149: Hey, good morning.
Speaker Change #149: Okay, thank you.
Speaker Change #149: And we're pretty confident in our ability to sustain this profitability. We've demonstrated it. Last year, we delivered it at 16.4. This year, we're guiding in the mid-17s.
Jeffrey Howie: And then our employment, like I said many times before and in my prepared remarks, my employment is largely variable. The majority of our employment is in our stores, our distribution centers and our customer care centers. And we can flex that in line with top line trends as things evolve. So I think the punchline here is, you know, we're guiding flattery, flat operating margin guidance in the context of the very uncertain macro economic environment, we're taking a very prudent approach with this guidance. And we're giving ourselves the flexibility to pull levers as we need, as we need to deliver the results.
Speaker Change #149: So, first, Laura, can you discuss any learnings about your shoppers' reactions as you pulled back on promotions?
Speaker Change #149: Good luck.
Speaker Change #149: So this is sustainable.
Speaker Change #149: Are shoppers reacting how you thought that they would?
Speaker Change #149: And we're confident in our operating margin going forward.
Speaker Change #149: For instance, is your PB shopper maybe a little bit more price conscious than you thought?
Speaker Change #149: Great.
Speaker Change #149: Or any other call outs?
Speaker Change #149: Okay.
Speaker Change #149: Thanks a lot.
Speaker Change #149: Yeah, as I said earlier, it's not allowed to read there because the newness that's in the mid price points are really working.
Speaker Change #149: Good luck, second half.
Speaker Change #149: We're not seeing a trade down.
Speaker Change #149: Furniture is better than it was, but furniture is still soft, right?
Speaker Change #149: And it's a big portion of both the Westfell and Pottery Barn businesses, which is why the complexion is very different in those versus the more life stage kids and teen brand and also Williams-Sonoma.
Speaker Change #149: So, yeah, there's nothing really to read into that.
Speaker Change #149: What you do see is that they're not waiting for the promotions to the point that they're not worried that they're going to feel dumb if they don't wait until the next promotion.
Speaker Change #149: I think Laura touched on the fact that when we run promotions, we're really competing, with ourselves a lot of times.
Speaker Change #149: And I think many of you have heard me talk about the concept of shift versus lift and, how much of the promotions are really incremental versus just moving it around and incentivizing the customer to wait for it to go on sale.
Speaker Change #149: Yeah.
Speaker Change #149: So now we can really focus on serving the customers, selling to them, helping them with, their design project.
Speaker Change #149: And the customer is not waiting for that next promotion.
Speaker Change #149: They're engaging on the design side.
Speaker Change #149: Got it.
Speaker Change #149: That's helpful.
Speaker Change #149: Okay.
Speaker Change #149: And then, Jeff, maybe can you bridge the full-year event margin guide of 17.4 to 17.8 and then, the long-term margin guide of mid- to high-teens?
Speaker Change #149: Sort of what would need to happen in the key drivers in a Boulevard spare case?
Speaker Change #149: Well, look, our long-term operating margin guidance is mid- to high-teens. And our guidance for this year puts us right smack in the middle of that range. Certainly, as sales accelerate, we'd expect possibly some more margin expansion.
Speaker Change #149: But we've provided a range because there's a lot of variables in there.
Speaker Change #149: Yes.
Operator: Thanks, guys. Thanks.
Steven Zaccone: Your next question comes from the line of Steven's a cone with city. You're one is open. Great.
Laura Alber: Good morning. Thanks very much for taking my question. I was going to focus a little bit more on the medium to longer term because understandably the macro is challenging for the category. But as we start to see demand recover, right, we're at a point where this business has done, you know, very well on a merchandise margin overall selling margin. What's the opportunity going forward presumably you pulled back from promotions in the business.
Speaker Change #149: [music].
Jeffrey Howie: Additionally, we expect our full year interest income to be approximately $45 million and our full year effect of tax rate to be approximately 25.5%.
Jeffrey Howie: As a reminder, 2024 is a 53-week year for Williams-Knowley Inc.
Speaker Change #149: Yes.
Jeffrey Howie: 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.
Laura Alber: Why can't the gross margin rate for this business be much higher as you start to see demand recover. Great question. I would say that, you know, housing is clearly a big driver of purchase sales. And we all know housing about the worst is done. But at the same time is a lot of people calling for the bottom here and hopefully we see an interest rate in multiple costs in the next six months.
Jeffrey Howie: We will report comp on a 53-week versus 53-week comparable basis.
Jeffrey Howie: All other year-over-year compares will be 53 weeks versus 52 weeks.
Jeffrey Howie: Our capital allocation plan for 24 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.
Speaker Change #149: Yes.
Laura Alber: Could take a little bit time for that to flow through, but when people feel better, they tend to shop more, especially in our categories for their homes. And I really, I said it before, but we want flexibility because we always want to give the customer great value, right. So we don't want to over price products and we want to make sure that our brands are accessible. We want people to be able to come and shop with us and across our brands not be so expensive that it's a very small group of people.
Okay.
Laura Alber: So we hold that back to say, you know, there is a point at which you don't want to raise the margin too high and then not be competitive. On the other hand, we're delivering. This incredible margin, against negative sales. Negative sales a couple years running here. So can you imagine what this looks like when the sales are flat to positive? I said it before. Operating model is a coil spring. It's very exciting to be sitting here knowing that we have built an organization with structural margin, profitability profiles, and a lot of innovation and capacity. To grow much bigger than we are today without huge step-up investments.
Jeffrey Howie: As this communicated quarterly, we're committed to returning excess cash to our shareholders through dividends and share repurchases. We will continue to pay our quarterly dividend at 57 cents per share and have $826 million for many under a $1 billion share repurchase authorization. We will continue to opportunistically repurchase our stock to deliver returns for our shareholders.
Jeffrey Howie: As we look further into the future beyond 24, we are reiterating our long-term guidance of mid-to-high single-digit revenue with operating margins in the mid-to-high teens.
Jeffrey Howie: We're confident we'll continue to outperform our peers and deliver shareholder growth for these five reasons that remain consistent.
Laura Alber: This concludes the question and answer session. I will turn the call to Laura for closing remarks. Yeah, well, thank you all for joining us. We are entering our favorite time of the year, which is the holidays, and I'll remind you that Halloween is right around the corner. This is Thanksgiving, Christmas, and Hanukkah, and the new year. So I hope you are out there in our stores and seeing all the great product lineups. We are very excited about what we have out there, and I look forward to talking to you next time. So thank you for your support. Appreciate it.
Jeffrey Howie: Our ability to gain market share in the fragmented home furnishing industry.
Jeffrey Howie: The strength of our in-house proprietary design.
Jeffrey Howie: The competitive advantage of our digital first but not digital only channel strategy.
Jeffrey Howie: The ongoing strength of our growth initiatives and the resiliency of our fortress balance sheet.
Operator: With that, I'll open the call for questions.
Operator: Thank you.
Operator: The floor is now open for questions.
Operator: If you would like to ask a question, please press star one on your telephone keypad.
Operator: If you'd like to withdraw your question, simply press star one again.
Operator: This concludes today's conference. We thank you for joining.
Operator: We ask that you please limit yourself to one question and one follow-up.
Chuck Grom: Your first question comes from the line of Chuck Grom with Gordon Haskett.
Operator: You may now decide.
Chuck Grom: Your line is open.
Chuck Grom: Hi, thanks.
Chuck Grom: Good morning.
Chuck Grom: With something you guys could talk about the cadence of sales throughout the quarter across banners and also any early readings on back to school, back to college in recent weeks.
Laura Alber: Hi, Chuck.
Laura Alber: Good morning.
Laura Alber: You know, the cadence of sales for us isn't really a relevant indicator.
Laura Alber: And I always I know you all love to ask the questions and also how this quarter is going but it doesn't it doesn't really amounts in much in terms of predicting where we're going to be.
Laura Alber: Remember, as we look to the back half, we have a big ramp in seasonal businesses.
Laura Alber: And that is not so, you know, what's happening now is not the same as what could happen then.
Laura Alber: And back to school is a great example.
Laura Alber: You know, innovation is a key part of our strategy and especially in our life stage in seasonal holidays where we're seeing great response.
Laura Alber: And back to school is no different.
Laura Alber: It's actually one of our highlights.
Laura Alber: We've really seen our initiative particularly in dorm really gain traction and we're really gaining share in the dorm market serving the customer with very high quality products.
Laura Alber: It's it's significantly positive.
Laura Alber: We're chasing inventory.
Laura Alber: It's high margin.
Laura Alber: And it's driven by both the product and betting also are no-neil solutions.
Laura Alber: Bath and flooring.
Laura Alber: It's also driven by our exclusive collaboration such as Love Shack's Fancy and Roller Rabbit, which has been fantastic for that demo.
Laura Alber: And then our channel functionality.
Laura Alber: So for example, dorm functionality launched earlier on the site this year, which we think was really good for for our customers to be able to consider what they would buy before they actually get into school.
Laura Alber: And we had a shareable dorm wish list of betting visualizer.
Laura Alber: And then retail.
Laura Alber: We've really pushed on dorm at retail.
Laura Alber: Both in our kid stores, our chain stores, and we did a small setup in our partner store to really help try to awareness to build that market share.
Laura Alber: We've also worked with partners and influencers to drive awareness and driving traffic off the partner on website to the dorm and back to school shoppads to spend another critical part of what we're doing.
Chuck Grom: Thanks, Laura, that's great.
Chuck Grom: I just actually moved my daughter into college and I could tell you the dorm business is very real.
Jeffrey Howie: Jeff, just more for you, I'm looking ahead into the back half of the year.
Jeffrey Howie: Any thoughts on the phasing of comps in the third and fourth quarter and any impact with the five fewer shopping days this year.
Jeffrey Howie: Thank you.
Jeffrey Howie: Yeah, let me start with the shorter holiday season.
Jeffrey Howie: Our quick answer on that is that the impact is already embedded in our guidance.
Jeffrey Howie: There's a lot of puts on takes on this one for us, you know, for one, a shorter holiday season each day has to work harder, especially a retail.
Jeffrey Howie: But this year's calendar with Christmas moving from Monday to Wednesday is more favorable for e-commerce.
Jeffrey Howie: And yeah, I think everyone knows our mixes 66% e-commerce.
Jeffrey Howie: So that is actually a good guy for us.
Jeffrey Howie: Then, you know, when you think about the back half for us this year is a 53 week year or a fourth quarter has 14 weeks.
Jeffrey Howie: Punch line on this is a lot of puts and takes the short holiday seasons, but it's in our guidance.
Jeffrey Howie: And as we think about the back half, as I said in my prepared remarks, the way we set up our guidance is the midpoint of our guide reflects the continuation of the first half economic and consumer dynamics to the back half.
Jeffrey Howie: Now, I never died in class and acceleration industry trends.
Jeffrey Howie: Couple was in tree traction of their growth initiatives and if holiday presenting better, there could even be upside there.
Jeffrey Howie: The low end of regard recognizes the macro economic environment may have a greater impact on our results in the back half.
Jeffrey Howie: But it's so uncertain we provided really wide range of guidance with those possible outcomes.
Jeffrey Howie: Great.
Jeffrey Howie: Thank you.
Peter Benedict: Your next question comes from the line of Peter Benedict with Baird.
Peter Benedict: Your line is open.
Peter Benedict: Good morning.
Peter Benedict: Thanks for the question.
Peter Benedict: First one, just in general on advertising.
Peter Benedict: I mean, historically, I think you guys run in the six and a half, seven cent of sales, at least on an annual basis for advertising.
Peter Benedict: I know it's the lever in the first part of this year.
Peter Benedict: Just curious how you're thinking about the increase investment in advertising right now.
Peter Benedict: When you need to see the return on that, and just maybe I should we expect a period where you're maybe above that seven percent range for a bit as we go through this kind of period of software demand.
Peter Benedict: That's my first question.
Peter Benedict: Thank you.
Laura Alber: Our multi brand portfolio is clearly an advantage in a lot of ways, but particularly in marketing.
Laura Alber: Our cross brand customers perform significantly better than other customers. In fact, there's four times more valuable.
Laura Alber: And we've really been committed, as you all know, to not running a promotional business.
Laura Alber: There's a lot of people out there that probably would push you see more comp points by running markets.
Laura Alber: We've chosen not to do that.
Laura Alber: We know, having done this for a long time, that the long term investment in the fundamentals is more important than the short, short term markdowns that give you an immediate pop and create all sorts of peaks and valleys, which aren't good for operations. Advertising investment done correctly builds customer growth.
Laura Alber: And so they also drive short term sales.
Laura Alber: So it's a short term sales and a long term flat with new customers.
Laura Alber: And like anything else we do, we are constantly looking for opportunities to spend the last dollar more effectively.
Laura Alber: And that changes season by season, brand by brand and marketing program by marketing program.
Laura Alber: Loyalty program is another key part of this and very effective.
Laura Alber: These again are our best customers and we have the credit card program and we also have the non credit card key rewards program which has been very effective.
Laura Alber: I think the last thing that we are doing that is I think a competitive advantage and something that we're doing more of than we did last year substantially is amplifying our creative, our creator, less content.
Laura Alber: So, creator, less content, YouTube, TikTok, Mata is helping us reach new audiences and it's very effective and it's an area that we're building in-house and we're really excited about our leadership position as we go forward because we think this is very, very relevant for our customers.
Laura Alber: That's all.
Peter Benedict: Well, thanks, Laura.
Peter Benedict: My follow-up question is around kind of freight costs in that environment.
Peter Benedict: I'm just curious, maybe your view is we may be turned to 25 freight rates are becoming up.
Peter Benedict: Is that how did that kind of play into the maybe the margin structures we think about next year and remind us just maybe your exposure to China and, you know, with all the talking potential tariffs.
Peter Benedict: That's everything.
Peter Benedict: Just maybe a level set us on that front.
Peter Benedict: Thanks so much.
Jeffrey Howie: Yeah, Peter, good morning.
Jeffrey Howie: A couple questions in there.
Jeffrey Howie: So, first one on ocean freight.
Jeffrey Howie: Yeah, we're not seeing an impact from higher spot market and higher spot market rates for on our ocean freight.
Jeffrey Howie: We're mostly insulated from the fluctuations in the spot market with our contract rates.
Jeffrey Howie: I mean, here's a thing.
Jeffrey Howie: As you know, one of our competitive advantages are global supply chain for the 11th largest container imported into the United States.
Jeffrey Howie: So we have scale and relationships others do not.
Jeffrey Howie: So while there may be challenges in the broader market, especially with smaller competitors, it's not been a factor for us.
Jeffrey Howie: And any impact is already embedded in our results and our guidance.
Laura Alber: As far as China goes.
Laura Alber: We've significantly reduced our China source goods from the last time this came up back in 2018 back down.
Laura Alber: It was 50% of all over and forth from China.
Laura Alber: Now that numbers down to 25% and of that 25%.
Laura Alber: The third of them already have a trump tariff on them, which we've been paying and are still on them.
Laura Alber: So the fact that if this does come up and tariffs are expanded, we're prepared to reduce it further.
Laura Alber: We've mapped out a category by category plan to reduce China sourcing if the landscape changes.
Laura Alber: And you know, I think the important point here is, you know, with 90% of our products are proprietary design and exclusively made for our brand.
Laura Alber: And we operate our own in house, best in class global sourcing operation or 12 overseas offices.
Laura Alber: It's our own booths on the ground, managing sourcing decisions, production and shipping.
Laura Alber: So if the landscape changes, we're well positioned to pivot.
Laura Alber: Good stuff.
Laura Alber: Thanks so much.
Cristina Fernandez: Your next question comes from the line of Christina Fernandez with Chelsea advisory group.
Cristina Fernandez: Your line is open.
Cristina Fernandez: Hi, good morning.
Cristina Fernandez: I wanted to see if you can talk about any changes in customer behavior that you saw this quarter or so far here in August, several retours have talked about the consumer being more hesitant.
Cristina Fernandez: And less involved during non peak periods, more persistent to price.
Laura Alber: Are you seeing any of those factors and you're trying to Thanks for the question, Kristina.
Laura Alber: We're constantly setting all the customer metrics to find anything that we can read into and build upon.
Laura Alber: It's interesting, furniture actually picked up from Q1, not as much as we wanted it to, but it's better than it was.
Laura Alber: And the other areas are still better than furniture.
Laura Alber: So leading to the strategy of really focused on seasonal holidays where no one else really plays and these life stages while the consumer is still not really buying a lot of new houses.
Laura Alber: So in terms of price points, interesting question.
Laura Alber: You know, we have a lot of newness, it's working, it's very exciting, particularly in West Elm, where we have the most amount of newness.
Laura Alber: And it's not in low price points.
Laura Alber: It's in the medium to high price points.
Laura Alber: And that's also really I think a good piece of information for us.
Laura Alber: We are giving the customer a great value.
Laura Alber: So we're not trying to develop things at higher price points. We're trying to develop the best value products at every price point.
Laura Alber: And I said it before, but the truth is when we have a lot of innovation, our prices are the best in the market.
Laura Alber: And you know, no one has tried to copy us on the newness, which is why we're pushing newness as a key strategy in the back half as a percent total.
Laura Alber: And as we continue to have these seasons cut by and get confidence on the newness, we can buy more into it.
Laura Alber: And we usually have a pretty long cycle on that product growing before it declines.
Jeffrey Howie: And then my follow-up is for Jeff on the operating margins for the quarter.
Jeffrey Howie: I think, you know, last call, you had talked about being flat edge.
Jeffrey Howie: It was top 160 basis points where, you know, where did the upside come from this quarter?
Jeffrey Howie: And why wouldn't some of those continue in the back half?
Jeffrey Howie: Yeah, thanks for asking that, Christina.
Jeffrey Howie: Keep your operating margin exceed the expectations for three reasons. The first is the merchandise margins, which were stronger than anticipated, driven by our focus on full price selling. We continue to see a positive customer response to our consistent pricing and focus on selling and service versus price. The second thing is our supply chain efficiencies also came in better, really attributable to our commitment to full price selling, moving out the peaks and troughs driven by promotional activity.
Jeffrey Howie: This is delivering significant cost savings from working system operations across our manufacturing, operating, and delivery expenses.
Jeffrey Howie: And third, we deliver to advertise and spend less than Q2 than in Q1. And as more said before, we continue to evaluate our spend and adjust weekly as we see the effectiveness.
Jeffrey Howie: You know, here's what I'd like you to remember is we continue to deliver strong profitability despite the tough environment for our own furnishings.
Brian Nagel: Your next question comes from the line of Brian Nagel with Oppenheimer.
Brian Nagel: Your line is open.
Brian Nagel: Hi, good morning.
Brian Nagel: Thanks for taking my question.
Brian Nagel: So the first question I want to ask is just with respect to industry-wide promotions.
Laura Alber: You've done a great job of holding the line on site-wide promotions and waiting to know throughout the space we keep on hearing about signals of more promotional environment.
Laura Alber: So the question I'm asking is Are you seeing a more promotional indictment broadly and then are you able to quantify what impact if any of that's happening on your business at this point?
Laura Alber: Yeah, thanks for the question, guys.
Laura Alber: We continue to see consistent high levels of promotions in the marketplace and also the forms from site-wide promotions, free shifting, reduction of prices across the board, double rewards, you know, all of it.
Laura Alber: And you know, we have played those games. And know that they don't work and you're competing with yourself more than you are with your peers and your competitors.
Laura Alber: It's really important that you give your customer a great value.
Laura Alber: They look at that price and they know what other things cost similarly to it in the market.
Laura Alber: But the up and down to get a short-term pop that drives the short-term comp is not a good way to run your business.
Laura Alber: And so we are committed, as I said before, to running our business without those high levels of promotion.
Laura Alber: And actually, you know, as much as we've been saying this for the past couple of years, we're still pushing this out of our base. And so in Q1 and Q2, we significantly improved our regular price percent to total and our regular price comps are significantly better than the Markdown comps.
Brian Nagel: That's your helpful lore.
Brian Nagel: And then the second question I have, you know, recognizing what I was actually talking about, the cadence of the business through the quarter, but it sounds like it's giving your commentary and the adjustments to the top line guys that balance you.
Brian Nagel: The business is weakened or is at least tracking weaker than you initially anticipated.
Brian Nagel: Can you help us understand if there's any specific areas you're seeing in Commodal weakness within demand?
Laura Alber: So, you know, the reality is our guidance is just mentioned has a wide range.
Laura Alber: And it's that we expected the back half to accelerate.
Laura Alber: I think we all thought we'd have an interest rate cut, or at least one or two by now, which we haven't seen.
Laura Alber: Right.
Laura Alber: So instead of hoping for housing to turn around, we put the range together to reflect if the back half is the widow's first half.
Laura Alber: And that, you know, seems I know conservative because of the multi-year comps getting easier in the back half, but we just thought it was prudent, given the uncertainty in the macro to reduce the top line so that we're not pressures to take promos to hit the number.
Laura Alber: We want to run this business for the long term.
Laura Alber: And that's what we've been doing.
Laura Alber: You're seeing the continued performance on the bottom line.
Laura Alber: I'll just say this, you know, we've said before.
Laura Alber: Can you imagine what this thing looks like when you get some positive comps.
Laura Alber: And the best way for me to describe it is our operating model is a coil spring.
Laura Alber: Appreciate it.
Laura Alber: I call it.
Laura Alber: Thank you.
Simeon Gutman: Your next question comes from the line of Simeon Goodman with Morton Stanley.
Simeon Gutman: Your line is open.
Simeon Gutman: Hi there.
Simeon Gutman: Good morning, everyone.
Simeon Gutman: I have a question.
Simeon Gutman: I guess this is the age old question.
Simeon Gutman: Any difference in posture, thinking about the mix between sales and promotion in terms of simulating sales.
Simeon Gutman: And given that the backdrop seems to be getting more promotional.
Laura Alber: Thanks.
Laura Alber: Absolutely not, but we are on offense with our product innovation and our marketing.
Laura Alber: And Simeon, that was just that.
Laura Alber: You know, I talked about it in my prepared remarks and answering Prasina's question, but by not running the promos like we did is moving out the peaks and troughs for the promotional activity, it's really driving improved customer service shorter lead times and much more efficient operations across our entire supply chain, which is really flowing through to the bottom line.
Jeffrey Howie: And if I can ask a quick follow-up, the runway for March margin, specifically related to supply chain or transport.
Jeffrey Howie: I don't know if I missed, I may have missed earlier in the call, but I thought by the second quarter it would sort of reach its peak or its max and then it would start to wane, is that still about the right way to think about it?
Jeffrey Howie: It is, it is the right way to think about it.
Jeffrey Howie: While we don't got this specific line, we are guiding that our operating margin in the back hat will be flat with 2023.
Jeffrey Howie: Really because some of the benefits that we had in the front half. Specifically, we were up against the impact of the pandemic related ocean freight runoff.
Jeffrey Howie: That was worth about 200 basis points, good guy to the first half.
Jeffrey Howie: And then our focus on full price selling really kicked in in the back half of 23.
Jeffrey Howie: So we had that upside by focusing on that in the front half.
Jeffrey Howie: And in fact, if we look at our percentage of full price selling in Q2 of 24, it's about the same rate as it was in Q3, 23.
Jeffrey Howie: So that dissipates as well.
Jeffrey Howie: So like we said, you know, we were up against them easier compared in the front half on the margin line.
Jeffrey Howie: That started to dissipate in the back half, which is why we're giving black guidance on operating margin for the back half.
Jeffrey Howie: Okay, thank you.
Jeffrey Howie: Good luck.
Maksim Rakhlenko: Your next question comes from the line of maximum rec linko with TD talent.
Maksim Rakhlenko: Your line is open.
Maksim Rakhlenko: Hey, good morning.
Laura Alber: So first, Laura, can you discuss any learnings about your shoppers reactions as you pull back on promotions?
Laura Alber: Are shoppers reacting how you thought that they would, for instance, is your PB shopper maybe a little bit more price conscious than you thought or any other call house?
Laura Alber: Yeah, but, you know, as I said earlier, this is not allowed to read there because, you know, the news is in the mid price points are really working.
Laura Alber: We're not seeing a trade out, furniture is better than it was, but furniture is still soft, right?
Laura Alber: And it's a big portion of both the westbound and part of our businesses, which is why the comp complexion is very different in those versus the more life stage kids and teen brand.
Laura Alber: And also when in cinema.
Laura Alber: So, yeah, it's there's nothing really to read into that what we do see is that they're not waiting some promotions to the point that they don't, they're not worried that they're going to feel dumb if they don't.
Laura Alber: If they don't want to look at the next motion, they can buy it when they need it.
Laura Alber: And our sales associates are thrilled that they can talk with confidence and not always be looking into a promo calendar to see when the next sale.
Laura Alber: Yeah, I think Laura got it from the fact that when we run promotions, we're really competing with ourselves a lot of time.
Laura Alber: And I think many of you have heard me talk about the concept of shift versus lift and how much of the promotions are really incremental versus just moving it around and incentivizing the customer to wait for it to go on sale.
Laura Alber: So now we can really focus on serving the customers, you know, signing them helping them with their design project.
Laura Alber: And the customer is not waiting for that next promotion.
Laura Alber: They're engaging on the design side.
Maksim Rakhlenko: God, that's helpful.
Jeffrey Howie: And then Jeff, maybe can you bridge the full year even margin guide of 17, 4 to 17, 8, and then the long-term margin guide of mid to high teens.
Jeffrey Howie: So what would need to happen in the key drivers in a bolivar spare case?
Jeffrey Howie: Well, look, our long-term operating margin guidance is mid to high teens.
Jeffrey Howie: And our guidance for this year puts us right smack in the middle of our range.
Jeffrey Howie: Certainly sale of accelerate, we expect possibly some more margin extension, but we've provided a range because there's a lot of variables in there.
Jeffrey Howie: And we're pretty confident in our ability to sustain this profitability. We've demonstrated it.
Jeffrey Howie: Last year we delivered a 64 this year regarding the mid 17.
Jeffrey Howie: So this is sustainable.
Jeffrey Howie: And we're confident in our operating margin going forward.
Jeffrey Howie: Great.
Jeffrey Howie: Thanks a lot.
Jeffrey Howie: Good luck, second half.
Marnie Shapiro: Your next question comes from the line of Marnie Shapiro with retail tracker.
Marnie Shapiro: Your line is open.
Marnie Shapiro: Hey, guys, congrats on some great execution in a choppy environment.
Laura Alber: I wanted to focus on some of the new news that you keep highlighting because it's not only there are a lot of new products like Roller Rabbit, for example, but it's the way you're attacking it.
Laura Alber: So I know like at UNC, you had an entire event at one of the buildings with Roller Rabbit or with road, I was just drowned in social media about it.
Laura Alber: That was really, really great.
Laura Alber: And it feels like that.
Laura Alber: Between your merchandising and your marketing has really come together.
Laura Alber: So I'm curious, you know, was that was that a change or am I just getting hit with it?
Laura Alber: Is it bringing new shoppers into these brands?
Laura Alber: Is it bringing them in with more frequency?
Laura Alber: And how should we think about this for the back half of the year?
Laura Alber: Thank you so much for the question.
Laura Alber: Yes, newness and innovation are really key parts of our strategy to drive growth.
Laura Alber: And we've seen a really strong response to newness.
Laura Alber: And we've talked about newness is checking across all categories in particular and furniture.
Laura Alber: And in fact, we've seen double digit positive comes in both Western summer and fall new furniture introductions.
Laura Alber: Now, why you're not seeing that roll into the bigger number yet is because it's still small percent of total because you want to make sure your newness is working before you bet the farm on it.
Laura Alber: We've had some great collaborations in Western even touched on roads, you know, roads this year is double last year.
Laura Alber: We cut, we introduced Marcus Samelson, who's amazing chef who has incredible furniture designs that we've introduced.
Laura Alber: And that's also been a great one in Potter barn.
Laura Alber: We're seeing a good response to our newness there too, especially in furniture and the season of decorating, which we're launching earlier than we've ever launched before.
Laura Alber: I am so thrilled to see people scooping up Christmas this early.
Laura Alber: They also have some great new collaborations in the hopper and are going to have an increased amount of collaborations next year.
Laura Alber: Kids and teen have always been in our company, our leader in collaborations and just amazing from the license programs that we run that's Hello Kitty to incredible designers like Roller Rabbit and Love Chef fancy.
Laura Alber: They've really been able to hit the nail in the head with what their consumer wants at every life stage.
Laura Alber: And kids is different than teens, but we're covering both and you can really see that we're on trend by the results in dorm.
Laura Alber: Williams-Sonoma, you know, the brandy product in Williams-Sonoma is doing incredibly well.
Laura Alber: I'll give you one very specific example in Williams-Sonoma, which is our Williams-Sonoma branded color.
Laura Alber: [inaudible] very, very, very, very, very,[inaudible] very, very, very, very, very, very, very, very, very, very, very, very, very, very,[inaudible] That's helpful, Tyler.
Laura Alber: So just make sure I understood you.
Laura Alber: If you're looking for gross margins to be fly over here in the backpack, listen to yesterday the same.
Laura Alber: What areas of estimate do you have the opportunity to reduce in a slower sales environment?
Laura Alber: Are you talking primarily variable labor and advertising or is there anything else?
Laura Alber: Thank you.
Laura Alber: Yeah, I mean, look, Seth, you know, we don't guide individual lines and we do that.
Laura Alber: I just got a top line in operating margins, it gives us the flexibility to pull the levers.
Laura Alber: We need to deliver results.
Laura Alber: And as you've seen, we know how to deliver results.
Laura Alber: Well, in terms of what matters we have, certainly ad cost is flexible, as Laura mentioned before.
Laura Alber: We evaluate this on almost a weekly basis, paying for the returns we're seeing and the effectiveness of the advertising.
Laura Alber: And then our employment, like I said many times before and in my prepared remarks, my employment is largely variable.
Laura Alber: The majority of our employment is in our stores, our distribution centers and our customer care centers.
Laura Alber: And we can flex that in line with top line trends as things evolve.
Laura Alber: So I think the punchline here is, you know, we're guiding flattery, flat operating margin guidance in the context of the very uncertain macro economic environment, we're taking a very prudent approach with this guidance.
Laura Alber: And we're giving ourselves the flexibility to pull levers as we need, as we need to deliver the results.
Laura Alber: Thanks, guys.
Laura Alber: Thanks.
Steven Zaccone: Your next question comes from the line of Steven's a cone with city.
Steven Zaccone: You're one is open.
Steven Zaccone: Great.
Steven Zaccone: Good morning.
Steven Zaccone: Thanks very much for taking my question.
Steven Zaccone: I was going to focus a little bit more on the medium to longer term because understandably the macro is challenging for the category.
Steven Zaccone: But as we start to see demand recover, right, we're at a point where this business has done, you know, very well on a merchandise margin overall selling margin.
Steven Zaccone: What's the opportunity going forward presumably you pulled back from promotions in the business.
Steven Zaccone: Why can't the gross margin rate for this business be much higher as you start to see demand recover.
Laura Alber: Great question.
Laura Alber: I would say that, you know, housing is clearly a big driver of purchase sales.
Laura Alber: And we all know housing about the worst is done.
Laura Alber: But at the same time is a lot of people calling for the bottom here and hopefully we see an interest rate in multiple costs in the next six months.
Laura Alber: Could take a little bit time for that to flow through, but when people feel better, they tend to shop more, especially in our categories for their homes.
Laura Alber: And I really, I said it before, but we want flexibility because we always want to give the customer great value, right.
Laura Alber: So we don't want to over price products and we want to make sure that our brands are accessible. We want people to be able to come and shop with us and across our brands not be so expensive that it's a very small group of people.
Laura Alber: So we hold that back to say, you know, there is a point at which you don't want to raise the margin too high and then not be competitive.
Laura Alber: On the other hand, we're delivering.
Laura Alber: This incredible margin, against negative sales.
Laura Alber: Negative sales a couple years running here.
Laura Alber: So can you imagine what this looks like when the sales are flat to positive?
Laura Alber: I said it before.
Laura Alber: Operating model is a coil spring.
Laura Alber: It's very exciting to be sitting here knowing that we have built an organization with structural margin, profitability profiles, and a lot of innovation and capacity.
Laura Alber: To grow much bigger than we are today without huge step-up investments.
Operator: This concludes the question and answer session.
Laura Alber: I will turn the call to Laura for closing remarks.
Laura Alber: Yeah, well, thank you all for joining us.
Laura Alber: We are entering our favorite time of the year, which is the holidays, and I'll remind you that Halloween is right around the corner.
Laura Alber: This is Thanksgiving, Christmas, and Hanukkah, and the new year.
Laura Alber: So I hope you are out there in our stores and seeing all the great product lineups.
Laura Alber: We are very excited about what we have out there, and I look forward to talking to you next time.
Laura Alber: So thank you for your support.
Laura Alber: Appreciate it.
Operator: This concludes today's conference.
Operator: We thank you for joining.
Operator: You may now decide.