Q4 2025 Williams Sonoma Inc Earnings Call
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Speaker Change: Welcome to the Williams-Sonoma Inc. 4th quarter and fiscal year 2024 earnings conference call. At this time, all participants are in listen only mode.
Speaker Change: A question and answer session will follow the conclusions and prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer, and Head of Investor Relations. Please go ahead.
Speaker Change: Good morning and thank you for joining our fourth quarter earnings call. Before we get started, I'd like to remind you that during this call, we will make forward looking statements with respective future events in financial performance, including annual guidance for fiscal 25 and our long term outlook.
Speaker Change: We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations.
Speaker Change: The company undertakes no obligation to publicly update or revise any statements to reflect events or circumstances that may arise after today's call.
Additionally, we will refer to certain non-GAF financial measures.
Speaker Change: These measures should not be considered replacements for and should be read together with our gap results [inaudible]
Speaker Change: A detailed reconciliation of non-Gatmeasures to the most directly comparable Gatmeasures appears in Exhibit 1 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: Good morning, everyone and thank you for joining the call I'm excited to talk to you about our results today.
Speaker Change: Before we get into our results I'd like to acknowledge the accomplishments of the entire team at Williams Sonoma, Inc. The results. We are about to share with you today reflect their creativity focus and hard work.
Speaker Change: We are proud with our strong finish to 2024 in Q4, our comps came in above expectations at positive three 1%.
Speaker Change: Also during the quarter, we exceeded profitability estimates with an operating margin of 21, 5% and earnings per share of $3 28.
Speaker Change: In Q4, we saw acceleration in our comp trend despite no material improvement in the housing market.
Speaker Change: After many quarters of running negative comp.
Speaker Change: Our total comp was positive and I want to say it again, our total comp was positive three 1% in Q4.
Speaker Change: And we outperformed the industry decline of 2% in the quarter.
Speaker Change: This outperformance was driven by a strong seasonal assortment.
Speaker Change: This collaboration and improvement in furniture sales and strong performance in both retail and online.
Speaker Change: Turning to the full year, our comp ran down one 6% with a five year comp at 34% positive.
Speaker Change: In 2024, we delivered a record annual operating margin of 17, 9% with full year earnings per share of $8.50.
Speaker Change: We hit our 2024 annual guidance, which we raised twice in 2024, and we beat Wall Street estimates on both the top and bottom lines.
Speaker Change: This performance was due to the strength of our operating model our supply chain efficiencies are focused on full price selling and cost control from a companywide financial discipline.
Speaker Change: As we enter 2025, we are confident that we have laid the foundation for growth and profitability.
Speaker Change: Even though there are significant macro and geopolitical uncertainties. We are focused on our strategy to deliver in 2025 and beyond now let's talk about what those strategies include.
Speaker Change: First we believe we will deliver core brand growth due to increased levels of newness and exciting innovation.
Speaker Change: We are able to differentiate ourselves competitively through our in house design capabilities and vertically integrated sourcing organization.
Speaker Change: These differentiators give us a unique ability to offer high quality products at compelling price points.
Speaker Change: Also we recognize housing may not improve this year and therefore, a key component of our growth strategy is our robust non furniture assortment that includes inspirational seasonal and decorative accessories.
Speaker Change: Textiles and housewares.
Speaker Change: We believe this puts us in a much better competitive position than our peers, who are overly dependent on furniture.
Speaker Change: A key part of our strategy is our outside partnerships and collaborations these exciting partnerships like moon equally a in pottery barn loves Shaq, C&C and our children's business Stanley Tucci, and our Williams, Sonoma kitchen business, and Marcus Samuelsson and West Elm.
Speaker Change: Attract new customers and drive sales with our current customers.
Speaker Change: Next <unk> as an important growth driver.
<unk> Leverages, our strengths in design and commercial grade product offerings.
Speaker Change: And we have built an incredible book of business. The last few years in the commercial space and several industry vertical.
Speaker Change: Our offering of designed to delivery services is a competitive advantage as we continue to build our project pipeline.
Speaker Change: And we are off to a strong start with new customers. This year.
Speaker Change: Another component of our growth will come from expansion of our emerging brands Rejuvenation Green row, Williams, Sonoma home and Mark and Graham.
Speaker Change: We have the in house competency and ability to incubate and build new brands.
Speaker Change: And let me remind you that all of our brands, even our largest pottery barn.
Speaker Change: <unk> emerging brands.
Speaker Change: In addition to these growth strategies, we are focused on offering the best channel experiences.
Speaker Change: Our key investment we're making is in our next generation of design services.
Speaker Change: New tools, we have launched online and in stores assists, our customers in developing design plans for any style or size of home.
Speaker Change: And we continue to improve these tools for.
Speaker Change: For example in Q4, we launched our proprietary shocked by style functionality, which will be rolling out across all of our brands.
We are also incorporating AI into our digital capabilities like personalized E mails and customized homepages.
Speaker Change: We believe we will be a leader in the use of AI in our operations and in our industry and the AI will be a key component in driving record sales and margin.
Speaker Change: Also we are continuing to see improved performance in our stores are.
Speaker Change: Our positive comp in Q4 was primarily driven by retail as a result of our enhanced in store experience with inspiring new products improved in stock inventory levels and.
Speaker Change: And next level design services and events.
Speaker Change: We continue to unlock the power of our Omnichannel services and this is another area, where we're using AI to optimize sales cost and delivery speed.
Speaker Change: In 2025, we will also continue our progress in delivering world class customer service.
Speaker Change: The perfect order damage free on time every time.
Speaker Change: Even with metrics better than before the pandemic and in some cases, a record breaking our supply chain team continues to challenge the status quo and come up with new ways to reduce costs.
Speaker Change: In 2025, we will continue to limit out of market and multiple shipments to reduce customer accommodations to lower returns and damages and to reduce replacements.
Speaker Change: This part of retail execution is often overlooked but is the key to profitability and customer satisfaction. We believe 2025 will be a year of additional optimization and efficiency, particularly in our new distribution center in Arizona, where we have more to go in terms of unlocking the benefits of <unk>.
Speaker Change: Cost efficiencies and faster more automated deliveries.
Speaker Change: Moving to other earnings drivers will be tight unemployment in 2025 with a focus on using AI to offset head count growth also in marketing there is opportunity this year to leverage spend by using efficiencies in our in house marketing program.
Speaker Change: In total we are optimistic for 2025, we are focused on driving positive comps and expanding operational improvements even in a difficult environment. Our initiatives are gaining momentum and we are optimistic and confident about our business. Our focus will remain on our three key priorities returning to growth.
Speaker Change: <unk> customer service and driving earnings.
Speaker Change: Turning to guidance, let's spend a minute talking about our assumptions.
Speaker Change: We aren't planning for any significant upside or downside from the external macro environment.
Speaker Change: Our guidance reflects what we know today, incorporating our initiatives and the current tariffs with China at 20%, Mexico, and Canada at 25% and the additional tariffs on metal and aluminum are 25%.
Speaker Change: Guidance does not include any additional tariffs nor does it include a housing recovery.
For 2025, we are guiding our comps to be flat to positive, 3% with operating margin between 17, 4% and 17, 8%.
Speaker Change: Now, let's review our brands.
Speaker Change: <unk> ran a negative five comp in Q4 substantially improving over Q3 on a five year basis. The brand ran a positive 37, 6% comp.
Speaker Change: In 2020 for pottery barn significantly reduced promotional activity improving margin and setting the groundwork for growth with new product introductions and increased collaborations.
Speaker Change: Looking to 2025, the brand has an exciting lineup of newness and noteworthy collaborations with industry leaders like loves Shaq fancy that launches very soon and we are building on our successful new furniture launches and have an expanded outdoor assortment.
Speaker Change: Also we are uniquely positioned in the market with our leading products and seasonal decorating and entertaining.
Speaker Change: And our innovation in textiles, and our strength in prints and pattern continues.
Speaker Change: In 2025, another competitive advantage for pottery barn is to leverage our domestic upholstery capabilities located in the southeastern United States.
Speaker Change: Our sutter facilities offer high quality manufacturing with industry, leading delivery times.
Speaker Change: Sutter services all of our brands, but Halliburton has the highest percent to total.
Speaker Change: Now I'd like to talk to you about our pottery barn children's home furnishings brands, which ran a.
Speaker Change: Positive three 5% comp in Q4 with a five year comp of 24, 6%.
Speaker Change: In 2024 kids and teens together I ran positive comps every quarter.
Speaker Change: Success has been driven by our key growth drivers storm Sandy and callouts.
Speaker Change: In Q4, we saw record results from our expanded seasonal decor offering as customers came to our children's brands to celebrate the holidays give gifts and decorate nurseries and dorm rooms.
Speaker Change: Product collaborations were another highlight with particular strength in the love Shack Fancy, Chris loves Julia and rifle paper collections.
Speaker Change: Looking to 2025, we have built a powerful pipeline of newness and newsworthy launches. We've recently launched modern baby in pottery barn kids offering a fresh aesthetic to the brand.
Speaker Change: In the weeks ahead, our pottery barn dorm collection will also launch with new looks and a dramatically expanded assortment.
Speaker Change: Now, let's review West Elm, we are thrilled to report a substantial improvement in comp.
Speaker Change: Positive four 2% in Q4.
Speaker Change: On a five year basis, the brand ran at 21, 7% comp.
Speaker Change: We have made strong progress against our four key pillars.
Speaker Change: Alex.
Alex: Branchy channel excellence and operational efficiencies.
Alex: In Q4 holiday newness drove double digit positive comps with strength in both furniture, and newness and holiday seasonal textiles, and decorative accessories and tabletop.
Alex: We saw improvement in furniture as high performing new collections came back in stock.
Alex: Also letting was of particular strength for west Elm in Q4.
Alex: Now, let's review the Williams Sonoma brand.
Alex: We are thrilled to report a substantial improvement in comp to <unk>.
Alex: Positive five 7% on a five year basis, the brand ran a 35, 5% comp.
Alex: The Williams Sonoma brand built on last year's success with another strong year, driven by retail execution product innovation dynamic marketing and collaborations.
Alex: In Q4, the product assortment for Williams Sonoma was stacked with great guests in a complete offering for holiday hosting and entertaining.
Alex: We saw strength in the cookware cutlery and electrics categories led by newness and the popularity of key core items.
Alex: Our seasonal and decorative accessories also drove results for the bakeware tabletop housewares food and garden businesses.
Alex: We continued to welcome customers into our stores with exciting events like celebrity chef book sightings.
Alex: The 100 book signing event of 2024 for Williams Sonoma withheld in Q4 at our Columbus Circle store and it was coincidentally or sold out launch party for Martha Stewart's hundreds cookbook.
Alex: Our team was also onsite managing the book sales at sold out auditoriums across the country for INO Garden's book Tour and we're excited for even more events with our amazing chefs partners in 2025.
Alex: In 2025, we will continue to celebrate food from around the World. A Great example is our Japanese inspired tabletop collection currently in store along with our new food collaborations with celebrity chef Morimoto.
Speaker Change: Now I'd like to update you on <unk>.
Speaker Change: Business to business had an exciting and record breaking year driving more than $1 billion in revenues with a 10 comp with both trade and contract growing in both Q4 and the full year.
Speaker Change: Q4 represented contracts largest quarter history to date, driving a 12% comp for the quarter.
Speaker Change: Our multichannel program and our leading assortment of contract grade products have been key drivers in our accelerated large project growth.
Speaker Change: Key project wins include our first furniture order for a cruise ship Royal Caribbean Zootopia of disease hospitality work for the rich Carlton Kimpton W hotels, and Sheraton and continued momentum in the multifamily space with related companies and corpsman communities.
Speaker Change: We're excited about the opportunity that <unk> has to disrupt and underserved and highly fragmented market.
Speaker Change: Lastly, I'd like to update you on our emerging brands.
Speaker Change: As I mentioned earlier Williams Sonoma has a long history of creating brands and building them into big businesses like.
Speaker Change: We did with west Elm from a concept in 2002 to an almost $2 billion business today.
Speaker Change: We are pleased with the performance of our smaller emerging brands like Mark and Graham.
Speaker Change: And Greenbrier, which had strong positive comps in the quarter.
Speaker Change: But today I want to focus on rejuvenation.
Speaker Change: Rejuvenation brand continues to exceed our expectations with another quarter of double digit growth.
Speaker Change: In fact in the last five years rejuvenation has driven positive comps in 17 of those 20 quarters.
Speaker Change: And this business has almost doubled since 2020.
Speaker Change: In 2020 for rejuvenation growth was driven by innovative domestically designed and made products.
Speaker Change: Core categories, including cabinet hardware, Bath hardware and lighting performed exceptionally well.
Speaker Change: And growth categories, such as Bath, vanities, plenty window hardware and organization delivered double digit comps.
Speaker Change: Looking ahead to 2025 and beyond rejuvenation is well positioned for continued momentum we.
Speaker Change: We currently have 11 stores and are actively looking for new locations.
Speaker Change: We believe rejuvenation will be our next billion dollar brand.
Speaker Change: We are also encouraged by the improvement of the Williams Sonoma home business.
Speaker Change: We continue to expand products across categories with introductions of exclusive in house design, and lighting textiles, and accessories as well as collaborations.
Speaker Change: We see an opportunity to disrupt the high end home furnishings market, where no key players offer prints and pattern like we do.
Speaker Change: Last I'd like to talk about our global business.
Speaker Change: We continue to see strength in our key growth markets, including Canada, Mexico and India.
Speaker Change: The Canada business continues to grow fueled by our commitment to enhancing the customer experience both online and in retail.
Speaker Change: Mexico. The holiday season saw continued growth in sales and market share driven by our inspiring product assortments and personalized service.
Speaker Change: Our business in India continues to grow driven by excellence in design services for both retail and E Commerce.
Speaker Change: And our UK business continues to grow as we strengthen our partnerships with John Lewis for West Elm pottery barn Kids and Portland, Nathan for Williams Sonoma.
Speaker Change: In summary, we are proud of our strong execution and our performance in 2024 despite.
Despite an uncertain backdrop, we have been and will continue to be focused on returning growth enhancing our world class customer service and driving earnings.
Speaker Change: We are innovators and operators and we are set up for a great 2025.
Speaker Change: Before I hand, it over to Jeff I also want to take a minute to say thank you again to our associates, but also to our vendors and to you our shareholders.
Speaker Change: <unk> dedication and support is appreciated.
Speaker Change: And with that I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.
Speaker Change: Laura and good morning, everyone.
Speaker Change: We are proud to have delivered a strong finish to fiscal year 2012.
Speaker Change: Both Q4 and full year 'twenty for earnings exceeding expectations.
Speaker Change: Our results reflect the three key priorities, we focused on in 2004.
First returning to growth.
Speaker Change: As our top line improved to a positive three 1% comp in Q4 driven.
Speaker Change: Driven by innovation and newness across our core brands.
Speaker Change: <unk> costs and our emerging brands.
Speaker Change: Double digit growth and business to business.
Speaker Change: Second elevating our world class customer service.
Speaker Change: As our supply chain team once again produced efficiencies and most importantly improved customer service.
Speaker Change: And third.
Speaker Change: Our focus on driving earnings.
Speaker Change: As we delivered record operating margin and <unk>.
Speaker Change: Double digit EPS growth in both Q4 and the full year.
Speaker Change: Our results this quarter demonstrate that flexibility.
Speaker Change: Strength and durability of our operating model to drive market share gains.
Speaker Change: Remember our highly profitable earnings in almost any environment.
Speaker Change: Now, let's dive into the numbers.
Speaker Change: With our Q4 results.
Speaker Change: Followed by our full fiscal year 'twenty for results.
Speaker Change: Then provide guidance for 25.
Speaker Change: As a reminder, 2024 is a 53 week year for Williams Sonoma, Inc.
Speaker Change: So our fourth quarter consisted of 14 weeks.
Speaker Change: We are reporting our comps on a 14 week versus 14 week comparable basis.
Speaker Change: All other year over year compares our 14 weeks versus 13 weeks.
Speaker Change: In Q4, the additional week contributed 510 basis points to revenue growth.
Speaker Change: 60 basis points to operating margin.
Speaker Change: Q4, net revenues finished at $2 5 billion.
Speaker Change: With a positive three 1% comp.
Speaker Change: Our revenues came in above the high end of our expectations.
Speaker Change: Driven primarily by strong holiday performance across our portfolio of brands.
Speaker Change: Substantially improved trends in our furniture business.
Speaker Change: During the quarter, we gained market share.
Speaker Change: Even as we increased our penetration of full price selling.
Speaker Change: From a channel perspective.
Speaker Change: In our retail stores delivered a positive 7% comp and e-commerce, a positive one 3% comp.
Speaker Change: Moving down the income statement.
Speaker Change: Q4 gross margin came in at 47, 3%.
Speaker Change: 130 basis points higher than last year there.
Speaker Change: There were three main drivers behind them.
Speaker Change: Merchandize margin.
Speaker Change: Hi chain efficiencies and occupancy.
Speaker Change: First merchandise margin improved 40 basis points year over year.
Speaker Change: Lower input costs.
Speaker Change: Our continued focus on full price selling.
Speaker Change: Okay.
Speaker Change: Supply chain efficiency delivered another 10 basis points of savings in Q4.
We continue to realize expense savings across the supply chain from our focus on the customer experience and efficiency in manufacturing warehousing and delivery.
Speaker Change: Key metrics, including returns.
Speaker Change: Combination replacements out of market shipping and multiple deliveries per order continued to improve year over year.
Speaker Change: And third.
Speaker Change: Occupancy costs were down 2% from last year.
Speaker Change: And leveraged 80 basis points.
Speaker Change: Our higher topline leveraged occupancy across both retail and e-commerce.
Speaker Change: Overall, our higher gross margin this quarter exceeded our expectations.
Speaker Change: Turning now to SG&A, our Q4 SG&A rate of 25, 8% of revenues 10 basis points lower than last year.
Speaker Change: Q4 employment expense was 80 basis points higher year over year.
Speaker Change: I merely from higher performance based incentive compensation.
Speaker Change: Due to our strong EPS performance.
Speaker Change: In Q4, we continued to manage variable employment costs across our retail stores.
Speaker Change: Distribution centers and care centers in line with revenues.
Speaker Change: Q4 advertising expense was 30 basis points higher year over year.
Speaker Change: Our multi brand portfolio allows us to test them to incremental spending while our data driven marketing team maximizes the effectiveness of our investments.
Keith: And Keith valuable insights in house.
Speaker Change: Our advertising model is a powerful competitive advantage.
Speaker Change: Q4 general expenses drove the balance of the leverage SG&A due to our resolution of an indirect tax matter.
Speaker Change: A favorable insurance settlement.
Speaker Change: On the bottom line, our Q4 operating margin came in at a record 21, 5% for 140 basis points above last year.
Speaker Change: Q4 diluted earnings per share of $3 28.
Speaker Change: Increased 26% above last year.
Speaker Change: Turning now to our full year results, which again exceeded expectations.
Speaker Change: Full year net revenues finished at $7 7 billion with.
Speaker Change: With a full year comp of negative one 6%.
Speaker Change: Importantly, our comp trends gained momentum across the year.
Speaker Change: That was driven by the ongoing strength in our non furniture category.
Speaker Change: Coupled with the improved trend in our furniture business.
Speaker Change: From a channel perspective, our retail stores delivered a positive <unk>, 2% comp and e-commerce, a negative two 5% comp.
Speaker Change: E Commerce on the full year continued to constitute nearly 56% of total revenues.
Speaker Change: Full year gross margin ended at 46, 5%.
Speaker Change: A 380 basis point improvement over last year.
Speaker Change: As a reminder, in the first quarter of fiscal year 'twenty four we recorded a $49 million out of period adjustments.
Speaker Change: Related to freighter cool.
Speaker Change: Benefited operating margin results by approximately 70 basis points on the full year.
Speaker Change: Without the Q1 out of period adjustment full year gross margin ended at 45, 8%.
Speaker Change: This 310 basis point improvement was driven by higher merchandise margins.
Speaker Change: Supply chain efficiencies and occupancy leverage.
Speaker Change: Full year SG&A expense increased to 27, 9%.
Speaker Change: Up 160 basis points year over year.
Speaker Change: Higher employment and advertising expense was partially offset by slightly lower general expenses on the full year.
Speaker Change: On the bottom line.
Speaker Change: We delivered earnings exceeding expectations.
Speaker Change: Including the out of period adjustment in Q1 full.
Speaker Change: Full year operating margin finished at 18, 6% with full year diluted earnings per share of $8 79.
Speaker Change: Without the out of period adjustment in Q1 for your operating margin finished at a record 17, 9%.
Speaker Change: Full year diluted earnings per share increased to $8 50.
Speaker Change: Up 14, 4% year over year.
Speaker Change: On the balance sheet, we ended the year with a cash balance of $1 2 billion with no debt outstanding.
Speaker Change: Merchandise inventories stood at $1 3 billion up six 9% to last year.
Speaker Change: Included in our year end inventory levels as a strategic pull forward shiner receipts.
Speaker Change: To reduce the potential impact of higher tariffs in fiscal year 'twenty five.
Speaker Change: Now turning to capital allocation.
Speaker Change: In 2024, we generated free cash flow of $1 1 billion and returned nearly $1 1 billion.
Speaker Change: To our shareholders through share repurchases and dividends.
Speaker Change: Share repurchases in 'twenty four totaled $807 million were four 6% of our outstanding shares.
Speaker Change: And we paid $280 million in dividends to our shareholders, a 20% increase year over year.
Speaker Change: Capital expenditures in 2004 totaled $222 million.
Speaker Change: As we continue to invest in our long term growth.
Speaker Change: Speaking of returns.
Speaker Change: Our fiscal year 'twenty for return on invested capital of 54% is among the best in the retail industry.
Speaker Change: Summing up our 24 results, we're proud to have delivered strong earnings for our shareholders.
Speaker Change: These results reflect the efforts of the entire team at Williamson.
Speaker Change: And I'd like to thank our talented team for delivering these outstanding results.
Speaker Change: Now, let's turn to our 25 outlook.
Speaker Change: First some housekeeping if I can.
Speaker Change: Mentioned 2024, with a 53 week year for Williams, Sonoma, Inc, and.
Speaker Change: In fiscal year fiscal year 'twenty five we'll report comps on a 52 week versus 52 week comparable basis.
Speaker Change: All other year over year compares will be 52 week versus 53 weeks.
Speaker Change: The additional week contributed 150 basis points to revenue growth.
Speaker Change: And 20 basis points to operating margin to full year 2004 results.
Speaker Change: Additionally, in the first quarter of fiscal year 'twenty four we recorded a $49 million out of period adjustment related to freight accruals that benefited operating margin results by approximately 290 basis points in Q1, and 70 basis points on the full year.
Speaker Change: Our guidance for fiscal year 'twenty five.
Speaker Change: We use our fiscal year 'twenty four results without the out of period adjustment as a comparable basis.
Speaker Change: Looking ahead to fiscal 'twenty five the macroeconomic and policy environment is unpredictable.
Speaker Change: Our focus is on what we can control.
Speaker Change: Executing on our three key priorities.
Speaker Change: Returning to growth.
Speaker Change: Elevating our world class service and driving earnings.
Speaker Change: We're confident in our growth strategies.
Speaker Change: We see opportunity to drive earnings from additional supply chain efficiencies and savings across SG&A.
Speaker Change: Our guidance assumes no meaningful changes in the macroeconomic environment.
Speaker Change: For interest rates for housing turnover.
Speaker Change: We expect 2025 net revenue comps to be in the range of flat to positive 3%.
Speaker Change: With total net revenues in the range of down one 5%.
Speaker Change: Positive one 5% due to the 50 <unk> week impact from 24.
Speaker Change: We anticipate operating margins will be between 17, 4% and 17, 8%.
Speaker Change: Closer of the 20 basis points impact from the 50 <unk> week.
Speaker Change: Regarding tariffs our operating margin guidance includes the tariff increases implemented as of this call.
Speaker Change: Specifically <unk>.
Speaker Change: Our guidance includes the additional 20% China tariffs for.
Speaker Change: The 25%, Mexico, and Canada, tariffs and a 25% tariff on steel and aluminum.
Speaker Change: With these tariffs included we expect operating margin for fiscal year 'twenty five to be in the range of 17, 4% to 17, 8%.
Speaker Change: If tariff policy changes.
Speaker Change: We may need to revisit our guidance estimates.
Speaker Change: Now turning to capital allocation.
Speaker Change: Our capital allocation plans for 25 prioritize funding our business operations and investing in long term growth.
Speaker Change: We expect to spend between $275 million and $300 million and capital expenditures in fiscal year 'twenty five.
Speaker Change: 85% of this capital spend will be dedicated to driving our leadership in E Commerce.
Speaker Change: Our retail optimization and supply chain efficiency.
Speaker Change: We remain committed to returning excess cash to our shareholders.
Speaker Change: Form of increased quarterly dividend payouts and ongoing share repurchases.
Speaker Change: For dividends today, we announced our board of directors authorized a 16% increase in our quarterly dividend payout to <unk> 66 per share.
Speaker Change: Fiscal year 'twenty five will be the 16th consecutive year of increased dividend payouts, which we are both proud of.
Speaker Change: And remain committed to.
Speaker Change: For share repurchases.
Speaker Change: We have $1 2 billion available under our share repurchase authorization.
Speaker Change: Through which we will opportunistically repurchase our stock to deliver returns to our shareholders.
Speaker Change: Looking further into the future beyond 'twenty five.
Speaker Change: 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: Wrapping up doors in my comments, we are proud to have delivered strong results for our shareholders that exceeded expectations and we are encouraged by the momentum in our business.
Speaker Change: <unk> remains focused on our three key priorities.
Speaker Change: Returning to growth.
Speaker Change: In our World class customer service and driving earnings.
Speaker Change: We're confident we'll continue to outperform our peers and deliver shareholder growth.
Speaker Change: Through these five reasons to remain consistent.
Speaker Change: Our ability to gain market share in the fragmented home furnishings industry.
Speaker Change: The strength of our in house.
Speaker Change: Prior to re design.
The competitive advantage of our digital first.
Speaker Change: Not digital Omnichannel strategy.
Speaker Change: The ongoing strength of our growth initiatives.
Speaker Change: And the resiliency of our fortress balance sheet.
Speaker Change: With that I will open the call for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: I would like to withdraw your question simply press Star One again, we ask that you. Please limit yourself to one question and one follow up.
Oliver <unk>: Our first question comes from the line of Oliver <unk> from Evercore. Your line is open.
Oliver: Yes, thanks very much.
Oliver <unk>: Im looking for.
Oliver <unk>: Within your comp guide of one 2%.
Oliver <unk>: How do you see SG&A leverage.
Oliver <unk>: On a flat comp versus a plus three comp.
Oliver <unk>: <unk> seen in <unk> now that you had a positive suite comp. It was occupancy was nicely levered on SG&A, we saw a 10 basis point leverage so if you could walk through what the what the.
Oliver <unk>: The breakpoints, where with leverage between maybe a flat in a plus two comp. Thank you.
Oliver <unk>: Good morning. Thank you for that question as you know, we don't guidance specific lines or provide guidance by quarter on the full year, we're guiding operating margin to be in the range of 17, 4% to 17, 8%. We do expect to see some leverage in SG&A from expense savings that will partially offset the headwinds in gross.
Oliver <unk>: Margin, we anticipate from tariffs.
Oliver <unk>: I think there are three key points in Q3, SG&A first most of our employment sits in our stores distribution centers and call centers. So it's variable expense that we can flex with topline trends so as we see.
Oliver <unk>: More sales, we would expect to be able to hold our employment rate.
Oliver <unk>: Second we see opportunity to leverage AI to drive additional savings, especially in our call centers and certain back office operations.
Oliver <unk>: Turning to deploy some some AI here and we think there's a good opportunity for us to leverage but tough to quantify what is the early innings, but we're very optimistic about what that can bring in terms of savings and.
Oliver <unk>: And third a key competitive advantage of our advertising model is our ability to test across our portfolio of brands and scale a pullback based upon returns we're constantly evaluating our advertising spend and how we look to spend the next incremental dollar that's a lever as we see more sales we can always works.
Oliver <unk>: But here is the keep it we got topline revenues and bottom line operating margin because it gives us the flexibility to respond to any changes in the business and as you've seen especially in our Q4 results. We know the levers to pull to deliver results.
Oliver <unk>: Okay.
Oliver <unk>: Okay. Thank you and then just to follow up on the sales growth.
Oliver <unk>: How do you see E comm versus stores.
Oliver <unk>: Forming in 2025, thank you very much.
Oliver <unk>: Yes.
Oliver <unk>: We were very pleased with the retail performance in Q4 at a plus 7% retail team did a phenomenal job in our brands a great strategy in terms of the mix between the channels, we don't provide specific guidance.
Oliver <unk>: We do believe that e-commerce will continue to be on a full year, 66% of our total revenues and were optimistic about where we see both channels.
Oliver <unk>: 25, and thats baked into our guidance.
Speaker Change: Got it thanks, very much and good luck.
Oliver <unk>: Thank you.
Speaker Change: Your next question comes from the line of Max <unk> from TD Cowen Your line is open.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Just curious so on the gross margin for 2025, if we were to ignore tariffs how much further room do you see across supply chain product margins and.
Speaker Change: Occupancy as well.
Speaker Change: Yeah, Great question, I think that gets to the heart of what's on everybody's mind. This morning.
Speaker Change: Look our guidance today of 17, 4% to 17, 8% and operating margin includes the full impact of the tariffs that have been implemented as of this call that includes the 20%, China tariffs to 25% tariffs on Mexico, and Canada, and a 25% tariff on steel and aluminum.
Speaker Change: Our expectation as we.
Speaker Change: As as we look at it is that we expect to see some erosion in gross margin simply from the headwinds we anticipate from these tariffs.
Speaker Change: There will also be offsets from supply chain efficiencies and gross margin and savings in SG&A.
Speaker Change: On supply chain efficiencies, we have a long way to go.
Speaker Change: We do big and bulky better than just about anyone in this industry and.
Speaker Change: And we do it at scale, we make over $2 4 million in home deliveries per year, that's about 7000 a day.
Speaker Change: And like I said, we do it better than anybody, but we still have a lot of opportunity to improve.
Speaker Change: On things like returns damages from placements on time.
Speaker Change: There is a lot of opportunity in there and our supply chain team has done a phenomenal job so far and they see additional savings that they can harness as they approached 25, and then as we think about SG&A theres additional offsets in there as well I just spoke about some of them.
Speaker Change: With all these questions, but we definitely see opportunity to leverage some employment.
Speaker Change: As we deploy some.
Speaker Change: Exciting AI initiatives, and then we see opportunity with our cost as well.
Speaker Change: I think the key point here is when you think about the impact of the tariffs we have covered default impact within our guidance today of all the tariffs were implemented as of this call.
Speaker Change: It will run for the tariffs would the margin be higher perhaps.
Speaker Change: That's not the reality today and regarding based upon the facts and trends.
Speaker Change: That are out there in the environment today.
Speaker Change: Your next question comes from the line of Simeon Gutman from Morgan Stanley. Your line is open.
Simeon Gutman: Hey, good morning, everyone I'm going to ask two strategic questions first a little related to the prior one so gross margin structurally is punching at a much higher level than pre Covid. You. Obviously, maybe undervalued before can you talk about the structural opportunity for higher product margins. Your business now flip to positive comp there has been.
Speaker Change: No real degradation in the structure of margins. So can you talk about it I know you just touched on it a little bit Jeff, but thinking about the mix between price and.
Simeon Gutman: Product margin.
Speaker Change: Sure.
Speaker Change: I'll chime in here I think Jeff is covered well what our guidance is and what it includes.
Speaker Change: And I'll repeat what he said it in a slightly different way about.
Speaker Change: Other opportunities.
Speaker Change: So.
Speaker Change: The tariffs are.
Speaker Change: In a way an opportunity for us because of our scale and our capabilities with our supply chain and our exclusive product line.
Speaker Change: You know we design.
Speaker Change: Most of what we sell and that gives us the competitive advantage of being ahead and not being stuck in price for us with people. We also have.
Speaker Change: Along.
Speaker Change: Long relationships with our vendors overseas and our own sourcing organization on the ground, which I don't think any of our competitors have.
Speaker Change: So we have been anticipating.
Speaker Change: These tariffs for some time now.
Speaker Change: Details of which we didn't know of course, but we knew that China was going to be squarely in the sightlines on you know we've been moving goods away from China, We've cut it substantially we intend to continue to cut it substantially.
Speaker Change: That's not just an intention that's in progress and move things to areas that are cheaper.
Speaker Change: Cheaper and untapped easier to do business and <unk>.
Speaker Change: Including moving some things back to the United States.
Speaker Change: It is exciting for US I think you remember that we have our set of St.
Speaker Change: Manufacturing unit in the southern part of the United States, South Eastern part of the United States and we make a lot of our upholstery that we have an incredible workforce and that product a lot more appealing now from a margin perspective, given these tariffs and it makes it very hard to compete with us because we have great prices, we have the best <unk>.
Speaker Change: <unk> please.
Speaker Change: Haven't purchased from Sarah you should.
Speaker Change: And also the most competitive part of that is we can do make to order in the shortest time in the marketplace.
Speaker Change: That's a big advantage big Big advantage for us.
Speaker Change: Moving back to.
Speaker Change: Pricing.
Speaker Change:
Speaker Change: We have been testing we've told you this before pricing up pricing down, whereas the sweet spot.
Speaker Change: And in addition to getting some relief from our great vendor partners and moving things to areas that are that don't have tariffs or we expect to be less tariffs.
Speaker Change: We have taken some targeted price increases on items that are either underpriced or that we're overselling and we're seeing good results from that.
Speaker Change: We need to be very careful because being competitive is very important to us, but being competitive is not just price to price its design and its quality.
Speaker Change: And.
Speaker Change: It's really important to all of those things are considered when we price things either up or down.
Speaker Change: But I am pleased to tell you. This morning that we are seeing some opportunity in price.
Speaker Change: A few things up to cover some of these very extreme costs that have come through as a result to these tariffs.
Speaker Change: Now on supply chain.
Speaker Change: The other components of margin.
Speaker Change: Uh huh.
Speaker Change: There's all sorts of different beliefs out there about whether ocean comes down from here whether it's.
Speaker Change: If demand flows worldwide.
Speaker Change: That becomes a real tailwind for us could be.
Speaker Change: Baked a lot of that stuff and yet what we have.
Speaker Change: Put in as a nod to what Jeff was talking about in terms of further improvement in returns replacements damages. We know there's opportunity there it's a very large number.
Speaker Change: But we also don't want to get ahead of ourselves so could there be more on the on those operating lines there could be.
Speaker Change: Could there be other surprises there could be so.
Speaker Change: When you when you gave guidance you pick your best case.
Speaker Change: Your best guess.
Speaker Change: With all the puts and takes and Thats. What we gave you today remember last year included an extra week.
Speaker Change: This year we.
Speaker Change: Obviously don't have that.
Speaker Change: So that's that's worth more than I think people expected.
Speaker Change: But I'm very confident.
Speaker Change: About our ability to outperform this year, especially.
Speaker Change: Especially vis vis our competition and the truth is whenever there is uncertainty there is opportunity.
Speaker Change: And that's what we're excited about this year.
Speaker Change: Your next question comes from the line of Stephens <unk> from Citi. Your line is open.
Speaker Change: Okay.
Speaker Change: Great. Good morning, Thanks, very much for taking my question if I may ask two in one here just for time.
Speaker Change: Can you just clarify what is your tariffs posture kind of embedded in the guide because obviously the situation is very dynamic.
Speaker Change: So just help us quantify what is the actual impact to gross margin and then the second is.
Speaker Change: I wanted to focus on the consumer because you've heard a lot about some weakness some big ticket discretionary spending as of late have you have you seen anything in your business and it sounds like your guidance doesn't kind of embed any change in the external backdrop, but how do you think through if the consumer kind of weekends, the levers to protect operating margins.
Speaker Change: Hey, Steve Good morning, why don't we take a consumer first Omar I'll take that and then I'll take the tariff question had thought you're going to do the opposite but I'd be happy to.
Speaker Change: Yeah.
Speaker Change: You know the consumer all I can tell you about the consumer is what we see related to our business.
Speaker Change: Can't speak to what others are seeing I don't way index yeah.
Speaker Change: I'll take this and applies to everything that you guys cover.
Speaker Change: <unk>.
Speaker Change: What we're seeing is that they are responding to our strategies.
Speaker Change: And our strategies are to drive our non furniture business.
Speaker Change: Which is exciting with our newness across brands and our stepped up incremental Paul labs.
Speaker Change: Our non furniture seasonal holiday decor across brands, we had a double digit comp on our seasonal holiday decor and were off to the races with Easter, which by the way, there's an Easter shift which is interesting because it makes things even more confusing but it is usually good when Easter is later, which it is this year.
Speaker Change: Then it was last year substantially later.
Speaker Change: And then our emerging brands are.
Speaker Change: Clearly outperforming and represent a big opportunity for us as I said in my prepared remarks.
Speaker Change: There are opportunities that we see that our consumers are responding to our BTB, yes, we had our biggest quarter ever in Q4, we don't see that abating.
Speaker Change: Our design services continue to be a real area of competitive advantage, because we know it's hard to decorate her home and particularly online and we're giving them.
Speaker Change: Our sales associates better tools, but also our customers better tools to make decisions to furnish their homes online if they can't go to a store.
Speaker Change: And then our channel strategies, using our channels to unlock the power of inventory anywhere and get it to customers quickly and so these are our strategies, but there are there strategies that have been.
Speaker Change: Approved by our customers based on what we're seeing in terms of response to them.
Speaker Change: So I can tell you that the consumer is responding to our strategies and that gives us confidence and optimism in our guidance.
Speaker Change: Alright.
Speaker Change: The other part of your question was regarding tariffs and what's in and what's the impact to our operating margin guidance.
Speaker Change: So our operating guidance at 17, 4% 17, 8% includes the full impact.
Speaker Change: Tariffs implemented as of this call. So just to be Super specific because there's a lot of different things bouncing out there. It includes the 20%, China tariffs to 25%, Mexico, and Canada tariffs, the 25% additional tariffs on metal and aluminum.
Speaker Change: Here's the thing on tariffs, we've always been a leader in proactively responding to changes in the trade environment. It's not our first time at this more on our growth here in 2018, as where most of our management team.
Speaker Change: Since 2018 was significantly reduced our China sourced goods from back then in 2018 was about 50% to about 23% today.
Speaker Change: In Mexico, and Canada are not a material source of production for us, but there is an impact from tariffs embedded in our guidance to offset the tariff impact we haven't affected six point plan and Laura touched on a number of these in the last question.
Speaker Change: First one is obtaining cost concessions from our vendors.
Speaker Change: We're also resourcing goods to lower cost countries, including China.
Speaker Change: As Laura mentioned, we are passing on targeted price increases to our customers.
Speaker Change: And I've said earlier in the call we are identifying further supply chain efficiencies and reducing SG&A expense as well and.
Speaker Change: And finally, we're expanding our maintenance USA assortment, yes.
Speaker Change: <unk> is already a major manufacturing hub for us Laura walk you through that I want to assure that it's our second largest source of good at 18%.
Speaker Change: So and we see opportunity to expand our made in USA assortments production and partnerships. So here's the thing there's a lot of noise in the tariffs. Our guidance includes the tariff increases implemented as of this call and we've really offset most of the impact from those higher tariffs.
Speaker Change: Your next question comes from the line of Brian Nagel from Oppenheimer. Your line is open.
Brian Nagel: Hi, good morning, nice quarter nice year congratulations.
Speaker Change: Thank you.
Speaker Change: So the question I wanted to first question, we're asking I apologize I think there is a bit of a follow up to the prior question, but just what there's a lot of <unk>.
Speaker Change: Chad are out there you are broadly speaking clearly Williams Sonoma has really elevated itself to one of the best performers.
Speaker Change: Within your within your cycle, but a lot of chatter weakening demand out there so.
Speaker Change: Question I have is could you give me a little more specific on youre coming off of what was a decidedly solid decided the strong fourth quarter Q4, whats youre kind of seeing here in the early part of it.
Speaker Change: Our fiscal 'twenty five in Q1 and then this is a part of that question again, there's been chatter that maybe there is some demand pulled forward within this sector.
Speaker Change: 24 is maybe consumer story to anticipate tariffs and were buying ahead of us.
Speaker Change: There is any truth to that so to say.
Brian Nagel: Good morning, Brian.
Brian Nagel: When we think about our quarter to date trends, we're about halfway through the quarter and some of our biggest weeks are in front of us.
Brian Nagel: And the Easter shift makes it makes it hard to read the business I mean Easter is a weight very late it's almost at the end of April which is I think has made as we can following count. So it's a little tough to to re trend at the moment because that does impact.
Brian Nagel: Our non seasonal business.
Brian Nagel: But the trends we are seeing are baked into our guidance, while it might not be as strong as Q4, we are optimistic for Q1 and our full year 2025.
Brian Nagel: And thats reflected in our in our guidance today.
Brian Nagel: In terms of the question is demand being pulled forward we have no hard evidence of this.
Brian Nagel: We've talked about it we can't tell if there is or there isn't what we do see as Laura mentioned before is the customer responding to our strategies.
Brian Nagel: <unk> really around our non furniture business, our seasonal businesses had been very strong our decorating businesses have been strong our collaborations have been strong in.
Today, we're excited to partner Brian is Tonight, we'll be launching its collaboration with loves Shaq fancy, which is.
Brian Nagel: Arun Buzzworthy brand.
Brian Nagel: And and we're also seeing continued strength in the cooking at home as demonstrated by the Williams Sonoma Com. So we can't really tell what the <unk> is happy with the overall consumer but we can tell you that our strategies are working and we have confidence in them as we turn the corner to 'twenty five the other thing I want to make sure that we get in before the call.
Brian Nagel: This over is that we are seeing improvement in our furniture trend.
Brian Nagel: And I don't know that this is because the <unk>.
Brian Nagel: Industry is seeing.
Brian Nagel: I'm not hearing that but.
Brian Nagel: Because we brought in so much newness in the fall.
Brian Nagel: And summer seasons last year, and we told you that the newness was working especially in west Elm, we're able to maximize and get in stock in that newness and add more pieces to those collections that are working.
Brian Nagel: And our proprietary designs allow us to be ahead of what other people are doing.
Brian Nagel: And I think we have a really good handle on the changes in our static.
Brian Nagel: The consumer is looking for across.
Brian Nagel: All of our brands and so that's I think really the reason, we're seeing French improve versus the macro.
Brian Nagel: Effect on furniture, but it's another reason that we're optimistic about this year.
Speaker Change: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Your line is open.
Jonathan Matuszewski: Oh, great good morning, and thanks for taking my questions. The first one was on <unk>.
Jonathan Matuszewski: Just plans for the store base in 2025, I think a couple of years ago, you unveiled plans to close 25% of the store base over time curious how youre thinking about net closures in 2025, and whether that 25% framework is still appropriate based on 2019 store counts. That's my first question. Thanks.
Speaker Change: Yes, sure you know, we love our retail business our stores, our billboards for our brands and we operate them as profit centers.
Jonathan Matuszewski: And they really are the thing that our customers remember when.
Jonathan Matuszewski: When you when you think of going to the mall Christmas you think of Williams Sonoma and all of this incredible smells and tastes that come out of our stores that said you know we always knew we had opportunity to optimize our retail strategy and have chosen the best locations and we have some of the strictest ROI criteria I think of anyone in the market and.
Jonathan Matuszewski: We have continued to close our lowest performing stores that don't meet our profitability thresholds.
Jonathan Matuszewski: We've closed about 17% of our fleet since 2019 at the same time, we continue to invest in renovations and Repositions and that has been very successful army store remodels are exceeding our expectations and a good example, if any I don't have any ones from Oklahoma, but our Oklahoma City.
Jonathan Matuszewski: Part of our stores relocated to a new outdoor lifestyle center.
Jonathan Matuszewski: And since opening this location is up double digits. The prior location and that's what we that's what we're talking about when we say retail optimization.
Speaker Change: Your next question comes from the line of Kate Mcshane from Goldman Sachs. Your line is open.
Kate Mcshane: Hi, good morning, Thanks for taking our question.
Kate Mcshane: I just wanted to check in on incentive comp growth I think you mentioned it returned in Q4, just how should we be thinking about that in fiscal year 'twenty five and then our second question was just around west Elm given the strong sequential improvement in the comp do you have any anecdotes on the performance of the broader assortment of non firm.
Kate Mcshane: Sure offerings, specifically or any demographic shifts or trends in that brand.
Speaker Change: Good morning, Kate I will take the incentive compensation question, and then I'll turn it over to Lauren to talk about why film.
Kate Mcshane: In terms of incentive compensation, we look forward to 2025.
Kate Mcshane: Not guiding that it's going to have a specific impact we don't guide to specific volumes, but not anticipating that without a specific impact here's the thing we have always been in our pay for performance company to our incentive compensation.
Kate Mcshane: Ebbs and flows with our performance.
Kate Mcshane: There is an outstanding performance in the year, there may be some impact.
Kate Mcshane: But that would mean that we are exceeding our.
Kate Mcshane: <unk> estimates.
Kate Mcshane: And then therefore, it would be paying for itself.
Kate Mcshane: But overall from a guidance perspective.
Kate Mcshane: It's not incorporated and we'd have to substantially exceed guidance for that to become a factor in the conversation.
Kate Mcshane: Let me turn over to Laura for the Western I'm glad yes sure. Thank you for the question.
Speaker Change: We're very proud to see positive comps in west Elm in Q4, and it's clear that the initiatives we've been talking about for several quarters are gaining traction I'm.
Kate Mcshane: Starting with product, we said we'd bring in.
Speaker Change: More new product.
Kate Mcshane: And I'm talking double digit.
Kate Mcshane: We would go after more collaborations we have done that and that we would also go after the seasonal holidays and Christmas as an example was quite successful with our relatively small product offer which begs the question of how much more is there for this year.
Kate Mcshane:
Kate Mcshane: The second piece is really brand heat and that comes from just being in the zeitgeist of what people are talking about and we are doing a lot more with organic social and.
Kate Mcshane: With our marketing stories, and our geography is more beautiful we have a lot of influence is talking about us and of course. These collaborations also bringing new customers into the brand and so we're really driving brand heat.
Kate Mcshane: And then in terms of channels, we saw opportunities in both channels both from a retail perspective, where we had gotten too quiet when just only furniture to bringing in more of littles and things that people buy on a regular basis versus just a considered purchase and that has really helped us drive traffic and then post COVID-19.
Kate Mcshane: Really restocking the stores so that people could take to go product that they want this is a real competitive advantage for us because our west Elm stores have big back rooms, and there's not a lot of big retailers out there that let you take something to go. This is not a small piece of <unk> and that is what we're doing and you are.
Kate Mcshane: C has continued to do more of that this year at retail in all of our brands based on the success that we are seeing.
Kate Mcshane: In terms of digital we have really substantially improved the photography go.
Kate Mcshane: Go ahead and look at the inventory on the website.
Kate Mcshane: Storytelling.
Kate Mcshane: Versus a year ago, and Youll see a tremendous change in hour, we're showing we even brought back the catalog last year, which we haven't mailed in years and that really is not just.
Kate Mcshane: For that channel and that that piece, but also it makes the brands really hone their storytelling. When you have to put a catalog together. It is my opinion that you cite looks better.
Kate Mcshane: And then in terms of profitability and operations, just making sure that everything that we're doing is built to last and that Theres no.
Kate Mcshane: Packaging damages and all of those things in.
Kate Mcshane: That has been a key part adding to our supply chain efficiencies that we talk about every brand. It's not just the supply chain team looking at ways to make their product better and make it stick with the customer and not have it come back. So we're excited about what we've seen and what is to come for west Elm.
Kate Mcshane: And that concludes our question and answer session I will now turn the call back over to Laura Alber for closing remarks.
Laura Alber: Well, thank you all for joining us.
Speaker Change: Happy shopping and we look forward to seeing you and talking to you soon I know, Jeff is going to be all in visiting with some of you and.
Laura Alber: Look forward to seeing you later in the year myself. Thank you.
Laura Alber: This concludes today's conference call. Thank you for your participation you may now disconnect.
Laura Alber: Thanks.
Laura Alber: Yeah.
Laura Alber: Yeah.
Laura Alber: [music].