UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 2, 2021.1, 2022.
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-14077
_________________________
WILLIAMS-SONOMA, INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
3250 Van Ness Avenue, San Francisco, CA
(Address of principal executive offices)
94-2203880
(I.R.S. Employer
Identification No.)
94109
(Zip Code)
Registrant’s telephone number, including area code: (415) 421-7900
(Former name, former address and former fiscal year, if changed since last report)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | | | | | | | |
Title of each class: | | Trading Symbol(s): | | Name of each exchange on which registered: |
Common Stock, par value $.01 per share | | WSM | | New York Stock Exchange, Inc. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 30, 2021, 75,119,07729, 2022, 68,763,017 shares of the registrant’s Common Stock were outstanding.
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 2, 20211, 2022
TABLE OF CONTENTS
| | | | | | | | |
| PART I. FINANCIAL INFORMATION | |
| | PAGE |
Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| PART II. OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
In thousands, except per share amounts | May 2, 2021 | | May 3, 2020 | | | | |
Net revenues | $ | 1,749,029 | | | $ | 1,235,203 | | | | | |
Cost of goods sold | 996,176 | | | 820,943 | | | | | |
Gross profit | 752,853 | | | 414,260 | | | | | |
Selling, general and administrative expenses | 477,676 | | | 365,615 | | | | | |
Operating income | 275,177 | | | 48,645 | | | | | |
Interest expense, net | 1,872 | | | 2,159 | | | | | |
Earnings before income taxes | 273,305 | | | 46,486 | | | | | |
Income taxes | 45,503 | | | 11,063 | | | | | |
Net earnings | $ | 227,802 | | | $ | 35,423 | | | | | |
Basic earnings per share | $ | 3.01 | | | $ | 0.46 | | | | | |
Diluted earnings per share | $ | 2.90 | | | $ | 0.45 | | | | | |
Shares used in calculation of earnings per share: | | | | | | | |
Basic | 75,800 | | | 77,262 | | | | | |
Diluted | 78,485 | | | 78,399 | | | | | |
| | | | | | | | | | | | | | | |
| For the Thirteen Weeks Ended | | |
(In thousands, except per share amounts) | May 1, 2022 | | May 2, 2021 | | | | |
Net revenues | $ | 1,891,227 | | | $ | 1,749,029 | | | | | |
Cost of goods sold | 1,062,679 | | | 996,176 | | | | | |
Gross profit | 828,548 | | | 752,853 | | | | | |
Selling, general and administrative expenses | 505,067 | | | 477,676 | | | | | |
Operating income | 323,481 | | | 275,177 | | | | | |
Interest (income) expense, net | (163) | | | 1,872 | | | | | |
Earnings before income taxes | 323,644 | | | 273,305 | | | | | |
Income taxes | 69,531 | | | 45,503 | | | | | |
Net earnings | $ | 254,113 | | | $ | 227,802 | | | | | |
Basic earnings per share | $ | 3.59 | | | $ | 3.01 | | | | | |
Diluted earnings per share | $ | 3.50 | | | $ | 2.90 | | | | | |
Shares used in calculation of earnings per share: | | | | | | | |
Basic | 70,851 | | | 75,800 | | | | | |
Diluted | 72,652 | | | 78,485 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
In thousands | May 2, 2021 | | May 3, 2020 | | | | |
Net earnings | $ | 227,802 | | | $ | 35,423 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | 3,700 | | | (5,276) | | | | | |
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(241) and $196 | (665) | | | 549 | | | | | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $(55) and $13 | 153 | | | (37) | | | | | |
Comprehensive income | $ | 230,990 | | | $ | 30,659 | | | | | |
| | | | | | | | | | | | | | | |
| For the Thirteen Weeks Ended | | |
(In thousands) | May 1, 2022 | | May 2, 2021 | | | | |
Net earnings | $ | 254,113 | | | $ | 227,802 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (1,514) | | | 3,700 | | | | | |
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $33 and $(241) | 93 | | | (665) | | | | | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $6 and $(55) | (18) | | | 153 | | | | | |
Comprehensive income | $ | 252,674 | | | $ | 230,990 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands, except per share amounts | May 2, 2021 | | January 31, 2021 | | May 3, 2020 | |
| | | As of |
(In thousands, except per share amounts) | | (In thousands, except per share amounts) | May 1, 2022 | | January 30, 2022 | | May 2, 2021 |
ASSETS | ASSETS | | ASSETS | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 639,670 | | | $ | 1,200,337 | | | $ | 861,002 | | Cash and cash equivalents | $ | 324,835 | | | $ | 850,338 | | | $ | 639,670 | |
Accounts receivable, net | Accounts receivable, net | 142,459 | | | 143,728 | | | 104,829 | | Accounts receivable, net | 122,946 | | | 131,683 | | | 142,459 | |
Merchandise inventories, net | Merchandise inventories, net | 1,087,528 | | | 1,006,299 | | | 1,070,681 | | Merchandise inventories, net | 1,396,135 | | | 1,246,372 | | | 1,087,528 | |
Prepaid expenses | Prepaid expenses | 58,837 | | | 93,822 | | | 90,433 | | Prepaid expenses | 60,997 | | | 69,252 | | | 58,837 | |
Other current assets | Other current assets | 20,502 | | | 22,894 | | | 22,099 | | Other current assets | 23,939 | | | 26,249 | | | 20,502 | |
Total current assets | Total current assets | 1,948,996 | | | 2,467,080 | | | 2,149,044 | | Total current assets | 1,928,852 | | | 2,323,894 | | | 1,948,996 | |
Property and equipment, net | Property and equipment, net | 875,384 | | | 873,894 | | | 907,219 | | Property and equipment, net | 942,460 | | | 920,773 | | | 875,384 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 1,054,746 | | | 1,086,009 | | | 1,175,402 | | Operating lease right-of-use assets | 1,102,056 | | | 1,132,764 | | | 1,054,746 | |
Deferred income taxes, net | Deferred income taxes, net | 57,499 | | | 61,854 | | | 33,320 | | Deferred income taxes, net | 48,737 | | | 56,585 | | | 57,499 | |
Goodwill | Goodwill | 85,435 | | | 85,446 | | | 85,335 | | Goodwill | 85,298 | | | 85,354 | | | 85,435 | |
Other long-term assets, net | Other long-term assets, net | 88,180 | | | 87,141 | | | 67,795 | | Other long-term assets, net | 103,310 | | | 106,250 | | | 88,180 | |
Total assets | Total assets | $ | 4,110,240 | | | $ | 4,661,424 | | | $ | 4,418,115 | | Total assets | $ | 4,210,713 | | | $ | 4,625,620 | | | $ | 4,110,240 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 574,876 | | | $ | 542,992 | | | $ | 423,375 | | Accounts payable | $ | 642,619 | | | $ | 612,512 | | | $ | 574,876 | |
Accrued expenses | Accrued expenses | 174,139 | | | 267,592 | | | 137,495 | | Accrued expenses | 183,729 | | | 319,924 | | | 174,139 | |
Gift card and other deferred revenue | Gift card and other deferred revenue | 389,640 | | | 373,164 | | | 299,353 | | Gift card and other deferred revenue | 490,821 | | | 447,770 | | | 389,640 | |
Income taxes payable | Income taxes payable | 93,282 | | | 69,476 | | | 24,049 | | Income taxes payable | 126,270 | | | 79,554 | | | 93,282 | |
Current debt | 0 | | | 299,350 | | | 0 | | |
Borrowings under revolving line of credit | 0 | | | 0 | | | 487,823 | | |
| Operating lease liabilities | Operating lease liabilities | 208,739 | | | 209,754 | | | 224,541 | | Operating lease liabilities | 211,614 | | | 217,409 | | | 208,739 | |
Other current liabilities | Other current liabilities | 78,597 | | | 85,672 | | | 85,458 | | Other current liabilities | 88,587 | | | 94,517 | | | 78,597 | |
Total current liabilities | Total current liabilities | 1,519,273 | | | 1,848,000 | | | 1,682,094 | | Total current liabilities | 1,743,640 | | | 1,771,686 | | | 1,519,273 | |
Deferred lease incentives | Deferred lease incentives | 19,505 | | | 20,612 | | | 26,254 | | Deferred lease incentives | 15,576 | | | 16,360 | | | 19,505 | |
Long-term debt | 0 | | | 0 | | | 299,868 | | |
| Long-term operating lease liabilities | Long-term operating lease liabilities | 999,288 | | | 1,025,057 | | | 1,109,473 | | Long-term operating lease liabilities | 1,038,249 | | | 1,066,839 | | | 999,288 | |
Other long-term liabilities | Other long-term liabilities | 124,878 | | | 116,570 | | | 81,497 | | Other long-term liabilities | 103,504 | | | 106,528 | | | 124,878 | |
Total liabilities | Total liabilities | 2,662,944 | | | 3,010,239 | | | 3,199,186 | | Total liabilities | 2,900,969 | | | 2,961,413 | | | 2,662,944 | |
Commitments and contingencies – See Note F | 0 | | 0 | | 0 | |
| Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
Preferred stock: $0.01 par value; 7,500 shares authorized; NaN issued | 0 | | 0 | | 0 | |
Common stock: $0.01 par value; 253,125 shares authorized; 75,235, 76,340 and 77,759 shares issued and outstanding at May 2, 2021, January 31, 2021 and May 3, 2020, respectively | 753 | | | 764 | | | 778 | | |
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued | | Preferred stock: $0.01 par value; 7,500 shares authorized; none issued | — | | | — | | | — | |
Common stock: $0.01 par value; 253,125 shares authorized; 69,219, 71,982 and 75,235 shares issued and outstanding at May 1, 2022, January 30, 2022 and May 2, 2021, respectively | | Common stock: $0.01 par value; 253,125 shares authorized; 69,219, 71,982 and 75,235 shares issued and outstanding at May 1, 2022, January 30, 2022 and May 2, 2021, respectively | 693 | | | 720 | | | 753 | |
Additional paid-in capital | Additional paid-in capital | 556,305 | | | 638,375 | | | 596,184 | | Additional paid-in capital | 532,205 | | | 600,942 | | | 556,305 | |
Retained earnings | Retained earnings | 894,878 | | | 1,019,762 | | | 641,917 | | Retained earnings | 789,852 | | | 1,074,084 | | | 894,878 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (3,929) | | | (7,117) | | | (19,351) | | Accumulated other comprehensive loss | (12,267) | | | (10,828) | | | (3,929) | |
Treasury stock, at cost: 4, 8 and 8 shares as of May 2, 2021, January 31, 2021 and May 3, 2020, respectively | (711) | | | (599) | | | (599) | | |
Treasury stock, at cost: 1, 4 and 4 shares as of May 1, 2022, January 30, 2022 and May 2, 2021, respectively | | Treasury stock, at cost: 1, 4 and 4 shares as of May 1, 2022, January 30, 2022 and May 2, 2021, respectively | (739) | | | (711) | | | (711) | |
Total stockholders’ equity | Total stockholders’ equity | 1,447,296 | | | 1,651,185 | | | 1,218,929 | | Total stockholders’ equity | 1,309,744 | | | 1,664,207 | | | 1,447,296 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 4,110,240 | | | $ | 4,661,424 | | | $ | 4,418,115 | | Total liabilities and stockholders’ equity | $ | 4,210,713 | | | $ | 4,625,620 | | | $ | 4,110,240 | |
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
In thousands | Shares | | Amount | | |
Balance at January 31, 2021 | 76,340 | | | $ | 764 | | | $ | 638,375 | | | $ | 1,019,762 | | | $ | (7,117) | | | $ | (599) | | | $ | 1,651,185 | | |
(In thousands) | | (In thousands) | Shares | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
Balance at January 30, 2022 | | Balance at January 30, 2022 | 71,982 | | | $ | 720 | | |
Net earnings | Net earnings | — | | | — | | | — | | | 227,802 | | | — | | | — | | | 227,802 | | Net earnings | — | | | — | | | — | | | 254,113 | | | — | | | — | | | 254,113 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 3,700 | | | — | | | 3,700 | | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | (1,514) | | | — | | | (1,514) | |
Change in fair value of derivative financial instruments, net of tax | Change in fair value of derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | (665) | | | — | | | (665) | | Change in fair value of derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | 93 | | | — | | | 93 | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | 153 | | | — | | | 153 | | Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | (18) | | | — | | | (18) | |
Conversion/release of stock-based awards 1 | Conversion/release of stock-based awards 1 | 686 | | | 7 | | | (97,958) | | | — | | | — | | | (500) | | | (98,451) | | Conversion/release of stock-based awards1 | 617 | | | 6 | | | (78,142) | | | — | | | — | | | (372) | | | (78,508) | |
Repurchases of common stock | Repurchases of common stock | (1,791) | | | (18) | | | (9,239) | | | (306,272) | | | — | | | — | | | (315,529) | | Repurchases of common stock | (3,380) | | | (33) | | | (18,590) | | | (482,452) | | | — | | | — | | | (501,075) | |
Reissuance of treasury stock under stock-based compensation plans 1 | Reissuance of treasury stock under stock-based compensation plans 1 | — | | | — | | | (344) | | | (44) | | | — | | | 388 | | | 0 | | Reissuance of treasury stock under stock-based compensation plans1 | — | | | — | | | (344) | | | — | | | — | | | 344 | | | — | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 25,471 | | | — | | | — | | | — | | | 25,471 | | Stock-based compensation expense | — | | | — | | | 28,339 | | | — | | | — | | | — | | | 28,339 | |
Dividends declared | Dividends declared | — | | | — | | | — | | | (46,370) | | | — | | | — | | | (46,370) | | Dividends declared | — | | | — | | | — | | | (55,893) | | | — | | | — | | | (55,893) | |
Balance at May 2, 2021 | 75,235 | | | $ | 753 | | | $ | 556,305 | | | $ | 894,878 | | | $ | (3,929) | | | $ | (711) | | | $ | 1,447,296 | | |
Balance at May 1, 2022 | | Balance at May 1, 2022 | 69,219 | | | $ | 693 | | | $ | 532,205 | | | $ | 789,852 | | | $ | (12,267) | | | $ | (739) | | | $ | 1,309,744 | |
| |
1Amounts are shown net of shares withheld for employee taxes.
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
In thousands | Shares | | Amount | | |
Balance at February 2, 2020 | 77,137 | | | $ | 772 | | | $ | 605,822 | | | $ | 644,794 | | | $ | (14,587) | | | $ | (941) | | | $ | 1,235,860 | | |
(In thousands) | | (In thousands) | Shares | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
Balance at January 31, 2021 | | Balance at January 31, 2021 | 76,340 | | | $ | 764 | | |
Net earnings | Net earnings | — | | | — | | | — | | | 35,423 | | | — | | | — | | | 35,423 | | Net earnings | — | | | — | | | — | | | 227,802 | | | — | | | — | | | 227,802 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | (5,276) | | | — | | | (5,276) | | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 3,700 | | | — | | | 3,700 | |
Change in fair value of derivative financial instruments, net of tax | Change in fair value of derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | 549 | | | — | | | 549 | | Change in fair value of derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | (665) | | | — | | | (665) | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | (37) | | | — | | | (37) | | Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | | | — | | | — | | | — | | | 153 | | | — | | | 153 | |
Conversion/release of stock-based awards 1 | Conversion/release of stock-based awards 1 | 622 | | | 6 | | | (28,747) | | | — | | | — | | | (171) | | | (28,912) | | Conversion/release of stock-based awards1 | 686 | | | 7 | | | (97,958) | | | — | | | — | | | (500) | | | (98,451) | |
| Repurchases of common stock | | Repurchases of common stock | (1,791) | | | (18) | | | (9,239) | | | (306,272) | | | — | | | — | | | (315,529) | |
Reissuance of treasury stock under stock-based compensation plans 1 | Reissuance of treasury stock under stock-based compensation plans 1 | — | | | — | | | (499) | | | (14) | | | — | | | 513 | | | 0 | | Reissuance of treasury stock under stock-based compensation plans1 | — | | | — | | | (344) | | | (44) | | | — | | | 388 | | | — | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 19,608 | | | — | | | — | | | — | | | 19,608 | | Stock-based compensation expense | — | | | — | | | 25,471 | | | — | | | — | | | — | | | 25,471 | |
Dividends declared | Dividends declared | — | | | — | | | — | | | (38,286) | | | — | | | — | | | (38,286) | | Dividends declared | — | | | — | | | — | | | (46,370) | | | — | | | — | | | (46,370) | |
| Balance at May 3, 2020 | 77,759 | | | $ | 778 | | | $ | 596,184 | | | $ | 641,917 | | | $ | (19,351) | | | $ | (599) | | | $ | 1,218,929 | | |
Balance at May 2, 2021 | | Balance at May 2, 2021 | 75,235 | | | $ | 753 | | | $ | 556,305 | | | $ | 894,878 | | | $ | (3,929) | | | $ | (711) | | | $ | 1,447,296 | |
| |
1Amounts are shown net of shares withheld for employee taxes.
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Thirteen Weeks Ended | | For the Thirteen Weeks Ended |
In thousands | May 2, 2021 | | May 3, 2020 | |
(In thousands) | | (In thousands) | May 1, 2022 | | May 2, 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
Net earnings | Net earnings | $ | 227,802 | | | $ | 35,423 | | Net earnings | $ | 254,113 | | | $ | 227,802 | |
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | | Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | 47,922 | | | 46,224 | | Depreciation and amortization | 50,251 | | | 47,922 | |
Loss on disposal/impairment of assets | Loss on disposal/impairment of assets | 195 | | | 16,185 | | Loss on disposal/impairment of assets | 159 | | | 195 | |
Amortization of deferred lease incentives | Amortization of deferred lease incentives | (1,108) | | | (1,405) | | Amortization of deferred lease incentives | (784) | | | (1,108) | |
Non-cash lease expense | Non-cash lease expense | 52,955 | | | 54,262 | | Non-cash lease expense | 54,338 | | | 52,955 | |
Deferred income taxes | Deferred income taxes | (3,981) | | | (2,585) | | Deferred income taxes | (2,725) | | | (3,981) | |
Tax benefit related to stock-based awards | Tax benefit related to stock-based awards | 10,146 | | | 12,039 | | Tax benefit related to stock-based awards | 10,522 | | | 10,146 | |
Stock-based compensation expense | Stock-based compensation expense | 26,330 | | | 19,703 | | Stock-based compensation expense | 28,542 | | | 26,330 | |
Other | Other | (223) | | | 129 | | Other | (17) | | | (223) | |
Changes in: | Changes in: | | Changes in: | |
Accounts receivable | Accounts receivable | 1,522 | | | 8,950 | | Accounts receivable | 8,741 | | | 1,522 | |
Merchandise inventories | Merchandise inventories | (79,726) | | | 28,513 | | Merchandise inventories | (149,470) | | | (79,726) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 34,562 | | | (215) | | Prepaid expenses and other assets | 13,517 | | | 34,562 | |
Accounts payable | Accounts payable | 27,910 | | | (92,871) | | Accounts payable | 25,559 | | | 27,910 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (90,883) | | | (29,050) | | Accrued expenses and other liabilities | (139,883) | | | (90,883) | |
Gift card and other deferred revenue | Gift card and other deferred revenue | 16,174 | | | 9,960 | | Gift card and other deferred revenue | 42,924 | | | 16,174 | |
Operating lease liabilities | Operating lease liabilities | (53,633) | | | (57,629) | | Operating lease liabilities | (58,025) | | | (53,633) | |
Income taxes payable | Income taxes payable | 22,917 | | | 6,240 | | Income taxes payable | 46,757 | | | 22,917 | |
Net cash provided by operating activities | Net cash provided by operating activities | 238,881 | | | 53,873 | | Net cash provided by operating activities | 184,519 | | | 238,881 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Purchases of property and equipment | Purchases of property and equipment | (42,360) | | | (42,321) | | Purchases of property and equipment | (71,186) | | | (42,360) | |
Other | Other | 93 | | | 242 | | Other | 86 | | | 93 | |
Net cash used in investing activities | Net cash used in investing activities | (42,267) | | | (42,079) | | Net cash used in investing activities | (71,100) | | | (42,267) | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Repurchases of common stock | Repurchases of common stock | (315,529) | | | 0 | | Repurchases of common stock | (501,075) | | | (315,529) | |
Repayment of long-term debt | (300,000) | | | 0 | | |
Tax withholdings related to stock-based awards | Tax withholdings related to stock-based awards | (98,451) | | | (28,912) | | Tax withholdings related to stock-based awards | (78,508) | | | (98,451) | |
Payment of dividends | Payment of dividends | (45,576) | | | (39,391) | | Payment of dividends | (58,150) | | | (45,576) | |
Borrowings under revolving line of credit | 0 | | | 487,823 | | |
Repayment of long-term debt | | Repayment of long-term debt | — | | | (300,000) | |
| Net cash (used in) provided by financing activities | (759,556) | | | 419,520 | | |
| Net cash used in financing activities | | Net cash used in financing activities | (637,733) | | | (759,556) | |
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | 2,275 | | | (2,474) | | Effect of exchange rates on cash and cash equivalents | (1,189) | | | 2,275 | |
Net (decrease) increase in cash and cash equivalents | (560,667) | | | 428,840 | | |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (525,503) | | | (560,667) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 1,200,337 | | | 432,162 | | Cash and cash equivalents at beginning of period | 850,338 | | | 1,200,337 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 639,670 | | | $ | 861,002 | | Cash and cash equivalents at end of period | $ | 324,835 | | | $ | 639,670 | |
|
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
These financial statements include Williams-Sonoma, Inc. and its wholly owned subsidiaries (“we,” “us” or “our”). The Condensed Consolidated Balance Sheets as of May 2, 20211, 2022 and May 3, 2020,2, 2021, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the thirteen weeks then ended, have been prepared by us, without audit.and have not been audited. In our opinion, the financial statements include all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen weeks then ended. Intercompany transactions and accounts have been eliminated.eliminated in our consolidation. The balance sheet as of January 31, 2021, presented herein, has been derived from our audited Consolidated Balance Sheet included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.
The results of operations for the thirteen weeks ended May 2, 20211, 2022 are not necessarily indicative of the operating results of the full year.
Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.30, 2022.
COVID-19
In March 2020, we announcedDuring fiscal 2021 and continuing into the temporaryfirst quarter of fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures of all of our retail store operations to protect our employees, customers and the communities in which we operate and to help contain the COVID-19 pandemic. As of May 2, 2021, all of our U.S.-based and the majority of our global retail stores have reopened for in-person shopping. However, we continue to experience intermittent closures or restrictions on retail capacity in certain geographies, in accordance with state and local guidelines, which may continue to impact our store traffic and retail revenues in the future and result in future store impairments. We continue to operate our e-commerce sites and distribution centers and continue to deliver products to our customers. However, we have experienced, and expect to continue to experience,increased port congestion, caused delays in inventory receipts, increased raw material costs, and higher shipping-related charges as a resultcharges. We expect these supply chain challenges to continue into the remainder of port slowdowns and congestions, as well as shipping container and foam shortages, due in part to thefiscal 2022, which could negatively impact from COVID-19.
our business.
New Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU was effective for us in the first quarter of fiscal 2021. The adoption of this ASU did not have an impact on our financial condition, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU is intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance provides optional expedients and scope exceptions for transactions if certain criteria are met. These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. We may elect to apply the provisions of the new standard prospectively through December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe anythe adoption would have a material impact on our financial condition, results of operations or cash flows.
NOTE B. BORROWING ARRANGEMENTS
Credit Facility
We have a credit facility (the "Credit Facility") which provides for a $500,000,000$500 million unsecured revolving line of credit (“revolver”(the “Revolver”). The revolverOur Revolver may be used to borrow revolving loans or request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders’ option, to increase the revolverRevolver by up to $250,000,000$250 million to provide for a total of $750,000,000$750 million of unsecured revolving credit. Our credit facility also provided for a $300,000,000 unsecured term loan facility (“term loan”). In February 2021, prior to maturity, we repaid the full outstanding balance of $300,000,000 on our term loan.
During the first quarter of fiscal 2021,2022, we had 0no borrowings under the revolver.our Revolver. Additionally, as of May 2, 2021, $12,601,000 in1, 2022, issued but undrawn standby letters of credit of $11.4 million were outstanding under the revolver.our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs. DuringWe had no borrowings under our Revolver during the first quarter of fiscal 2020, we drew down $487,823,000 on our revolver (at a weighted average interest rate of 2.00%), all of which was repaid prior to the end of fiscal 2020. The revolver2021. Our Revolver matures on January 8, 2023,September 30, 2026, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized. We may elect to extend the maturity date, for an additional year, subject to lender approval.
The interest rate applicable to the credit facilityour Revolver is variable and may be elected by us as: (i) the LIBOR (or future alternative rate) plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% for a revolver borrowing, and 1.75% to 2.5% for the term loan, or (ii) a base rate as defined in the credit facility, plus an applicable margin ranging from 0% to 0.775% for a revolver borrowing, and 0.75% to 1.5% for the term loan.
In addition to the credit facility, during the second quarter of fiscal 2020 we entered into a new agreement (the “364-Dayour Credit Agreement”) for an additional $200,000,000 unsecured revolving line of credit. Under the 364-Day Credit Agreement, the interest rate is variable and may be elected by us as: (i) LIBORFacility, plus an applicable margin based on our leverage ratio ranging from 1.75%0% to 2.5% or (ii) a base rate as defined in the agreement, plus an applicable margin ranging from 0.75% to 1.5%0.775%. During the first quarter of fiscal 2021, we had 0 borrowings under the 364-Day
Our Credit Agreement. We did not renew the 364-Day Credit Agreement upon its maturity in May 2021.
The credit facilityFacility contains and the 364-Day Credit Agreement contained certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for operating lease and rent expenseliabilities to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of May 2, 2021,1, 2022, we were in compliance with our financial covenants under the credit facility and the 364-Dayour Credit AgreementFacility and, based on current projections, we expect to remain in compliance with our covenants under the remaining credit facility throughout the next 12 months.
Letter of Credit Facilities
We have 3 unsecured letter of credit reimbursement facilities for a total of $35,000,000, each of which matures on August 22, 2021. The$35 million. Our letter of credit facilities contain covenants that are consistent with our credit facility.Credit Facility. Interest on unreimbursed amounts under theour letter of credit facilities accrues at a base rate as defined in the credit facility,our Credit Facility, plus an applicable margin based on our leverage ratio. As of May 2, 2021, an1, 2022, the aggregate of $5,836,000 wasamount outstanding under theour letter of credit facilities was $6.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration date possible for any future letters of credit issued under the facilities is January 19, 2022.2023.
NOTE C. STOCK-BASED COMPENSATION
Equity Award Programs
Our Amended and Restated 2001 Long-Term Incentive Plan (the “Plan”) provides for grants of incentive stock options, nonqualified stock options, stock-settled stock appreciation rights, restricted stock awards, restricted stock units (including those that are performance-based), deferred stock awards (collectively, “stock awards”) and dividend equivalents up to an aggregate of 36,570,00042.7 million shares. As of May 2, 2021,1, 2022, there were approximately 1,242,0006.1 million shares available for future grant. Awards may be granted under theour Plan to officers, employees and non-employee members of the boardBoard of directorsDirectors of the companyCompany (the “Board”) or any parent or subsidiary. Shares issued as a result of award exercises or releases are primarily funded with the issuance of new shares.
Stock Awards
Annual grants of stock awards are limited to 1,000,0001 million shares on a per person basis. Stock awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain performance-based awards, which have variable payout conditions based on predetermined financial targets, generally vest three years from the date of grant. Certain stock awards and other agreements contain vesting acceleration clauses resulting from events including, but not limited to, retirement, disability, death, merger or a similar corporate event. Stock awards granted to non-employee Board members generally vest in one year. Non-employee Board members automatically receive stock awards on the date of their initial election to the Board and annually thereafter on the date of the annual meeting of stockholders (so long as they continue to serve as a non-employee Board member).
Non-employee directors may also elect, on terms prescribed by the Company, to receive all of their annual cash compensation to be earned in respect of the applicable fiscal year (or the last two quarters thereof in the case of fiscal 2021) either in the form of (i) fully vested stock units or (ii) fully vested deferred stock units.
Stock-Based Compensation Expense
During the thirteen weeks ended May 2, 20211, 2022 and May 3, 2020,2, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $26,330,000$28.5 million and $19,703,000,$26.3 million, respectively.
Restricted Stock Units
The following table summarizes our restricted stock unit activity during the thirteen weeks ended May 2, 2021:
| | | | | |
| Shares |
Balance at January 31, 2021 | 3,118,884 | |
Granted | 359,230 | |
Granted, with vesting subject to performance conditions | 107,075 | |
Released 1
| (1,029,356) | |
Cancelled | (29,652) | |
Balance at May 2, 2021 | 2,526,181 | |
Vested plus expected to vest at May 2, 2021 | 2,309,979 | |
1Excludes 228,666 incremental shares released due to achievement of performance conditions above target.
NOTE D. EARNINGS PER SHARE
Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding and common stock equivalents outstanding for the period. Common stock equivalents consist of shares subject to stock-based awards with exercise prices less than or equal to the average market price of our common stock for the period, to the extent their inclusion would be dilutive.
The following is a reconciliation of net earnings and the number of shares used in the basic and diluted earnings per share computations:
| In thousands, except per share amounts | Net Earnings | | Weighted Average Shares | | Earnings Per Share | |
Thirteen weeks ended May 2, 2021 | | |
(In thousands, except per share amounts) | | (In thousands, except per share amounts) | Net Earnings | | Weighted Average Shares | | Earnings Per Share |
Thirteen weeks ended May 1, 2022 | | Thirteen weeks ended May 1, 2022 | |
Basic | Basic | $ | 227,802 | | | 75,800 | | | $ | 3.01 | | Basic | $ | 254,113 | | | 70,851 | | | $ | 3.59 | |
Effect of dilutive stock-based awards | Effect of dilutive stock-based awards | | 2,685 | | | Effect of dilutive stock-based awards | | 1,801 | | |
Diluted | Diluted | $ | 227,802 | | | 78,485 | | | $ | 2.90 | | Diluted | $ | 254,113 | | | 72,652 | | $ | 3.50 | |
Thirteen weeks ended May 3, 2020 | | |
Thirteen weeks ended May 2, 2021 | | Thirteen weeks ended May 2, 2021 | |
Basic | Basic | $ | 35,423 | | | 77,262 | | | $ | 0.46 | | Basic | $ | 227,802 | | | 75,800 | | | $ | 3.01 | |
Effect of dilutive stock-based awards | Effect of dilutive stock-based awards | | 1,137 | | | Effect of dilutive stock-based awards | | 2,685 | | |
Diluted | Diluted | $ | 35,423 | | | 78,399 | | | $ | 0.45 | | Diluted | $ | 227,802 | | | 78,485 | | $ | 2.90 | |
|
Stock-basedThe effect of anti-dilutive stock-based awards of 12,000 and 8,000 were excluded from the computation of diluted earnings per sharewas not material for the thirteen weeks ended May 1, 2022 and May 2, 2021, and May 3, 2020, respectively, as their inclusion would be anti-dilutive.respectively.
NOTE E. SEGMENT REPORTING
We identify our operating segments according to how our business activities are managed and evaluated. Each of our brands are operating segments. Because they share similar economic and other qualitative characteristics, we have aggregated our operating segments into a single reportable segment.
The following table summarizes our net revenues by brand for the thirteen weeks ended May 2, 20211, 2022 and May 3, 2020.2, 2021.
| | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
In thousands | May 2, 2021 | | May 3, 2020 | | | | |
Pottery Barn | $ | 679,055 | | | $ | 479,615 | | | | | |
West Elm | 477,317 | | | 315,430 | | | | | |
Williams Sonoma | 265,607 | | | 199,302 | | | | | |
Pottery Barn Kids and Teen | 236,067 | | | 188,552 | | | | | |
Other 1 | 90,983 | | | 52,304 | | | | | |
Total 2 | $ | 1,749,029 | | | $ | 1,235,203 | | | | | |
1Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham.
2Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $99.9 million and $55.2 million for the thirteen weeks ended May 2, 2021 and May 3, 2020, respectively.
| | | | | | | | | | | | | | | |
| For the Thirteen Weeks Ended | | |
(In thousands) | May 1, 2022 | | May 2, 2021 | | | | |
Pottery Barn | $ | 774,646 | | | $ | 679,055 | | | | | |
West Elm | 536,293 | | | 477,317 | | | | | |
Williams Sonoma | 252,220 | | | 265,607 | | | | | |
Pottery Barn Kids and Teen | 226,969 | | | 236,067 | | | | | |
| | | | | | | |
| | | | | | | |
Other 1 | 101,099 | | | 90,983 | | | | | |
Total 2 | $ | 1,891,227 | | | $ | 1,749,029 | | | | | |
1Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham. | | | | |
| | | | |
2Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $95.0 million and $99.9 million for the thirteen weeks ended May 1, 2022 and May 2, 2021, respectively. | | | | |
Long-lived assets by geographic location are as follows:
| In thousands | May 2, 2021 | | May 3, 2020 | |
| | | As of |
(In thousands) | | (In thousands) | May 1, 2022 1 | | May 2, 20211 |
U.S. | U.S. | $ | 2,012,572 | | | $ | 2,117,469 | | U.S. | $ | 2,146,474 | | | $ | 2,012,572 | |
International | International | 148,672 | | | 151,602 | | International | 135,387 | | | 148,672 | |
Total | Total | $ | 2,161,244 | | | $ | 2,269,071 | | Total | $ | 2,281,861 | | | $ | 2,161,244 | |
1Includes total goodwill, deferred tax assets and intangibles of $144.3 million and $154.3 million for the thirteen weeks ended May 1, 2022 and May 2, 2021, respectively, of which $132.0 million and $142.1 million, respectively, is related to the U.S.
NOTE F. COMMITMENTS AND CONTINGENCIES
We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These disputes, which are not currently material, are increasing in number as our business expands and our company grows. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. In view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the case is close to resolution, in which case no reserve is established until that time. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Condensed Consolidated Financial Statements taken as a whole.
NOTE G. STOCK REPURCHASE PROGRAM AND DIVIDENDS
Stock Repurchase Program
In March 2021,2022, our Board of Directors authorized a new stock repurchase program for $1,000,000,000,$1.5 billion, which replaced our existing program. During the thirteen weeks ended May 1, 2022, we repurchased 3,379,731 shares of our common stock at an average cost of $148.26 per share for a total cost of $501.1 million under our prior and new stock repurchase programs. As of May 1, 2022, there was $1.1 billion remaining under our current stock repurchase program. During the thirteen weeks ended May 2, 2021, we repurchased 1,790,725 shares of our common stock at an average cost of $176.20 per share for a total cost of approximately $315,529,000 under our prior and new stock repurchase programs. As of May 2, 2021, there was approximately $703,833,000 remaining under our current stock repurchase program. During$315.5 million.
Stock repurchased by the thirteen weeks ended May 3, 2020,Company is typically cancelled after purchasing. However, we did 0t repurchase anyhold some shares of our common stock. As of May 2, 2021 and May 3, 2020, we heldin treasury stock of $711,000 and $599,000, respectively, that represents the cost of shares available for issuance that are intended to satisfy future stock-based award settlements in certain foreign jurisdictions.
$0.7 million as of May 1, 2022 and May 2, 2021. Stock repurchases under our program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions.
Dividends
In March 2021,2022, our Board of Directors authorized a $0.06, or 11.3%,10% increase in our quarterly cash dividend, from $0.53$0.71 to $0.59$0.78 per common share, subject to capital availability. We declared cash dividends of $0.59$0.78 and $0.48$0.59 per common share during the thirteen weeks ended May 2, 20211, 2022 and May 3, 2020,2, 2021, respectively. Our quarterly cash dividend may be limited or terminated at any time.
NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS
We have retail and e-commerce businesses in Canada, Australia and the United Kingdom, and operations throughout Asia and Europe, which expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a functional currency other than the U.S. dollar. To mitigate this risk, we hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies. We do not enter into such contracts for speculative purposes. The assets or liabilities associated with the derivative financial instruments are measured at fair value and recorded in either other current or long-term assets or other current or long-term liabilities. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on whether the derivative financial instrument is designated as a hedge and qualifies for hedge accounting in accordance with the ASC 815, Derivatives and Hedging.
Cash Flow Hedges
We enter into foreign currency forward contracts designated as cash flow hedges (to sell Canadian dollars and purchase U.S. dollars) for forecasted inventory purchases in U.S. dollars by our Canadian subsidiary. These hedges have terms of up to 12 months. All hedging relationships are formally documented, and the forward contracts are designed to mitigate foreign currency exchange risk on hedged transactions. We record the effective portion of changes in the fair value of our cash flow hedges in other comprehensive income (“OCI”) until the earlier of when the hedged forecasted inventory purchase occurs or the respective contract reaches maturity. Subsequently, as the inventory is sold to the customer, we reclassify amounts previously recorded in OCI to cost of goods sold.
Changes in the fair value of the forward contract related to interest charges (or forward points) are excluded from the assessment and measurement of hedge effectiveness and are recorded in cost of goods sold. Based on the rates in effect as of May 2, 2021, we expect to reclassify a net1, 2022, our reclassification of pre-tax loss of approximately $1,677,000gains or losses from OCI to cost of goods sold over the next 12 months.months is not material.
As of May 2, 20211, 2022 and May 3, 2020,2, 2021, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
| | | | | | | | | | | |
In thousands | May 2, 2021 | | May 3, 2020 |
Contracts designated as cash flow hedges | $ | 18,000 | | | $ | 11,600 | |
| | | | | | | | | | | |
| As of |
(In thousands) | May 1, 2022 | | May 2, 2021 |
Contracts designated as cash flow hedges | $ | 17,500 | | | $ | 18,000 | |
Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively using regression analysis. Any measurable ineffectiveness of the hedge is recorded in selling, general and administrative expenses. No gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all hedges were deemed effective for assessment purposes for the thirteen weeks ended May 2, 20211, 2022 and May 3, 2020.
2, 2021.
The effect of derivative instruments in our Condensed Consolidated Financial Statements from gains or losses recognized in income was not material for the thirteen weeks ended May 2, 20211, 2022 and May 3, 2020.
2, 2021.
The fair values of our derivative financial instruments are presented in other current assets and and/or other current liabilities in our Condensed Consolidated Balance Sheets. All fair values were measured using Level 2 inputs as defined by the fair value hierarchy described in Note I.
We record all derivative assets and liabilities on a gross basis. They do not meet the balance sheet
netting criteria as discussed in ASC 210, Balance Sheet, because we do not have master netting agreements established with our derivative counterparties that would allow for net settlement.
NOTE I. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy established by ASC 820, Fair Value Measurement, which defines three levels of inputs that may be used to measure fair value, as follows:
•Level 1: inputs which include quoted prices in active markets for identical assets or liabilities;
•Level 2: inputs which include observable inputs other than Level 1 inputs, such as quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
•Level 3: inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The fair values of our cash and cash equivalents are based on Level 1 inputs, which include quoted prices in active markets for identical assets.
Foreign Currency Derivatives and Hedging Instruments
We use the income approach to value our derivatives using observable Level 2 market data at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk ratings. We use mid-market pricing as a practical expedient for fair value measurements. Key inputs for foreign currency derivatives are the spot rates, forward rates, interest rates and credit derivative market rates.
The counterparties associated with our foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration, therefore, we do not consider counterparty concentration and non-performance to be material risks at this time. Both we and our counterparties are expected to perform under the contractual terms of the instruments. None of the derivative contracts we entered into are subject to credit risk-related contingent features or collateral requirements.
Long-lived Assets
We review the carrying value of all long-lived assets for impairment, primarily at an individual store level, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure property and equipment at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. We measure right-of-use assets on a nonrecurring basis using Level 2 inputs that are corroborated by market data. Where Level 2 inputs are not readily available, we use Level 3 inputs. Fair value of these long-lived assets is based on the present value of estimated future cash flows using a discount rate commensurate with the risk.
The significant unobservable inputs used in the fair value measurement of our store assets are sales growth/decline, gross margin, employment costs, lease escalations, market rental rates, changes in local real estate markets in which we operate, inflation and the overall economics of the retail industry. Significant fluctuations in any of these inputs individually could significantly impact our measurement of fair value.
During the thirteen weeks ended May 2, 2021, 0 impairment charges were recognized. During the thirteen weeks ended May 3, 2020, we recognized impairment charges of $11,825,000 related to the impairment of property and equipment and $3,795,000 related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from the impact of COVID-19.
There were no transfers in and out of Level 3 categories during the thirteen weeks ended May 2, 20211, 2022 or May 3, 2020.2, 2021.
NOTE J. ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS)
Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:
| In thousands | Foreign Currency Translation | | Cash Flow Hedges | | Accumulated Other Comprehensive Income (Loss) | |
(In thousands) | | (In thousands) | Foreign Currency Translation | | Cash Flow Hedges | | Accumulated Other Comprehensive Income (Loss) |
Balance at January 30, 2022 | | Balance at January 30, 2022 | $ | (10,886) | | | $ | 58 | | | $ | (10,828) | |
Foreign currency translation adjustments | | Foreign currency translation adjustments | (1,514) | | | — | | | (1,514) | |
Change in fair value of derivative financial instruments | | Change in fair value of derivative financial instruments | — | | | 93 | | | 93 | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | | Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | — | | | (18) | | | (18) | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | (1,514) | | | 75 | | | (1,439) | |
Balance at May 1, 2022 | | Balance at May 1, 2022 | $ | (12,400) | | | $ | 133 | | | $ | (12,267) | |
| | Balance at January 31, 2021 | Balance at January 31, 2021 | $ | (6,398) | | | $ | (719) | | | $ | (7,117) | | Balance at January 31, 2021 | $ | (6,398) | | | $ | (719) | | | $ | (7,117) | |
Foreign currency translation adjustments | Foreign currency translation adjustments | 3,700 | | | — | | 3,700 | | Foreign currency translation adjustments | 3,700 | | | — | | | 3,700 | |
Change in fair value of derivative financial instruments | Change in fair value of derivative financial instruments | — | | (665) | | | (665) | | Change in fair value of derivative financial instruments | — | | | (665) | | | (665) | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | — | | 153 | | | 153 | | Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | — | | | 153 | | | 153 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | 3,700 | | | (512) | | | 3,188 | | Other comprehensive income (loss) | 3,700 | | | (512) | | | 3,188 | |
Balance at May 2, 2021 | Balance at May 2, 2021 | $ | (2,698) | | | $ | (1,231) | | | $ | (3,929) | | Balance at May 2, 2021 | $ | (2,698) | | | $ | (1,231) | | | $ | (3,929) | |
| | Balance at February 2, 2020 | $ | (14,593) | | | $ | 6 | | | $ | (14,587) | | |
Foreign currency translation adjustments | (5,276) | | | — | | (5,276) | | |
Change in fair value of derivative financial instruments | — | | 549 | | | 549 | | |
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1 | — | | (37) | | | (37) | | |
Other comprehensive income (loss) | (5,276) | | | 512 | | | (4,764) | | |
Balance at May 3, 2020 | $ | (19,869) | | | $ | 518 | | | $ | (19,351) | | |
|
1Refer to Note H for additional disclosures about reclassifications out of accumulated other comprehensive income.
NOTE K. REVENUE
Merchandise Sales
The majority of our revenues are generated from sales of merchandise to our customers through our e-commerce websites, at our retail stores and through our direct mail catalogs, or at our retail stores and include shipping fees received from customers for delivery of merchandise to their homes. The remainder of our revenues are primarily generated from sales to our franchisees and other wholesale transactions, breakage income related to stored-value cards, and incentives received from credit card issuers in connection with our private label and co-branded credit cards.
We recognize revenue as control of promised goods or services are transferredcards and breakage income related to our customers. We record a liability at each period end where we have an obligation to transfer goods or services for which we have received consideration or have a right to consideration. We exclude from revenue any taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and are concurrent with revenue-generating activities. Our payment terms are primarily at the point of sale for merchandise sales and for most services.
See Note E for the disclosure of our net revenues by operating segment.
Merchandise Salesstored-value cards.
Revenues from the salesales of our merchandise through our e-commerce websites, at our retail stores, as well as to our franchisees and wholesale customers are in each case, recognized at a point in time when control of merchandise is transferred to the customer. Merchandise can either be picked up in our stores or delivered to the customer. For merchandise picked up in the store, control is transferred at that time.the time of the sale to the customer. For merchandise delivered to the customer, control is transferred either when either delivery has been completed, or when we have a present right to payment which, for certain merchandise, occurs upon conveyance of the merchandise to the carrier for delivery. We exclude from revenue any taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and are concurrent with revenue-generating activities. Our payment terms are primarily at the point of sale for merchandise sales and for most services. We have elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation.
Revenue from the sale of merchandise is reported net of sales returns. We estimate future returns based on historical return trends together with current product sales performance. As of May 2, 20211, 2022 and May 3, 2020,2, 2021, we recorded a liability for
expected sales returns of approximately $34,266,000$40.8 million and $33,357,000,$34.3 million, respectively, within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately $10,166,000$12.1 million and $11,603,000,$10.2 million, respectively, within other current assets in our Condensed Consolidated Balance Sheet.
See Note E for the disclosure of our net revenues by operating segment.
Stored-value CardsGift Card and Other Deferred Revenue
We defer revenue and record a liability when cash payments are received in advance of satisfying performance obligations, primarily associated with our merchandise sales, stored-value cards, customer loyalty programs, and incentives received from credit card issuers.
We issue stored-value cards that may be redeemed on future merchandise purchases. Our stored-value cards have no expiration dates. Revenue from stored-value cards is recognized at a point in time upon redemption of the card and as control of the merchandise is transferred to the customer. Revenue from estimated unredeemed stored-value cards (breakage)(“breakage”) is recognized in a manner consistent with our historical redemption patterns over the estimated period of redemption of our cards of approximately four years, the majority of which is recognized within one year of the card issuance. Breakage revenue is not material to our Condensed Consolidated Financial Statements.
Credit Card Incentives
We enter into agreements with credit card issuers in connection with our private label and co-branded credit cards whereby we receive cash incentives in exchange for promised services, such as licensing our brand names and marketing the credit card program to customers. Services promised under these agreements are interrelated and are thus considered a single performance obligation. Revenue is recognized over time as we transfer promised services throughout the contract term.
Customer Loyalty Programs
We have customer loyalty programs, which allow members to earn points for each qualifying purchase. Points earned enable members to receive certificates that may be redeemed on future merchandise purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer. The allocated consideration for the points or certificates earned by our loyalty program members is deferred based on the standalone selling price of the points and recorded within gift card and other deferred revenue within our Condensed Consolidated Balance Sheet. The measurement of standalone selling prices takes into consideration the discount the customer would receive in a separate transaction for the delivered item, as well as our estimate of certificates expected to be issued and redeemed, based on historical redemption patterns. This measurement is applied to our portfolio of performance obligations for points or certificates earned, as all obligations have similar economic characteristics. We believe the impact to our Condensed Consolidated Financial Statements would not be materially different if this measurement was applied to each individual performance obligation. Revenue is recognized for these performance obligations at a point in time when certificates are redeemed by the customer. These obligations relate to contracts with terms less than one year, as our certificates generally expire within six months from issuance.
Deferred Revenue
We defer revenue when cash payments are receivedenter into agreements with credit card issuers in advance of satisfying performance obligations, primarily associatedconnection with our stored-valueprivate label and co-branded credit cards, merchandise sales,whereby we receive cash incentives in exchange for promised services, such as licensing our brand names and incentives received frommarketing the credit card issuers. program to customers. Services promised under these agreements are interrelated and are thus considered a single performance obligation. Revenue is recognized over time as we transfer promised services throughout the contract term.
As of May 2, 20211, 2022 and May 3, 2020,2, 2021, we had recorded $392,807,000$494.3 million and $301,031,000$392.8 million, respectively, for gift card and other deferred revenue in our Condensed Consolidated Balance Sheet,Sheets, substantially all of which is expected to be recognized into revenue within the next 12 months.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements related to: supply chain challenges; backorder levels and inventory constraints; the continuing impact of the COVID-19 pandemic on our business, results of operations and financial condition; our revenue growth; expanding our expandedsales and operating margin; production, transportationthe impact of inflation and supply chain;measures to control inflation on consumer spending; our strategic initiatives; our beliefs regarding customer behavior and industry trends; our merchandise strategies; our growth strategies for our brands; our beliefs regarding the resolution of current lawsuits, claims and proceedings; our stock repurchase program; our expectations regarding our cash flow hedges and foreign currency risks; our planned use of cash, including our commitment to continue or increase quarterly dividend payments; our future compliance with the financial covenants contained in our credit facility; our belief that our cash on-hand, in addition to our available credit facility, will provide adequate liquidity for our business operations over the next 12 months; our beliefs regarding our exposure to foreign currency exchange rate fluctuations; and our beliefs regarding seasonal patterns associated with our business, as well as statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,”
“continue, “continue,” or the negative of such terms, or other comparable terminology. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in this document and our Annual Report on Form 10-K for the year ended January 31, 2021,30, 2022, and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.
OVERVIEW
Williams-Sonoma, Inc. ("Company, "we", or "us") is a specialty retailer of high-quality sustainable products for the home. Our products representing distinct merchandise strategiesin our portfolio of eight brands – Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, at our retail stores and through our direct-mail catalogs and retail stores.catalogs. These brands are also part of The Key Rewards, our free-to-join loyalty and credit card program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, offer international shipping to customers worldwide, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico, South Korea, and India as well as e-commerce websites in certain locations. We are also proud to lead thebe a leader in our industry with our Environmental, Social and Governance ("ESG"(“ESG”) efforts.
The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended May 2, 20211, 2022 (“first quarter of fiscal 2021”2022”), as compared to the thirteen weeks ended May 3, 20202, 2021 (“first quarter of fiscal 2020”2021”), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. All explanations of changes in operational results are discussed in order of magnitude.
COVID-19
In March 2020, we announcedDuring fiscal 2021 and continuing into the temporaryfirst quarter of fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures of all of our retail store operations to protect our employees, customers and the communities in which we operate and to help contain the COVID-19 pandemic. As of May 2, 2021, all of our U.S.-based and the majority of our global retail stores have reopened for in-person shopping. However, we continue to experience intermittent closures or restrictions on retail capacity in certain geographies, in accordance with state and local guidelines, which may continue to impact our store traffic and retail revenues in the future and result in future store impairments. We continue to operate our e-commerce sites and distribution centers and continue to deliver products to our customers. However, we have experienced, and expect to continue to experience,increased port congestion, caused delays in inventory receipts, increased raw material costs, and higher shipping-related charges as a resultcharges. We expect these supply chain challenges to continue into the remainder of port slowdowns and congestions, as well as shipping container and foam shortages, due in part to thefiscal 2022, which could negatively impact from COVID-19.
our business.
First Quarter of Fiscal 20212022 Financial Results
Net revenues in the first quarter of fiscal 20212022 increased by $513,826,000$142.2 million or 41.6%8.1%, compared to the first quarter of fiscal 2020,2021, with comparable brand revenue growth of 40.4% and double-digit comparable revenue growth across all our brands.9.5%. This was primarily driven by strength in both retail and e-commerce, particularly in our e-commercePottery Barn and retail channelsWest Elm brands, primarily due to an increase in demand forfurniture sales. Net revenue growth was partially offset by comparable brand revenue declines in our productWilliams Sonoma and higher average selling prices, which includes the impact of stores operating atPottery Barn Kids and Teen brands, and a limited capacity due to COVID-19 during the first quarter of fiscal 2020. The increasedecrease in international net revenues also included an 81.2% increase in international revenues primarily related to our franchise and company-owned operations. On a two-year basis, despite the impact of COVID-19 during the first quarter5.0%.
For the first quarter of fiscal 2021,2022, we delivered double-digit comparable brand revenue growth across all our brands. In West Elm, we delivered strong comparable brand revenue growth of 50.9% during the quarter. Our aggressive expansion in the outdoor category has been successful, and our outdoor furniture business growth was driven by line extensions in our top performing collections and new product introductions. The Pottery Barn brand delivered comparable brand revenue growth of 41.3% for9.5%. Pottery Barn, our largest brand, delivered 14.6% comparable brand revenue growth during the quarter. Our rustic modern, casual point of viewAll channels and product categories contributed, with growth primarily driven by our high-quality proprietary furniture business. In addition, we saw strength across the Pottery Barn business - in furniture, home furnishings, and decorating drove growth in all categories. Growth in our bath renovation business accelerated,core product, new offerings and our Marketplace business gained momentum.seasonal inventories. In West Elm, comparable brand revenue growth was 12.8%, driven by strong performance in furniture. Customers responded to new collections and line extensions in incremental sizes and aesthetics. New categories such as kids and bath contributed to incremental growth. The Williams Sonoma brand deliveredsaw a comparable brand revenue growthdecline of 2.2% during the quarter, following a 35.3% where cooking at home and now entertaining at home are drivingincrease in comparable brand revenues in the first quarter of fiscal 2021. Comparable brand revenues in the first quarter of fiscal 2022 were affected by out-of-stock inventories, including constraints on our customers’ purchases. This quarter we saw significant growth in all areas of entertaining, particularly outdoors and Easter gatherings.exclusive products. In our Pottery Barn Kids and Teen business,brands, we delivered 27.6%saw comparable brand revenue growth. We continue to strengthendecline 3.1% during the quarter, driven by supply chain pressure out of Vietnam. Despite some current recoveries in inventory, our leadership in the children’s home furnishings market with our emphasis on design and sustainability. Our furniture remains a core driver of growth for the brand,backorders remain at significant levels, and we also saw outsized growth in key initiatives such as Baby, and our aesthetic expansion into Modern. And,have seen further push-outs of delivery. Finally, our emerging brands, Rejuvenation and Mark and Graham, combined delivered another quarter of double-digita combined comparable brand revenue growth of 35.1%.
As of May 2, 2021, we had approximately $639,670,000 in cash and generated positive operating cash flow of $238,881,000 year-to-date. In addition to our strong cash balance, we also ended the quarter with no amount outstanding under our line of credit. This strong liquidity position allowed us to fund the operations of the business, provide shareholder returns of approximately $361,105,000 through share repurchases and dividends, and repay in full, prior to maturity, our $300,000,000 term loan facility.
fiscal 2022.
For the first quarter of fiscal 2021,2022, diluted earnings per share was $3.50, compared to $2.90 in the first quarter of fiscal 2021 (which included a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.), versus $0.45.
As of May 1, 2022, we had $324.8 million in cash and generated positive operating cash flow of $184.5 million year-to-date. In addition to our strong cash balance, we also ended the first quarter with no outstanding borrowings under our revolving line of fiscal 2020 (which included a $0.15 impact relatedcredit. This strong liquidity position allowed us to store asset impairments, an $0.11 impact relatedfund the operations of the business by investing $71.2 million in capital expenditures year-to-date, and to inventory write-offs,provide stockholder returns of $559.2 million year-to-date through stock repurchases and a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.).
dividends.
Looking Ahead
Looking forward to thethe balance of the year, we will continue to focus on driving net revenue and operating margin growth. We believe our revenue growth will be driven by the continued strength of our business year-to-date, the strong housing environment and people’s deeper appreciation for the home, the momentum in our growth initiatives, and planned improvement in our inventory enabling us to fill our backorders throughout the year. We believe our operating margin expansionmodel, which includes our key differentiators – our in-house design, our digital-first channel strategy, and our values, will be driven by overall sales leverage, continued occupancy leverage from the renegotiation of our lease agreements and store closures, continued expansion in our merchandise marginsset us apart from our on-going focus on more content-led marketingcompetition and more value-engineered products, as well as from overall strong financial discipline. However, productionallow us to drive long-term growth and global transportation constraints remain challenging industry-wide and, as a result, we continue to see elevated backorders and delays throughout the supply chain. Further, we have experienced and may continue to experience shipping and product cost increases that continue to pressure the industry. In addition,profitability. However, we continue to experience intermittent closures or restrictions on retail capacity in certain geographies, in accordancedelays and increased costs across our global supply chain, including higher product costs, elevated backorders, higher freight and incremental distribution center costs for additional space to support our overall growth and our ongoing mix shift to furniture. It is hard to predict with statecertainty when these supply chain challenges will be fully resolved and local guidelines, which may continuewe currently expect these supply chain challenges, combined with our strong demand, to negatively impact our store trafficinventory levels until the second half of fiscal year 2022. Despite these challenges, we believe the demand for our proprietary and retail revenuessustainably-sourced products, our growth strategies and the efficiencies of our operating model leave us well-positioned to mitigate these costs in both the futureshort- and result in future store impairments. Overall, the long-term impact of COVID-19 on our business, results of operations and financial condition still remains uncertain.long-term. For more information on risks, associated with COVID-19, please see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.30, 2022.
NET REVENUES
Net revenues primarily consist of sales of merchandise to our customers through our e-commerce websites, direct mail catalogs, and at our retail stores and through our direct mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. Our revenues also include sales to our franchisees and wholesale customers, breakage income related to our stored-value cards, and incentives received from credit card issuers in connection with our private label and co-branded credit cards, and breakage income related to our stored-value cards.
Revenue from the sale of merchandise is reported net of sales returns.
Net revenues in the first quarter of fiscal 20212022 increased by $513,826,000$142.2 million or 41.6%8.1%, compared to the first quarter of fiscal 2020,2021, with comparable brand revenue growth of 40.4% and double-digit comparable revenue growth across all our brands.9.5%. This was primarily driven by strength in both retail and e-commerce, particularly in our e-commercePottery Barn and retail channelsWest Elm brands, primarily due to an increase in demand forfurniture sales. Net revenue growth was partially offset by comparable brand revenue declines in our productWilliams Sonoma and higher average selling prices, which includes the impact of stores operating atPottery Barn Kids and Teen brands, and a limited capacity due to COVID-19 during the first quarter of fiscal 2020. The increasedecrease in international net revenues also included an 81.2% increase in international revenues primarily related to our franchise and company-owned operations. On a two-year basis, despite the impact of COVID-19 during the first quarter5.0%.
Contents
Comparable Brand Revenue
Comparable brand revenue includes comparable store sales and e-commerce sales, including through our direct mail catalogs, as well as shipping fees, sales returns and other discounts associated with current period sales. Comparable stores are typically defined as permanent stores where gross square footage did not change by more than 20% in the previous 12 months, and which have been open for at least 12 consecutive months without closure for seven or more consecutive days.days within the same fiscal month. Comparable stores that were temporarily closed due to COVID-19 were not excluded from the comparable storesbrand revenue calculation. Outlet comparable store net revenues are included in their respective brands. Sales to our international franchisees are excluded from comparable brand revenue as their stores and e-commerce websites are not operated by us. Sales from certain operations are also excluded until such time that we believe those sales are meaningful to evaluating their performance. Additionally, comparable brand revenue growth for newer concepts is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.
| | | | | | | | | | |
| Thirteen Weeks Ended | |
Comparable brand revenue growth (decline) | May 2, 2021 | May 3, 2020 | | |
Pottery Barn | 41.3 | % | (1.1 | %) | | |
West Elm | 50.9 | % | 3.3 | % | | |
Williams Sonoma | 35.3 | % | 5.4 | % | | |
Pottery Barn Kids and Teen | 27.6 | % | 8.5 | % | | |
Total 1 | 40.4 | % | 2.6 | % | | |
1 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.
| | | | | | | | | | |
| For the Thirteen Weeks Ended | |
Comparable brand revenue growth (decline) | May 1, 2022 | May 2, 2021 | | |
Pottery Barn | 14.6 | % | 41.3 | % | | |
West Elm | 12.8 | | 50.9 | | | |
Williams Sonoma | (2.2) | | 35.3 | | | |
Pottery Barn Kids and Teen | (3.1) | | 27.6 | | | |
| | | | |
Total1 | 9.5 | % | 40.4 | % | | |
| | |
1 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham. | | |
STORE DATA
| | | Store Count 1 | | Average Leased Square Footage Per Store | | Store Count | | Average Leased Square Footage Per Store |
| | January 31, 2021 | | Openings | | Closings | | May 2, 2021 | | May 3, 2020 | | May 2, 2021 | | May 3, 2020 | | January 30, 2022 | | Openings | | Closings | | May 1, 2022 | | May 2, 20211 | | May 1, 2022 | | May 2, 20211 |
Pottery Barn | | Pottery Barn | 188 | | | 1 | | | (1) | | | 188 | | | 195 | | | 14,500 | | | 14,600 | |
Williams Sonoma | Williams Sonoma | 198 | | | — | | | (3) | | | 195 | | | 212 | | | 6,800 | | | 6,900 | | Williams Sonoma | 174 | | | 2 | | | (1) | | | 175 | | | 195 | | | 6,900 | | | 6,800 | |
Pottery Barn | 195 | | | 2 | | | (2) | | | 195 | | | 201 | | | 14,600 | | | 14,400 | | |
West Elm | West Elm | 121 | | | — | | | — | | | 121 | | | 119 | | | 13,100 | | | 13,200 | | West Elm | 121 | | | — | | | — | | | 121 | | | 121 | | | 13,200 | | | 13,100 | |
Pottery Barn Kids | Pottery Barn Kids | 57 | | | — | | | — | | | 57 | | | 74 | | | 7,800 | | | 7,700 | | Pottery Barn Kids | 52 | | | — | | | — | | | 52 | | | 57 | | | 7,700 | | | 7,800 | |
Rejuvenation | Rejuvenation | 10 | | | — | | | — | | | 10 | | | 10 | | | 8,500 | | | 8,500 | | Rejuvenation | 9 | | | — | | | — | | | 9 | | | 10 | | | 9,400 | | | 8,500 | |
Total | Total | 581 | | | 2 | | | (5) | | | 578 | | | 616 | | | 10,900 | | | 10,700 | | Total | 544 | | | 3 | | | (2) | | | 545 | | | 578 | | | 11,000 | | | 10,900 | |
Store selling square footage at period-end | Store selling square footage at period-end | | | | | | 3,972,000 | | | 4,148,000 | | Store selling square footage at period-end | | | | | | 3,823,000 | | | 3,972,000 | |
Store leased square footage at period-end | Store leased square footage at period-end | | | | | | 6,289,000 | | | 6,580,000 | | Store leased square footage at period-end | | | | | | 6,006,000 | | | 6,289,000 | |
1Store countRetail store data does not reflect temporary closuresfor fiscal 2021 includes stores temporarily closed due to COVID-19.
All stores were reopened as of the end of fiscal 2021.
COST OF GOODS SOLD
| | | Thirteen Weeks Ended | | | For the Thirteen Weeks Ended | |
In thousands | May 2, 2021 | | % Net Revenues | | May 3, 2020 | | % Net Revenues | | |
(In thousands) | | (In thousands) | May 1, 2022 | | % Net Revenues | | May 2, 2021 | | % Net Revenues | |
Cost of goods sold 1 | Cost of goods sold 1 | $ | 996,176 | | | 57.0 | % | | $ | 820,943 | | | 66.5 | % | | Cost of goods sold 1 | $ | 1,062,679 | | | 56.2 | % | | $ | 996,176 | | | 57.0 | % | |
1Includes total occupancy expenses of $175.7$186.4 million and $174.9$175.7 million for the first quarter of fiscal 20212022 and the first quarter of fiscal 2020,2021, respectively.
Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage. Occupancy expenses consist of rent, depreciation and other occupancy costs including(including property taxes, common area maintenance property taxes and utilities.utilities) and depreciation. Shipping costs consist of third-party delivery services and shipping materials.
Our classification of expenses in cost of goods sold may not be comparable to other public companies, as we do not include non-occupancy related costs associated with our distribution network in cost of goods sold. These costs, which include distribution network employment, third-party warehouse management and other distribution related administrative expenses, are recorded in selling, general and administrative expenses.
First Quarter of Fiscal 20212022 vs. First Quarter of Fiscal 20202021
Cost of goods sold increased by $175,233,000,$66.5 million, or 21.3%6.7%, in the first quarter of fiscal 20212022, compared to the first quarter of fiscal 2020.2021. Cost of goods sold as a percentage of net revenues decreased to 56.2% in the first quarter of fiscal 2022 from 57.0% in the first quarter of fiscal 2021 from 66.5%2021. This decrease in the first quarter of fiscal 2020. This decreaserate was primarily driven by higher merchandise margins driven byfrom reduced promotional activity, the leverage of occupancy costs, inventory write-offs of $11,378,000 (from the closure of our outlet stores
due to COVID-19 in the first quarter of fiscal 2020 that did not recur in the first quarter of fiscal 2021), and the leverage of shipping costs (which reflects a higher mix of retail revenues versus the first quarter of fiscal 2020).
activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
In thousands | May 2, 2021 | | % Net Revenues | | May 3, 2020 | | % Net Revenues | | | | | | | | |
Selling, general and administrative expenses | $ | 477,676 | | | 27.3 | % | | $ | 365,615 | | | 29.6 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Thirteen Weeks Ended | | |
(In thousands) | May 1, 2022 | | % Net Revenues | | May 2, 2021 | | % Net Revenues | | | | | | | | |
Selling, general and administrative expenses | $ | 505,067 | | | 26.7 | % | | $ | 477,676 | | | 27.3 | % | | | | | | | | |
Selling, general and administrative expenses consist of non-occupancy related costs associated with our retail stores, distribution and manufacturing facilities, customer care centers, supply chain operations (buying, receiving and inspection) and corporate administrative functions. These costs include employment, advertising, third party credit card processing and other general expenses.
First Quarter of Fiscal 20212022 vs. First Quarter of Fiscal 20202021
Selling, general and administrative expenses increased by $112,061,000,$27.4 million, or 30.7%5.7%, in the first quarter of fiscal 2021,2022, compared to the first quarter of fiscal 2020.2021. Selling, general and administrative expenses as a percentage of net revenues decreased to 26.7% in the first quarter of fiscal 2022 from 27.3% in the first quarter of fiscal 2021 from 29.6% in the first quarter of fiscal 2020.2021. This decrease in rate was primarily driven by the leverage of employment costs and other generaladvertising expenses from higher sales and overall cost discipline, as well as store asset impairment charges of approximately $15,620,000 due to the impact of COVID-19 on our retail stores indiscipline.
INCOME TAXES
The effective tax rate was 21.5% for the first quarter of fiscal 2020 that did not recur in fiscal 2021. This decrease was partially offset by higher advertising costs in the first quarter of fiscal 20212022 compared to significantly reduced advertising costs as a result of our initial financial response to COVID-19 in the first quarter of fiscal 2020.
INCOME TAXES
The effective tax rate was 16.6% for the first quarter of fiscal 2021 compared to 23.8% for the first quarter of fiscal 2020.2021. The decreaseincrease in the effective tax rate is primarily due to an increase in ourless excess tax benefit from stock-based compensation in the first quarter of fiscal 20212022 compared to the first quarter of fiscal 2020.2021.
LIQUIDITY AND CAPITAL RESOURCES
Material Cash Requirements
As of May 2, 2021, we held $639,670,000 in cash and cash equivalents,There were no material changes during the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which $152,431,000 was held by our international subsidiaries. As is consistent within our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.
For the remainder of fiscal 2021, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, advertising and marketing initiatives, stock repurchases and dividend payments, and property and equipment purchases.
In addition to our cash balances, we have a credit facility which provides for a $500,000,000 unsecured revolving line of credit (“revolver”). The revolver may be used to borrow revolving loans or to request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders to increase the revolver by up to $250,000,000, at such lenders’ option, to provide for a total of $750,000,000 of unsecured revolving credit. Our credit facility also provided for a $300,000,000 unsecured term loan facility (“term loan”). In February 2021, prior to maturity, we repaid the full outstanding balance of $300,000,000 on our term loan.
During the first quarter of fiscal 2021, we had no borrowings under the revolver. Additionally, as of May 2, 2021, a total of $12,601,000 in issued but undrawn standby letters of credit was outstanding under the credit facility. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensationCompany’s material cash requirements, commitments and other insurance programs.
In addition to the credit facility, during the second quarter of fiscal 2020 we entered into a new agreement (the “364-Day Credit Agreement”) for an additional $200,000,000 unsecured revolving line of credit. During the first quarter of fiscal 2021, we had no borrowings under the 364-Day Credit Agreement. We did not renew the 364-Day Credit Agreement upon its maturity in May 2021.
The credit facility contains and the 364-Day Credit Agreement contained certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for lease and rent expense to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of May 2, 2021, we were in compliance with our financial covenants under the credit facility and the 364-Day Credit Agreement and, based on our current projections, we expect to remain in compliance with the remaining credit facility throughout the next 12 months. We believe our cash on hand, in addition to our available credit facility, will provide adequate liquidity for our business operations over the next 12 months.
Letter of Credit Facilities
We have three unsecured letter of credit reimbursement facilities for a total of $35,000,000, each of which matures on August 22, 2021. The letter of credit facilities contain covenantscontingencies that are consistent with our credit facility. Interestdescribed in Part II, Item 7 of the Company’s Annual Report on unreimbursed amounts under the letter of credit facilities accrues at a base rate as defined in the credit facility, plus an applicable margin based on our leverage ratio. As of May 2, 2021, an aggregate of $5,836,000 was outstanding under the letter of credit facilities, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration date possible for any future letters of credit issued under the facilities is January 19, 2022.
Cash Flows from Operating Activities
For the first quarter of fiscal 2021, net cash provided by operating activities was $238,881,000 compared to $53,873,000Form 10-K for the first quarter of fiscal 2020. For the first quarter of fiscal 2021, net cash providedyear ended January 30, 2022, which is incorporated herein by operating activities was primarily attributable to net earnings adjusted for non-cash items, partially offset by a decrease in accrued expenses and other liabilities as well as an increase in merchandise inventories. Net cash provided by operating activities for the first quarter of fiscal 2021 increased compared to the first quarter of fiscal 2020 primarily due to an increase in net earnings and an increase in accounts payable, partially offset by an increase in merchandise inventories.
Cash Flows from Investing Activities
For the first quarter of fiscal 2021, net cash used in investing activities was $42,267,000 compared to $42,079,000 for the first quarter of fiscal 2020, and was primarily attributable to purchases of property and equipment.
Cash Flows from Financing Activities
For the first quarter of fiscal 2021, net cash used in financing activities was $759,556,000 compared to net cash provided by financing activities of $419,520,000 for the first quarter of fiscal 2020. For the first quarter of fiscal 2021, net cash used in financing activities was primarily attributable to the repurchases of common stock, the repayment of our term loan and tax withholdings related to stock-based awards. Net cash used in financing activities for the first quarter of fiscal 2021 increased compared to net cash provided by financing activities for the first quarter of fiscal 2020 primarily due to borrowings under our revolving line of credit in the first quarter of fiscal 2020 that did not recur in the first quarter of fiscal 2021, an increase in repurchases of common stock, and the repayment of our term loan in the first quarter of fiscal 2021.
reference.
Stock Repurchase Program and Dividends
See Note G to our Condensed Consolidated Financial Statements, Stock Repurchase Program and Dividends, within Item 1 of this Quarterly Report on Form 10-Q for further information.
Liquidity Outlook
For the remainder of fiscal 2022, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, advertising and marketing initiatives, stock repurchases, the payment of income taxes, rental payments on our leases, property and equipment purchases, and dividend payments.
We believe our cash on hand, cash flows from operations, and our available credit facilities will provide adequate liquidity for our business operations as well as stock repurchases, capital expenditures, dividends and other liquidity requirements associated with our business operations over the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.
Sources of Liquidity
As of May 1, 2022, we held $324.8 million in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which $156.0 million was held by our international subsidiaries. As is consistent within our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.
Critical Accounting PoliciesIn addition to our cash balances on hand, we have a credit facility (the "Credit Facility") which provides for a $500 million unsecured revolving line of credit (the “Revolver”). Our Revolver may be used to borrow revolving loans or request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders’ option, to increase the Revolver by up to $250 million to provide for a total of $750 million of unsecured revolving credit.
During the first quarter of fiscal 2022, we had no borrowings under our Revolver. Additionally, as of May 1, 2022, issued but undrawn standby letters of credit of $11.4 million were outstanding under our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.
Our Credit Facility contains certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for operating lease liabilities to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of May 1, 2022, we were in compliance with our financial covenants under our Credit Facility and, based on current projections, we expect to remain in compliance throughout the next 12 months.
Letter of Credit Facilities
We have three unsecured letter of credit reimbursement facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in our Credit Facility, plus an applicable margin based on our leverage ratio. As of May 1, 2022, the aggregate amount outstanding under our letter of credit facilities was $6.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration date possible for any future letters of credit issued under the facilities is January 19, 2023.
Cash Flows from Operating Activities
For the first quarter of fiscal 2022, net cash provided by operating activities was $184.5 million compared to $238.9 million for the first quarter of fiscal 2021. For the first quarter of fiscal 2022, net cash provided by operating activities was primarily attributable to net earnings adjusted for non-cash items, an increase in income tax payable, and an increase in gift card and other deferred revenue (as a result of an increase in sales), partially offset by higher spending on merchandise inventories (as a result of the strong customer demand for our products) and decreases in accrued expenses and operating lease liabilities. Net cash provided by operating activities for the first quarter of fiscal 2022 decreased compared to the first quarter of fiscal 2021, primarily due to an increase in merchandise inventories and a decrease in accrued expenses and other liabilities, partially offset by an increase in net earnings adjusted for non-cash items.
Cash Flows from Investing Activities
For the first quarter of fiscal 2022, net cash used in investing activities was $71.1 million compared to $42.3 million for the first quarter of fiscal 2021, and was primarily attributable to purchases of property and equipment related to technology and supply chain enhancements.
Cash Flows from Financing Activities
For the first quarter of fiscal 2022, net cash used in financing activities was $637.7 million compared to $759.6 million for the first quarter of fiscal 2021, driven by repurchases of common stock, tax withholdings related to stock-based awards and payment of dividends. Net cash used in financing activities for the first quarter of fiscal 2022 decreased compared to the first quarter of fiscal 2021, primarily due to the repayment of debt in the first quarter of fiscal 2021 that did not recur in the first quarter of fiscal 2022, partially offset by an increase in repurchases of common stock.
Seasonality
Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our revenues and net earnings have been realized during the period from October through January, and levels of net revenues and net earnings have typically been lower during the period from February through September. We believe this is the general pattern associated with the retail industry. In preparation for and during our holiday selling season, we hire a substantial number of additional temporary employees, primarily in our retail stores, distribution facilities and customer care centers.
CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates. During the first quarter of fiscal 2021,2022, there were no significant changes to the critical accounting policiesestimates discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.
Seasonality
Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our revenues and net earnings have been realized during the period from October through January, and levels of net revenues and net earnings have typically been lower during the period from February through September. We believe this is the general pattern associated with the retail industry. In preparation for and during our holiday selling season, we hire a substantial number of additional temporary employees, primarily in our retail stores, customer care centers and distribution facilities, and incur significant fixed catalog production and mailing costs.
Contractual Obligations, Commitments, Contingencies and Off-balance Sheet Arrangements
There were no material changes during the quarter to the Company’s contractual obligations, commitments, contingencies and off-balance sheet arrangements that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021, which is incorporated herein by reference.30, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, which include significant deterioration of the U.S. and foreign markets, changes in U.S. interest rates, foreign currency exchange rate fluctuations, and the effects of economic uncertainty which may affect the prices we pay our vendors in the foreign countries in which we do business. We do not engage in financial transactions for trading or speculative purposes.
Interest Rate Risk
Our revolverRevolver has a variable interest rate which, when drawn upon, subjects us to risks associated with changes in that interest rate. During the first quarter of fiscal 2021,2022, we had no borrowings under the revolver. A hypothetical increase or decrease of one percentage point on our existing variable rate debt instruments would not materially affect our results of operations or cash flows.
Revolver.
In addition, we have fixed and variable income investments consisting of short-term investments classified as cash and cash equivalents, which are also affected by changes in market interest rates. As of May 2, 2021,1, 2022, our investments, made primarily in interest-bearing demand deposit accounts and money market funds, are stated at cost and approximate their fair values.
Foreign Currency Risks
We purchase the majority of our inventory from vendors outside of the U.S. in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to our international purchase transactions was not significant to us during the first quarter of fiscal 20212022 or the first quarter of fiscal 2020.2021. Since we pay for the majority of our international purchases in U.S. dollars, however, a decline in the U.S. dollar relative to other foreign currencies would subject us to risks associated with increased purchasing costs from our vendors in their effort to offset any lost profits associated with any currency devaluation. We cannot predict with certainty the effect these increased costs may have on our financial statements or results of operations.
In addition, our businesses in Canada, Australia and the United Kingdom, and our operations throughout Asia and Europe, expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a functional currency other than the U.S. dollar. While the impact of foreign currency exchange rate fluctuations was not material to us in the first quarterquarters of fiscal 20212022 or the first quarter of fiscal 2020,2021, we have continued to see volatility in the exchange rates in the countries in which we do business. As we continue to expand globally, the foreign currency exchange risk related to our foreign operations may increase. To mitigate this risk, we hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies (see Note H to our Condensed Consolidated Financial Statements).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of May 2, 2021,1, 2022, an evaluation was performed by management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective
to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely discussions regarding required disclosures, and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the first quarter of fiscal 2021,2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information required by this Item is contained in Note F to our Condensed Consolidated Financial Statements within Part I of this Form 10-Q.
ITEM 1A. RISK FACTORS
See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 202130, 2022 for a description of the risks and uncertainties associated with our business. There were no material changes to such risk factors in the current quarterly reporting period.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In March 2021,2022, our Board of Directors authorized a new stock repurchase program for a total of $1,000,000,000,$1.5 billion, which replaced our existing program.
The following table provides information as of May 2, 20211, 2022 with respect to shares of common stock we repurchased during the first quarter of fiscal 20212022 under our prior and new stock repurchase programs. For additional information, please see Note G to our Condensed Consolidated Financial Statements within Part I of this Form 10-Q.
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Fiscal Period | Total Number of Shares Purchased 1 | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program 1 | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program |
February 1, 2021 – February 28, 2021 | 85,932 | | | $ | 127.37 | | | 85,932 | | | $ | 414,036,000 | |
March 1, 2021 – March 28, 2021 | 361,807 | | | $ | 167.29 | | | 361,807 | | | $ | 947,889,000 | |
March 29, 2021 – May 2, 2021 | 1,342,986 | | | $ | 181.73 | | | 1,342,986 | | | $ | 703,833,000 | |
Total | 1,790,725 | | | $ | 176.20 | | | 1,790,725 | | | $ | 703,833,000 | |
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Fiscal Period | Total Number of Shares Purchased 1 | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program 1 | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program |
January 31, 2022 - February 27, 2022 | 432,841 | | | $ | 161.72 | | | 432,841 | | | $ | 740,751,000 | |
February 28, 2022 - March 27, 2022 | 443,234 | | | $ | 151.01 | | | 443,234 | | | $ | 1,433,068,000 | |
March 28, 2022 - May 1, 2022 | 2,503,656 | | | $ | 145.44 | | | 2,503,656 | | | $ | 1,068,925,000 | |
Total | 3,379,731 | | | $ | 148.26 | | | 3,379,731 | | | $ | 1,068,925,000 | |
1 Excludes shares withheld for employee taxes upon vesting of stock-based awards.
Stock repurchases under our program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
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Exhibit Number | | Exhibit Description |
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10.1+* | | |
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31.1*31.1 | | |
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31.2*31.2 | | |
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32.1*32.1 | | |
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32.2*32.2 | | |
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101* | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2021,1, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Earnings, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags |
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104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted under Exhibit 101). |
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* | Filed herewith | | | | | |
+ | Indicates a management contract or compensatory plan or arrangement. |
* | Filed herewith | | | | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WILLIAMS-SONOMA, INC. |
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By: | | /s/ Julie Whalen |
| | Julie Whalen |
| | Duly Authorized Officer and Chief Financial Officer |
Date: June 9, 20211, 2022