Table of Contents

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 August 2, 2020.1, 2021.         
or
☐
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

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)
Delaware
94-2203880
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3250 Van Ness Avenue, San Francisco, CA
94109
(Address of principal executive offices)
(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 August 30, 2020, 77,799,85429, 2021, 74,365,546 shares of the registrant’s Common Stock were outstanding.

WILLIAMS-SONOMA, INC.
REPORT ON FORM
10-Q
FOR THE QUARTER ENDED AUGUST 2, 2020
1, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
PAGE
Item 1.
PAGE
1
Item 1.
2.
Financial Statements
1
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
15
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
21
Item 4.
Controls and Procedures
22
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
23
Item 1A.
Risk Factors
23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25
23
Item 3.
Defaults Upon Senior Securities
25
23
Item 4.
Mine Safety Disclosures
25
23
Item 5.
Other Information
25
23
Item 6.
Exhibits24
26



Table of Contents
ITEM 1. FINANCIAL STATEMENTS

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 Thirteen
 Weeks Ended		Twenty-six
 Weeks Ended
In thousands, except per share amountsAugust 1,
2021		August 2,
2020		August 1,
2021		August 2,
2020
Net revenues$1,948,339 $1,490,777 $3,697,368 $2,725,980 
Cost of goods sold1,089,951 939,575 2,086,127 1,760,518 
Gross profit858,388 551,202 1,611,241 965,462 
Selling, general and administrative expenses535,288 365,841 1,012,964 731,456 
Operating income323,100 185,361 598,277 234,006 
Interest (income) expense, net(39)6,464 1,833 8,623 
Earnings before income taxes323,139 178,897 596,444 225,383 
Income taxes77,069 44,333 122,572 55,396 
Net earnings$246,070 $134,564 $473,872 $169,987 
Basic earnings per share$3.29 $1.73 $6.29 $2.19 
Diluted earnings per share$3.21 $1.70 $6.11 $2.16 
Shares used in calculation of earnings per share:
Basic74,786 77,783 75,293 77,522 
Diluted76,584 79,264 77,516 78,841 

   Thirteen
Weeks Ended		   
Twenty-six

Weeks Ended
 
In thousands, except per share amounts
  
August 2
,
2020
   
August 4
,
2019
   
August 2
,
2020
   
August 4
,
2019
 
Net revenues
  $1,490,777   $1,370,814   $2,725,980   $2,611,946 
Cost of goods sold
   939,575    886,953    1,760,518    1,683,754 
Gross profit
   551,202    483,861    965,462    928,192 
Selling, general and administrative expenses
   365,841    397,696    731,456    767,895 
Operating income
   185,361    86,165    234,006    160,297 
Interest expense, net
   6,464    2,669    8,623    4,922 
Earnings before income taxes
   178,897    83,496    225,383    155,375 
Income taxes
   44,333    20,848    55,396    40,071 
Net earnings
  $134,564   $62,648   $169,987   $115,304 
Basic earnings per share
  $1.73   $0.80   $2.19   $1.47 
Diluted earnings per share
  $1.70   $0.79   $2.16   $1.45 
  
 
 
   
 
 
   
 
 
   
 
 
 
Shares used in calculation of earnings per share:
        
Basic
   77,783    78,488    77,522    78,586 
Diluted
   79,264    79,470    78,841    79,633 
See Notes to Condensed Consolidated Financial Statements.


WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Thirteen
 Weeks Ended		Twenty-six
 Weeks Ended
In thousandsAugust 1,
2021		August 2,
2020		August 1,
2021		August 2,
2020
Net earnings$246,070 $134,564 $473,872 $169,987 
Other comprehensive income (loss):
Foreign currency translation adjustments(3,522)6,737 178 1,461 
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $25, $(71), $(216), and $12565 (200)(600)349 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $(126), $38, $(181), and $51337 (107)490 (144)
Comprehensive income$242,950 $140,994 $473,940 $171,653 

   Thirteen
Weeks Ended		  
Twenty-six

Weeks Ended
 
In thousands
  
August 2
,
2020
 
  
August 4
,
2019
 
 
August 2
,
2020
 
  
August 4
,
2019
 
Net earnings
  $      134,564   $       62,648  $     169,987   $       115,304 
Other comprehensive income (loss):
       
Foreign currency translation adjustments
   6,737    (1,251)   1,461    (4,260)
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(71), $(8), $125 and $66
   (200)    (132)   349    72 
Reclassification adjustment for realized gain on derivative financial instruments, net of tax of $38, $10, $51 and $34
   (107)    (160)   (144)    (227)
 
Comprehensive income
  $140,994   $61,105  $171,653   $110,889 
See Notes to Condensed Consolidated Financial Statements.

1
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

In thousands, except per share amountsAugust 1,
2021		January 31,
2021		August 2,
2020
ASSETS
Current assets
Cash and cash equivalents$655,211 $1,200,337 $947,760 
Accounts receivable, net141,814 143,728 128,737 
Merchandise inventories, net1,170,561 1,006,299 1,042,340 
Prepaid expenses85,587 93,822 109,495 
Other current assets20,537 22,894 27,098 
Total current assets2,073,710 2,467,080 2,255,430 
Property and equipment, net875,295 873,894 887,401 
Operating lease right-of-use assets1,052,617 1,086,009 1,146,229 
Deferred income taxes, net58,848 61,854 37,789 
Goodwill85,421 85,446 85,419 
Other long-term assets, net99,146 87,141 75,028 
Total assets$4,245,037 $4,661,424 $4,487,296 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$601,879 $542,992 $373,086 
Accrued expenses224,089 267,592 158,407 
Gift card and other deferred revenue403,409 373,164 292,684 
Income taxes payable61,335 69,476 28,502 
Current debt— 299,350 — 
Borrowings under revolving line of credit— — 487,823 
Operating lease liabilities213,784 209,754 221,575 
Other current liabilities74,331 85,672 102,086 
Total current liabilities1,578,827 1,848,000 1,664,163 
Deferred lease incentives18,359 20,612 24,684 
Long-term debt— — 298,995 
Long-term operating lease liabilities994,165 1,025,057 1,080,622 
Other long-term liabilities126,967 116,570 85,910 
Total liabilities2,718,318 3,010,239 3,154,374 
Commitments and contingencies – See Note F000
Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued— — — 
Common stock: $0.01 par value; 253,125 shares authorized; 74,426, 76,340 and 77,796 shares issued and outstanding at August 1, 2021, January 31, 2021 and August 2, 2020, respectively745 764 778 
Additional paid-in capital569,734 638,375 608,892 
Retained earnings964,000 1,019,762 736,772 
Accumulated other comprehensive loss(7,049)(7,117)(12,921)
Treasury stock, at cost: 4, 8 and 8 shares as of August 1, 2021, January 31, 2021 and August 2, 2020, respectively(711)(599)(599)
Total stockholders’ equity1,526,719 1,651,185 1,332,922 
Total liabilities and stockholders’ equity$4,245,037 $4,661,424 $4,487,296 
See Notes to Condensed Consolidated Financial Statements.
2
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
In thousandsSharesAmount
Balance at January 31, 202176,340 $764 $638,375 $1,019,762 $(7,117)$(599)$1,651,185 
Net earnings— — — 227,802 — — 227,802 
Foreign currency translation adjustments— — — — 3,700 — 3,700 
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— — — — 153 — 153 
Conversion/release of stock-based awards1
686 7 (97,958)— — (500)(98,451)
Repurchases of common stock(1,791)(18)(9,239)(306,272)— — (315,529)
Reissuance of treasury stock under stock-based compensation plans 1
— — (344)(44)— 388 — 
Stock-based compensation expense— — 25,471 — — — 25,471 
Dividends declared— — — (46,370)— — (46,370)
Balance at May 2, 202175,235 $753 $556,305 $894,878 $(3,929)$(711)$1,447,296 
Net earnings— — — 246,070 — — 246,070 
Foreign currency translation adjustments— — — — (3,522)— (3,522)
Change in fair value of derivative financial instruments, net of tax— — — — 65 — 65 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — 337 — 337 
Conversion/release of stock-based awards1
25 — (1,709)— — — (1,709)
Repurchases of common stock(834)(8)(4,358)(131,493)— — (135,859)
Stock-based compensation expense— — 19,496 — — — 19,496 
Dividends declared— — — (45,455)— — (45,455)
Balance at August 1, 202174,426 $745 $569,734 $964,000 $(7,049)$(711)$1,526,719 
1.Amounts are shown net of shares withheld for employee taxes.
In thousands, except per share amounts
  
August 2,
2020
  
February 2,
2020
  
August 4,
2019
 
ASSETS
     
Current assets
     
Cash and cash equivalents
  $947,760   $432,162  $120,467 
Accounts receivable, net
   128,737    111,737   111,114 
Merchandise inventories, net
   
 
 
 
 
1,042,340		    
 
 
 
 
1,100,544		   
 
 
 
 
1,187,728		 
Prepaid expenses
   109,495    90,426   117,017 
Other current assets
   27,098    20,766   21,693 
Total current assets
   2,255,430    1,755,635   1,558,019 
Property and equipment, net
   887,401    929,038   913,059 
Operating lease
right-of-use
assets
   1,146,229    1,166,383   1,208,528 
Deferred income taxes, net
   37,789    47,977   38,803 
Goodwill
   85,419    85,343   85,348 
Other long-term assets, net
   75,028    69,666   65,924 
Total assets
  $4,487,296   $4,054,042  $3,869,681 
LIABILITIES AND STOCKHOLDERS’ EQUITY
     
Current liabilities
     
Accounts payable
  $373,086   $521,235  $404,337 
Accrued expenses
   158,407    175,003   127,137 
Gift card and other deferred revenue
   292,684    289,613   283,108 
Income taxes payable
   28,502    22,501   13,065 
Current debt
   —    299,818   — 
Borrowings under revolving line of credit
  
487,823
 
 
 
—  
 
 
 
60,000
 
Operating lease liabilities
   221,575    227,923   222,978 
Other current liabilities
   102,086    73,462   76,254 
Total current liabilities
   1,664,163    1,609,555   1,186,879 
Deferred rent and lease incentives
   24,684    27,659   28,618 
Long-term debt
   298,995    —     299,719 
Long-term operating lease liabilities
   1,080,622    1,094,579   1,148,031 
Other long-term liabilities
   85,910    86,389   84,831 
Total liabilities
   3,154,374    2,818,182   2,748,078 
Commitments and contingencies – See Note F
    
Stockholders’ equity
     
Preferred stock: $.01 par value; 7,500 shares authorized; NaN issued
   —    —     —   
Common stock: $.01 par value; 253,125 shares authorized; 77,796, 77,137 and
78,203 shares issued and outstanding at August 2, 2020, February 2, 2020 and
August 4, 2019, respectively
   778    772   783 
Additional
paid-in
capital
   608,892    605,822   584,828 
Retained earnings
   736,772    644,794   552,454 
Accumulated other comprehensive loss
   (12,921)    (14,587)   (15,488) 
Treasury stock, at cost: 8, 14 and 14 shares as of August 2, 2020, February 2, 2020 and August 4, 2019, respectively
   (599)    (941)   (974) 
Total stockholders’ equity
   1,332,922    1,235,860   1,121,603 
Total liabilities and stockholders’ equity
  $4,487,296   $4,054,042  $3,869,681 
See Notes to Condensed Consolidated Financial Statements.












23
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS' EQUITY
(Unaudited)
 
 
Common Stock
Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
Stockholders’
Equity
In thousandsSharesAmount
Balance at February 2, 202077,137 $772 $605,822 $644,794 $(14,587)$(941)$1,235,860 
Net earnings— — — 35,423 — — 35,423 
Foreign currency translation adjustments— — — — (5,276)— (5,276)
Change in fair value of derivative financial instruments, net of tax— — — — 549 — 549 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — (37)— (37)
Conversion/release of stock-based awards1
622 6 (28,747)— — (171)(28,912)
Reissuance of treasury stock under stock-based compensation plans 1
— — (499)(14)— 513 — 
Stock-based compensation expense— — 19,608 — — — 19,608 
Dividends declared— — — (38,286)— — (38,286)
Balance at May 3, 202077,759 $778 $596,184 $641,917 $(19,351)$(599)$1,218,929 
Net earnings— — — 134,564 — — 134,564 
Foreign currency translation adjustments— — — — 6,737 — 6,737 
Change in fair value of derivative financial instruments, net of tax— — — — (200)— (200)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — (107)— (107)
Conversion/release of stock-based awards1
37 — (677)— — — (677)
Stock-based compensation expense— — 13,385 — — — 13,385 
Dividends declared— — — (39,709)— — (39,709)
Balance at August 2, 202077,796 $778 $608,892 $736,772 $(12,921)$(599)$1,332,922 
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
 
In thousands
  Shares   Amount 
Balance at February 2, 2020
   77,137   $772   $605,822  $644,794  $(14,587)  $(941)  $1,235,860 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings
   —      —      —     35,423   —     —     35,423 
Foreign currency translation adjustments
   —      —      —     —     (5,276)   —     (5,276) 
Change in fair value of derivative financial instruments, net of tax
   —      —      —     —     549   —     549 
Reclassification adjustment for realized (gain)
on derivative financial instruments, net of
tax
   —      —      —     —     (37)   —     (37) 
Conversion/release of stock-based awards
1
   622    6    (28,747)   —     —     (171)   (28,912) 
Reissuance of treasury stock under stock-based
compensation plans
1
   —      —      (499)   (14)   —     513   —   
Stock-based compensation expense
   —      —      19,608   —     —     —     19,608 
Dividends declared
   —      —      —     (38,286)   —     —     (38,286) 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at May 3, 2020
   77,759   $778   $596,184  $641,917  $(19,351)  $(599)  $1,218,929 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings
   
—  
   —   —  134,564  —  —  134,564
Foreign currency translation adjustments
   
—  
   —   —  —  6,737  —  6,737
Change in fair value of derivative financial
instruments, net of tax
   
—  
   —   —  —  (200)   —  (200) 
Reclassification adjustment for realized (gain)
on derivative financial instruments, net of
tax
   
—  
   —   —  —  (107)   —  (107) 
Conversion/release of stock-based awards
1
   37   —   (677)   —  —  —  (677) 
Stock-based compensation expense
   
—  
   —   13,385  —  —  —  13,385
Dividends declared
   
—  
   —   —  (39,709)   —  —  (39,709) 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at August 2, 2020
   77,796   $778   $608,892  $736,772  $(12,921)  $(599)  $1,332,922 
1
Amounts are shown net of shares withheld for employee taxes
.
See Notes to Condensed Consolidated Financial Statements.
3
4
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(Unaudited)
 Twenty-six
 Weeks Ended
In thousandsAugust 1,
2021		August 2,
2020
Cash flows from operating activities:
Net earnings$473,872 $169,987 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization96,687 93,120 
Loss on disposal/impairment of assets455 25,408 
Amortization of deferred lease incentives(2,254)(2,975)
Non-cash lease expense105,739 108,448 
Deferred income taxes(7,037)(2,229)
Tax benefit related to stock-based awards10,302 12,694 
Stock-based compensation expense46,260 33,395 
Other(274)255 
Changes in:
Accounts receivable2,002 (16,740)
Merchandise inventories(163,621)60,055 
Prepaid expenses and other assets(4,622)(30,968)
Accounts payable48,457 (141,602)
Accrued expenses and other liabilities(43,653)12,117 
Gift card and other deferred revenue30,308 2,936 
Operating lease liabilities(108,791)(113,489)
Income taxes payable(8,162)5,988 
Net cash provided by operating activities475,668 216,400 
Cash flows from investing activities:
Purchases of property and equipment(78,281)(76,123)
Other97 241 
Net cash used in investing activities(78,184)(75,882)
Cash flows from financing activities:
Repurchases of common stock(451,388)— 
Repayment of long-term debt(300,000)— 
Tax withholdings related to stock-based awards(100,160)(29,589)
Payment of dividends(91,069)(79,274)
Borrowings under revolving line of credit— 487,823 
Debt issuance costs— (1,050)
Net cash (used in) provided by financing activities(942,617)377,910 
Effect of exchange rates on cash and cash equivalents7 (2,830)
Net (decrease) increase in cash and cash equivalents(545,126)515,598 
Cash and cash equivalents at beginning of period1,200,337 432,162 
Cash and cash equivalents at end of period$655,211 $947,760 
   
 
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 3, 2019
   78,813  $789  $581,900  $584,333  $(11,073)  $(235)  $1,155,714 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings
   —     —     —     52,656   —     —     52,656 
Foreign currency translation adjustments
   —     —     —     —     (3,009)   —     (3,009) 
Change in fair value of derivative financial instruments, net of tax
   —     —     —     —     204   —     204 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax
   —     —     —     —     (67)   —     (67) 
Conversion/release of stock-based awards
1
   571   5   (25,298)   —     —     (113)   (25,406) 
Repurchases of common stock
   (576)   (6)   (2,874)   (30,010)   —     (958)   (33,848) 
Reissuance of treasury stock under stock-based compensation plans
1
   —     —     (332)   —     —     332   —   
Stock-based compensation expense
   —     —     18,376   —     —     —     18,376 
Dividends declared
   —     —     —     (39,549)   —     —     (39,549) 
Adoption of accounting pronouncements
2
   —     —     —     (3,303)   —     —     (3,303) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at May 5, 2019
   78,808  $788  $571,772  $564,127  $(13,945)  $(974)  $1,121,768 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings
   —     —     —     62,648   —     —     62,648 
Foreign currency translation adjustments
   —     —     —     —     (1,251)   —     (1,251) 
Change in fair value of derivative financial instruments, net of tax
   —     —     —     —     (132)   —     (132) 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax
   —     —     —     —     (160)   —     (160) 
Conversion/release of stock-based awards
1
   31   1   (482)   —     —     —     (481) 
Repurchases of common stock
   (636)   (6)   (3,170)   (35,107)   —     —     (38,283) 
Stock-based compensation expense
   —     —     16,708   —     —     —     16,708 
Dividends declared
   —     —     —     (39,214)   —     —     (39,214) 
Balance at August 4, 2019
   78,203  $783  $584,828  $552,454  $(15,488)  $(974)  $1,121,603 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
1
Amounts are shown net of shares withheld for employee taxes.
2
Relates to our adoption of ASU
2016-02,
Leases, in fiscal 2019. See Note A.
See Notes to Condensed Consolidated Financial Statements.

4
5
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
   
Twenty-six

Weeks Ended
 
In thousands
  August 2,
2020		   August 4,
2019		 
Cash flows from operating activities:
    
Net earnings
  $169,987   $115,304 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
    
Depreciation and amortization
   93,120    93,744 
(Gain) loss on disposal/impairment of assets
   25,408    (6) 
Amortization of deferred lease incentives
   (2,975)    (4,228) 
Non-cash
lease expense
   108,448    105,437 
Deferred income taxes
   (2,229)    (8,428) 
Tax benefit related to stock-based awards
   12,694    14,110 
Stock-based compensation expense
   33,395    35,401 
Other
   255    92 
Changes in:
       
Accounts receivable
   (16,740)    (4,430) 
Merchandise inventories
   60,055    (63,576) 
Prepaid expenses and other assets
   (30,968)    (24,506) 
Accounts payable
   (141,602)    (127,511) 
Accrued expenses and other liabilities
   12,117    (30,677) 
Gift card and other deferred revenue
   2,936    (7,173) 
Operating lease liabilities
   (113,489)    (111,782) 
Income taxes payable
   5,988    (8,407) 
  
 
 
   
 
 
 
Net cash provided by (used in) operating activities
   216,400    (26,636) 
  
 
 
   
 
��
 
Cash flows from investing activities:
    
Purchases of property and equipment
   (76,123)    (77,189) 
Other
   241    470 
Net cash used in investing activities
   (75,882)    (76,719) 
Cash flows from financing activities:
    
Borrowings under revolving line of credit
  
487,823
 
 
 
60,000
 
Payment of dividends
   (79,274)    (75,453) 
Tax withholdings related to stock-based awards
   (29,589)    (25,887) 
Debt issuance costs
   (1,050)    — 
Repurchases of common stock
   —    (72,131) 
Net cash provided by (used in) financing activities
   377,910    (113,471) 
Effect of exchange rates on cash and cash equivalents
   (2,830)    (1,661) 
Net increase (decrease) in cash and cash equivalents
   515,598    (218,487) 
Cash and cash equivalents at beginning of period
   432,162    338,954 
Cash and cash equivalents at end of period
  $947,760   $120,467 
See Notes to Condensed Consolidated Financial Statements.
5
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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 August 2, 20201, 2021 and August 4, 2019,2, 2020, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and
twenty-six
weeks then ended and the Condensed Consolidated Statements of Cash Flows for the
twenty-six
weeks then ended, have been prepared by us, without audit. 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 and
twenty-six
weeks then ended. Intercompany transactions and accounts have been eliminated. The balance sheet as of February 2, 2020,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 February 2, 2020.January 31, 2021.

The results of operations for the thirteen and
twenty-six
weeks ended August 2, 20201, 2021 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 February 2, 2020.January 31, 2021.

COVID-19
On March 11, 2020, the World Health Organization declared a novel strain of the coronavirus (COVID-19) to be a global pandemic and recommended containment and mitigation measures worldwide. In March 2020, we announced the temporary 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 August 2, 2020
,
we had reopened1, 2021, all of our U.S.-based and the majority of our global retail stores buthave reopened for in-person shopping. However, we continue to see reduced traffic 
experience intermittent closures or restrictions on retail capacity in certain geographies, in accordance with state and have
extended closures in locations where retail restrictions have not been lifted. The preventative or protective actions that governments and businesses around the world have takenlocal guidelines, which may continue to contain the spread of COVID-19 have resulted in a period of disruption that has materially reduced customerimpact our store traffic and thus our retail store revenues, which comprised approximately
44%
of our net revenues in fiscal 2019. Throughout the firstfuture and second quarters, we continuedresult in future store impairments. We continue to operate our e-commerce sites and distribution centers and continuedcontinue to deliver products to our customers.
As However, we have experienced, and expect to continue to experience, delays in inventory receipts, increased raw material costs and higher shipping-related charges as a result of the COVID-19 pandemicport slowdowns and the prolonged impact on our retail locations, including the continued closure of certain retail locations and reduced traffic at many others, we
 identified certain assets whose carrying value was now deemed to have been impaired. Given the material reductions in our retail store revenues and operating income during the first and second quarters of fiscal 2020, we evaluated our estimates and assumptions related to our stores’ future sales and cash flows, and performed a comprehensive review of our stores’ long-lived assets for impairment, including both property and equipment and operating lease
right-of-use
assets, at an individual store level. Key assumptions used in estimating fair value of our store assets in connection with our impairment analyses are sales growth, 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. Our assumptions account for the estimated impact
on future cash flows
from the recent
temporary store closures, including reduced store traffic
 and
longer recovery times
 in
those stores we have re-opened,congestion, as well as extended closures
shipping container and foam shortages, due in
areas where retail restrictions have not been lifted
. As a result, during the thirteen and
twenty-six
weeks ended August 2, 2020, we recorded store asset impairment charges within selling, general and administrative expenses of approximately $4,689,000 and $16,514,000, respectively, related part to property and equipment and $1,666,000 and $5,461,000, respectively, related to operating lease
right-of-use
assets.
In addition, during the
twenty-six
weeks ended August 2, 2020, we recorded charges of approximately $11,378,000 representing write-offs for inventory with minor damage that we could not liquidate through our outlets due to store closures resulting from
COVID-19.
We test goodwill for impairment annually (on the first day of the fourth quarter), or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. As of August 2, 2020 and August 4, 2019, we had goodwill of $85,419,000 and $85,348,000, respectively, primarily related to our fiscal 2017 acquisition of Outward and our fiscal 2011 acquisition of Rejuvenation, Inc. As a result of the
COVID-19
pandemic and the resulting closure of all of our retail locations, we evaluated the need to test goodwill for potential impairment. Our most recently completed qualitative goodwill impairment assessment indicated that the fair values of our reporting units significantly exceeded their carrying values. Further, we currently do not expect the impact of
COVID-19
to significantly affect the long-term estimates or assumptions of revenue 
and
from COVID-19.

6
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operating income growth, nor the long-term strategies of our brands, considered in our most recently completed goodwill assessment. Therefore, we have not tested our goodwill for impairment between annual tests and, accordingly, have not recorded any goodwill impairment charges during the second quarter of fiscal 2020.
As of the end of the quarter, we had finalized rent concession negotiations with a portion of our store landlords and we expect the remaining outstanding lease concession negotiations to be finalized throughout the remainder of fiscal 2020.
In response to
COVID-19,
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provides tax provisions and other stimulus measures to affected companies. The impact of the CARES Act was not material to our result of operations for the second quarter of fiscal 2020.
These events and changes in circumstances, including a more prolonged and/or severe
COVID-19
pandemic, may lead to increased impairment risk in the future; therefore, we will continue to monitor events and changes in circumstances that may indicate the need to test our long-lived assets, including goodwill, for potential impairment.
New Accounting Pronouncements
In June 2016, the FASB issued ASU
2016-13,
 Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. This standard is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This ASU was effective for us in the first quarter of fiscal 2020. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.
In August 2018, the FASB issued ASU
2018-15,
Intangibles—Goodwill and
Other—Internal-Use
Software
(Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software. Accordingly, the amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic
350-40
to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This ASU was effective for us in the first quarter of fiscal 2020. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.
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. The standard isThis ASU was effective for public companies forus in the first quarter of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. We do not expect the2021. 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 the adoption would have a material impact on our financial condition, results of operations or cash flows.
6
NOTE B. BORROWING ARRANGEMENTS

Credit Facility
We have a credit facility which provides for a $500,000,000 unsecured revolving line of credit (“revolver”) and a $300,000,000 unsecured term loan facility (“term loan”). The 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 $250,000,000 to provide for a total of $750,000,000 of unsecured revolving credit.
In May 2020, we entered into an amendment to our Our credit facility (the “Credit Facility Amendment”), which, among other changes, extends the maturity date and amends the interest rate of thealso provided for a $300,000,000 unsecured term loan modifies covenantsfacility (“term loan”). In February 2021, prior to maturity, we repaid the full outstanding balance of $300,000,000 on our term loan.

During the second quarter of fiscal 2021 and for year-to-date fiscal 2021, we had no borrowings under the credit facility, and maintains the maturity date and interest rate of the revolver. The term loan now matures on January 8, 2022, at which time all 
outstanding principal and any accrued interest must be repaid. Under the Credit Facility Amendment, the interest rate applicable to the credit facility is variable, and may be elected by us as: (i) the LIBOR 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.
We had
n
o
 bo
rrowings during
the second quarter
 of fiscal 2020,
and for
year-to-date
fiscal 2020, we had borrowings of $487,823,000 under the revolver (at a
year-to-date
weighted average interest rate of 2.48%). Additionally, as of August 2, 2020, $11,672,0001, 2021, $12,927,000 in issued but undrawn standby letters of credit were outstanding under the revolver, for a total outstanding balance on the revolver of $499,495,000.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 during the second quarter of fiscal 2020, and for
year-to-date
fiscal 2019,2020, we had borrowings of $60,000,000$487,823,000 under the revolver
7
Table of Contents
(at (at a
year-to-date
weighted average interest rate of 3.42%2.48%). all of which were repaid prior to the end of fiscal 2020. The revolver matures on January 8, 2023, 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.

As of August 
2
,
2020
, we had $
300,000,000
outstanding under our term loan (at a
year-to-date
weighted averageThe interest rate of
2.89
%). Costs incurred in connection with the issuance of the term loan are presented as a reductionapplicable to the carrying value ofrevolver is variable, and may be elected by us as: (i) the debtLIBOR plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% or (ii) a base rate as defined in our Condensed Consolidated Balance Sheet.
the credit facility, plus an applicable margin ranging from 0% to 0.775%.

In addition to the Credit Facility Amendment,credit facility, during the second quarter
of fiscal 2020
we entered into a new agreement (the
“364-Day
“364-Day Credit Agreement”) for an additional $
200,000,000
$200,000,000 unsecured revolving line of credit. Under the 364-Day Credit Agreement, the interest rate iswas variable and maycould be elected by us as: (i) LIBOR plus an applicable margin based on our leverage ratio ranging from 1.75% to 2.5%2.50% or (ii) a base rate as defined in the agreement, plus an applicable margin ranging from 0.75% to 1.5%1.50%. The 364-Day Credit Agreement matures on May 10, 2021. WeDuring the second quarter of fiscal 2021 and for year-to-date fiscal 2021, we had no borrowings under the 364-Day Credit Agreement. We did not renew the 364-Day Credit Agreement during the second quarter
upon its maturity in May 2021.
of fiscal 2020
.

The Credit Facility Amendmentcredit facility contains and the
364-Day
Credit Agreement containcontained 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 August 2, 2020,1, 2021, we were in compliance with our covenants under ourthe credit facilitiesfacility and, based on current projections, we expect to remain in compliance with our covenants under the credit facility throughout the next 12 months.

Letter of Credit Facilities
As of August 2, 20201, 2021, we had
three 3 unsecured letter of credit reimbursement facilities for a total of $70,000,000.$35,000,000. The letter of credit facilities containcontains covenants that are consistent with our credit facility. Interest 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 August 2, 2020,1, 2021, an aggregate of $11,335,000
$8,404,000 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. On August 23, 202022, 2021, we renewed all three3 of our letter of credit facilities
and reduced the
aggregate
credit available under these facilities from $70,000,000 to
$35,000,000
due to our lower level of usage
,
on substantially similar terms and extended each of these facilities’facilities' maturity dates until August 22, 2021.2022. 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, (collectively, “option awards”), 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 36,570,00042,720,000 shares. As of August 2, 2020,1, 2021, there were approximately 2,480,0007,489,000 shares available for future grant. Awards may be granted under the Plan to officers, employees and
non-employee
members of the board of directors of the company (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.
Option Awards7

Stock Awards
Annual grants of stock awards are limited to 1,000,000 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 limite
d
limited to, retirement, disability, death, merger or a similar corporate event. Stock awards granted to non-employee Board members generally vest in one year
.
year. Non-employee
Board members automatically receive stoc
k
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).

8
Table of Contents
Stock-Based Compensation Expense
During the thirteen and
twenty-six
weeks ended August 1, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $19,930,000 and $46,260,000, respectively. During the thirteen and twenty-six weeks ended August 2, 2020, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $13,692,000 and $33,395,000, respectively. During the thirteen and
twenty-six
weeks ended
August 4, 2019, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses, of $16,872,000 and $35,401,000, respectively.

Restricted Stock Units
The following table summarizes our restricted stock unit activity during the
twenty-six
weeks ended August 2, 2020:1, 2021:
Shares
Balance at January 31, 2021Shares3,118,884 
Granted371,890 
Granted, with vesting subject to performance conditions107,075 
Balance at February 2, 2020
Released 1
(1,064,620)2,884,194
Granted
1
Cancelled		(93,749)1,106,666
Released
2
(999,778)
Cancelled
(80,226) 
Balance at August 2, 2020
1, 2021		2,439,480 2,910,856
Vested plus expected to vest at August 2, 2020
1, 2021		2,250,339 2,356,233
1Excludes 228,666 incremental shares released due to achievement of performance conditions above target.

8
1
Table of Contents
Excludes 267,000 restricted stock units for which the accounting grant date had not yet been determined
as of August 2,2020
and, consequently, for which no expense has been recognized
 for the twenty-six weeks then ended
. These awards reduced the shares available for future grant under the Plan.
2
Excludes 170,308
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 amountsNet EarningsWeighted
Average Shares		Earnings
Per Share
Thirteen weeks ended August 1, 2021
Basic$246,070 74,786 $3.29 
Effect of dilutive stock-based awards1,798 
Diluted$246,070 76,584 $3.21 
Thirteen weeks ended August 2, 2020
Basic$134,564 77,783 $1.73 
Effect of dilutive stock-based awards1,481 
Diluted$134,564 79,264 $1.70 
Twenty-six weeks ended August 1, 2021
Basic$473,872 75,293 $6.29 
Effect of dilutive stock-based awards2,223 
Diluted$473,872 77,516 $6.11 
Twenty-six weeks ended August 2, 2020
Basic$169,987 77,522 $2.19 
Effect of dilutive stock-based awards1,319 
Diluted$169,987 78,841 $2.16 
In thousands, except per share amounts
  Net Earnings   Weighted
Average Shares		   Earnings
Per Share		 
Thirteen weeks ended August 2, 2020
      
Basic
  $134,564    77,783   $1.73 
Effect of dilutive stock-based awards
     1,481   
Diluted
  $134,564    79,264   $1.70 
Thirteen weeks ended August 4, 2019
      
Basic
  $62,648    78,488   $0.80 
Effect of dilutive stock-based awards
     982   
Diluted
  $62,648    79,470   $0.79 
Twenty-six
weeks ended August 2, 2020
      
Basic
  $169,987    77,522   $2.19 
Effect of dilutive stock-based awards
     1,319   
Diluted
  $169,987    78,841   $2.16 
Twenty-six
weeks ended August 4, 2019
      
Basic
  $115,304    78,586   $1.47 
Effect of dilutive stock-based awards
     1,047   
Diluted
  $115,304    79,633   $1.45 

Stock-based awards of 1,9588,000 and 4,19115,000 were excluded from the computation of diluted earnings per share for the thirteen and
twenty-six
weeks ended August 2, 2020,1, 2021, respectively, as their inclusion would be anti-dilutive. Stock-based awards of 5,2592,000 and 16,8134,000 were excluded from the computation of diluted earnings per share for the thirteen and
twenty-six
weeks ended August 4, 2019,2, 2020, respectively, as their inclusion would be anti-dilutive.
9
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 and
twenty-six
weeks ended August 
2
,
2020
1, 2021 and August 
4
,
2019
.
2, 2020.
  Thirteen Weeks Ended   Twenty-six Weeks Ended  Thirteen Weeks EndedTwenty-six Weeks Ended
In thousands
  August 2, 2020   August 4, 2019   August 2, 2020   August 4, 2019 In thousandsAugust 1, 2021August 2, 2020August 1, 2021August 2, 2020
Pottery Barn
  $563,276   $524,847   $1,042,891   $1,016,973 Pottery Barn$732,323 $563,276 $1,411,378 $1,042,891 
West Elm
   380,552    357,574    695,982    667,057 West Elm579,636 380,552 1,056,953 695,982 
Williams Sonoma
   243,133    191,374    442,435    386,267 Williams Sonoma255,455 243,133 521,062 442,435 
Pottery Barn Kids and Teen
   235,987    227,853    424,539    404,899 Pottery Barn Kids and Teen273,937 235,987 510,004 424,539 
Other
1
   67,829    69,166    120,133    136,750 
Other 1
106,988 67,829 197,971 120,133 
Total
2
  $1,490,777   $1,370,814   $2,725,980   $2,611,946 
Total 2
$1,948,339 $1,490,777 $3,697,368 $2,725,980 
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 $116.1 million and $77.6 million for the thirteen weeks ended August 1, 2021 and August 2, 2020, respectively, and approximately $216.0 million and $132.7 million for the twenty-six weeks ended August 1, 2021 and August 2, 2020, respectively.

1
Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham
.
2
Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $77.6
 million and $87.7
 million for the thirteen weeks ended August 2, 2020 and August 4, 2019, respectively, and approximately $132.7
 million and $174.3
 million for the
twenty-six
weeks ended August 2, 2020 and August 4, 2019, respectively.
Long-lived assets by geographic location are as follows:
In thousandsAugust 1, 2021August 2, 2020
U.S.$2,021,577 $2,076,079 
International149,750 155,787 
Total$2,171,327 $2,231,866 
In thousands
  August 2, 2020   August 4, 2019 
U.S.
  $2,076,079   $2,146,995 
International
   155,787    164,667 
  
 
 
   
 
 
 
Total
  $2,231,866   $2,311,662 

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
During the thirteen weeks ended August 1, 2021, we repurchased 834,294 shares of our common stock at an average cost of $162.84 per share for a total cost of approximately $135,859,000 under our current stock repurchase program. During the twenty-six weeks ended August 1, 2021, we repurchased 2,625,019 shares of our common stock at an average cost of $171.96 per share for a total cost of approximately $451,388,000 under our current stock repurchase program. As of August 1, 2021, there was approximately $567,974,000 remaining under our current stock repurchase program. On August 25, 2021, we announced a new $1,250,000,000 stock repurchase authorization, which is an increase of approximately $700,000,000 to our current stock repurchase program and superseded the remaining amount outstanding under our prior stock repurchase authorization.

During the thirteen and
twenty-six
weeks ended August 2, 2020, we
did not repurchase any shares of our common stock and, asstock.
10

As of August 2, 2020, there was $
574,982,000
remaining under 
our
current
stock
repurchase program
. As of1, 2021 and August 2, 2020, we held 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.
During the thirteen weeks ended August 4, 2019, we repurchased 635,526 shares of our common stock at an average cost of $60.24 per share for a total cost of approximately $38,283,000. During the
twenty-six
weeks ended August 4, 2019, we repurchased 1,228,622 shares of our common stock at an average cost of $58.71 per share for a total cost of approximately $72,131,000. As of August 4, 2019, there was $651,685,000 remaining under our current stock repurchase program. As of August 4, 2019, we held treasury stock of $974,000 that represents the cost of shares available for issuance that is intended to satisfy future stock-based award settlements in certain foreign jurisdictions.
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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
We declared cash dividends of $0.59 and $0.48 per common share during the thirteen weeks ended August 2, 20201, 2021 and August 4, 2019,2, 2020, respectively. We declared cash dividends of $1.18 and $0.96 per common share during the
twenty-six
weeks ended August 1, 2021 and August 2, 2020, andrespectively. On August 4, 2019, respectively.25, 2021, we announced a 20.3% increase in our quarterly cash dividend from $0.59 to $0.71 per share. 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 1812 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 August 2, 2020,1, 2021, we expect to reclassify a net
pre-tax
gain loss of approximately $285,000$1,124,000 from OCI to cost of goods sold over the next 12 months.
We also enter into
non-designated
foreign currency forward contracts (to sell Australian dollars and British pounds and purchase U.S. dollars) to reduce the exchange risk associated with our assets and liabilities denominated in a foreign currency. Any foreign exchange gains or losses related to these contracts are recognized in selling, general and administrative expenses.
As of August 2, 20201, 2021 and August 4, 2019,2, 2020, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
In thousandsAugust 1, 2021August 2, 2020
Contracts designated as cash flow hedges$19,500 $6,800 
In thousands
  August 2, 2020   August 4, 2019 
Contracts designated as cash flow hedges
  $6,800   $6,000 

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. NaNNo 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 and
twenty-six
weeks ended August 2, 20201, 2021 and August 4, 2019.2, 2020.

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The effect of derivative instruments in our Condensed Consolidated Financial Statements duringfrom gains or losses recognized in income was not material for the thirteen and
twenty-six
weeks ended August 2, 20201, 2021 and August 4, 2019,2, 2020.
pre-tax,
11
was as follows:
  Thirteen Weeks Ended  
Twenty-six
Weeks Ended
 
  August 2, 2020  August 4, 2019  August 2, 2020  August 4, 2019 
In thousands
 
Cost of goods
sold
  
Selling,
general and
administrative
expenses
  
Cost of goods
sold
  
Selling,
general and
administrative
expenses
  Cost of goods
sold		  
Selling,
general and
administrative
expenses
  Cost of goods
sold		  
Selling,
general and
administrative
expenses
 
Line items presented in the Condensed Consolidated Statement of Earnings in which the effects of derivatives are recorded
 $939,575  $365,841  $886,953  $397,696  $1,760,518  $731,456  $1,683,754  $767,895 
Gain (loss) recognized in income
        
Derivatives designated as cash flow hedges
 $145  $—  $187  $—   $195  $—  $295  $—  
Derivatives not designated as hedging instruments
 $—  $—    $—   $24  $—  $2  $—   $18 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
The fair values of our derivative financial instruments are presented below according to their classificationin other current assets 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.
In thousands
  August 2, 2020   August 4, 2019 
Derivatives designated as cash flow hedges:
    
Other current assets
  $150   $142 
  
 
 
   
 
 
 
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 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.

•
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.

Debt
As of August 2, 2020, the fair value of our debt, which consists of outstanding borrowings under our revolver and term loan, approximates its carrying value, as the instruments are relatively short-term in nature and the interest rate under the term loan is based on observable Level 2 inputs, which consist primarily of quoted market interest rates for instruments with similar maturities.
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Table of Contents
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
/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 and
twenty-six
weeks ended August 1, 2021, no impairment charges were recognized. During the thirteen and twenty-six weeks ended August 2, 2020, we recognized impairment charges of $4,689,000 and $16,514,000, respectively,
12
related to the impairment of property and equipment and $1,666,000 and $5,461,000, respectively, 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.
During the thirteen and
twenty-six
weeks ended August 4, 2019, 0 impairment charges were recognized.
There were no transfers in and out of Level 3 categories during the thirteen and
twenty-six
weeks ended August 2, 20201, 2021 or August 4, 2019.2, 2020.
NOTE J. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:

In thousandsForeign Currency
Translation		Cash Flow
Hedges		Accumulated Other
Comprehensive
Income (Loss)
Balance at January 31, 2021$(6,398)$(719)$(7,117)
Foreign currency translation adjustments3,700 — 3,700 
Change in fair value of derivative financial instruments— (665)(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1
— 153 153 
Other comprehensive income (loss)3,700 (512)3,188 
Balance at May 2, 2021$(2,698)$(1,231)$(3,929)
Foreign currency translation adjustments(3,522)— (3,522)
Change in fair value of derivative financial instruments— 65 65 
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— 337 337 
Other comprehensive income (loss)(3,522)402 (3,120)
Balance at August 1, 2021$(6,220)$(829)$(7,049)
Balance at February 2, 2020$(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 $(19,351)
Foreign currency translation adjustments6,737 — 6,737 
Change in fair value of derivative financial instruments— (200)(200)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— (107)(107)
Other comprehensive income (loss)6,737 (307)6,430 
Balance at August 2, 2020$(13,132)$211 $(12,921)
In thousands
  
Foreign Currency
Translation
 
 
Cash Flow
Hedges
 
 
Accumulated Other
Comprehensive
Income (Loss)
 
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
) 
Foreign currency translation adjustments
  
 
6,737
 
 
 
0  
 
 
 
6,737
 
Change in fair value of derivative financial instruments
  
 
—  
 
 
 
(200
) 
 
 
(200
) 
Reclassification adjustment for realized (gain) loss on derivative financial instruments
1
  
 
—  
 
 
 
(107
) 
 
 
(107
) 
Other comprehensive income (loss)
  
 
6,737
 
 
 
(307
) 
 
 
6,430
 
Balance at August 2, 2020
  
$
(13,132
) 
 
$
211
 
 
$
(12,921
) 
Balance at February 3, 2019
  
$
(11,259
) 
 
$
186
 
 
$
(11,073
) 
Foreign currency translation adjustments
  
 
(3,009
) 
 
 
0  
 
 
 
(3,009
) 
Change in fair value of derivative financial instruments
  
 
—  
 
 
 
204
 
 
 
204
 
1Refer to Note H for additional disclosures about reclassifications out of accumulated other comprehensive income.
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In thousands
  
Foreign Currency
Translation
  
Cash Flow
Hedges
  
Accumulated Other
Comprehensive
Income (Loss)
 
  
 
 
  
 
 
  
 
 
 
Reclassification adjustment for realized (gain) loss on
derivative financial instruments
1
   —     (67)   (67) 
  
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss)
   (3,009)   137   (2,872) 
  
 
 
  
 
 
  
 
 
 
Balance at May 5, 2019
   (14,268)   323   (13,945) 
  
 
 
  
 
 
  
 
 
 
Foreign currency translation adjustments
   (1,251)   —     (1,251) 
Change in fair value of derivative financial instruments
   —     (132)   (132) 
Reclassification adjustment for realized (gain) loss on
derivative financial instruments
1
   —     (160)   (160) 
Other comprehensive income (loss)
   (1,251)   (292)   (1,543) 
Balance at August 4, 2019
  $(15,519)  $31  $(15,488) 
1
Refer to Note H for additional disclosures about reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in the Condensed Consolidated Statements of Earnings.
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Table of Contents
NOTE K.
REVENUE

The majority of our revenues are generated from sales of merchandise to our customers through our
e-commerce
websites, 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.

13
We recognize revenue as control of promised goods or services are transferred 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 a discussionthe disclosure of our net revenues by operating segment.

Merchandise Sales
Revenues from the sale of our merchandise through our
e-commerce
websites, our direct mail catalogs, 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 the time of the sale to the end customer.that time. For merchandise delivered to the customer, control is transferred when either delivery has been completed or,
,
for certain merchandise, 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.
While the rate of estimated future returns has remained relatively flat, the increase in e-commerce sales has driven an increase in estimated sales returns.
As of August 2, 20201, 2021 and August 4, 2019,2, 2020, we recorded a liability for expected sales returns of approximately $28,315,000 and $48,773,000, and $28,778,000respectively, within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately $7,798,000 and $17,496,000, and $10,685,000respectively, within other current assets in our Condensed Consolidated Balance Sheet.

Stored-value Cards
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) 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 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 redeemed, based on historical redemption patterns. This measurement is applied to our portfolio of performance obligations for points 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 6six months from issuance.

Deferred Revenue
1514
Deferred Revenue
We defer revenue when cash payments are received in advance of satisfying performance obligations, primarily associated with our stored-value cards, merchandise sales, and incentives received from credit card issuers. As of August 
2
, 20201, 2021 and August 
4
, 2019,2, 2020, we heldhad recorded $406,450,000 and $293,104,000 and $288,564,000 infor gift card and other deferred revenue onin our Condensed Consolidated Balance Sheet, substantially all of which willis 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: the continuing impact of the
COVID-19
pandemic on our business, results of operations and financial condition, expandedcondition; our revenue growth; expanding our operating margin,margin; production, transportation and supply chain; backorder levels; 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;cash, including our commitment to continue or increase quarterly dividend payments; our future compliance with the financial covenants contained in our credit facilities;facility; our belief that our cash
on-hand,
in addition to our available credit facilities,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,” 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 February 2, 2020,January 31, 2021, 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. is a specialty retailer of high-quality sustainable products for the home. TheseOur products, representing distinct merchandise strategies – Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through
e-commerce
websites, direct-mail catalogs and 614retail stores. These brands are also part of The Key Rewards, our
free-to-join
loyalty 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, and South Korea, and India as well as
e-commerce
websites in certain locations. In 2017, we acquired Outward, Inc.,We are also proud to be a
3-D
imaging leader in the industry with our Environmental, Social and augmented reality platform for the home furnishings and décor industry.
Governance ("ESG") efforts.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended August 2, 20201, 2021 (“second quarter of fiscal 2020”2021”), as compared to the thirteen weeks ended August 4, 20192, 2020 (“second quarter of fiscal 2019”2020”) and the
twenty-six
weeks ended August 2, 2020
(“1, 2021 (“year-to-date
fiscal 2020”2021”), as compared to the
twenty-six
weeks ended August 4, 2019
(“2, 2020 (“year-to-date
fiscal 2019”2020”), 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
On March 11, 2020, the World Health Organization declared a novel strain of the coronavirus
(COVID-19)
to be a global pandemic and recommended containment and mitigation measures worldwide. In March 2020, we announced the temporary 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 August 2, 2020, we had reopened1, 2021, all of our U.S.-based and the majority of our global retail stores buthave reopened for in-person shopping. However, we continue to see reducedexperience 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 have extended closuresretail revenues in locations where retail restrictions have not been lifted. Throughout the firstfuture and second quarters, we continuedresult in future store impairments. We continue to operate our
e-commerce
sites and distribution centers and continuedcontinue to deliver products to our customers.
However, we have experienced, and expect to continue to experience, delays in inventory receipts, increased raw material costs and higher shipping-related charges as a result of port slowdowns and congestion, as well as shipping container and foam shortages, due in part to the impact from COVID-19.
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Table of Contents

Second Quarter of Fiscal 20202021 Financial Results
Net revenues in the second quarter of fiscal 20202021 increased by $119,963,000,$457,562,000 or 8.8%30.7%, compared to the second quarter of fiscal 2019,2020, with comparable brand revenue growth of 10.5%.29.8% and growth in all brands. This increase was primarily driven by strength in both our e-commerce and retail channels primarily due to an increase in
e-commerce
revenues, partially offset by furniture and other home decor sales, as well as the impact of stores operating at a decrease in retail revenues driven by temporary retail store closures and limited capacity in stores due to
COVID-19.
This includes an 11.6% decrease COVID-19 during the second quarter of fiscal 2020. The increase in net revenues also included a 49.7% increase in international revenues primarily related to our franchise and company-owned operations.
On a two-year basis, comparable brand revenues increased 40.3%, with growth in both channels.

For the second quarter of fiscal 2020,2021, we delivered positive comparable brand revenue growth of 29.8%. In West Elm, comparable brand revenue growth was 51.1%, which was an acceleration from the first quarter, and an over 58% comparable brand revenue growth on a two-year basis. We saw strength across all categories with triple-digit growth in allour upholstery and outdoor furniture business. Pottery Barn, our largest brand, delivered almost $750,000,000 of revenue, with 29.6% comparable brand revenue growth during the quarter and an almost 38% comparable brand revenue growth on a two-year basis. All categories outperformed with notable strength in our brands.indoor rustic modern casual point of view and in our outdoor business. The Williams Sonoma brand delivered a record quarter with 29.4% comparable brand revenue growth. We maximized on our customers’ shift to cooking at home during the pandemic, executed on a relevant marketing strategy to drive traffic to the brand, and introduced more exclusive, innovative products that are resonating during this time. The Pottery Barn brand had 8.1% comparable brand revenue growth. Our product line continued to improve with exciting new aesthetics and high-quality, sustainable products. Categories that saw particular strength in the quarter were outdoor furniture, work from home solutions and products that update family living spaces. In West Elm, we continued to deliver strong comparable brand revenue growth of 7.0%6.4%, on top of 17.5%29.4% growth last year, resulting in the second quarteran almost 36% two-year comparable brand revenue growth. This growth was powered by our content-led marketing and a higher percentage of fiscal 2019. The brand continues to have high appeal, particularly in our furniture categories, where we saw strong growth in outdoor as well as key successes in home office, diningexclusive and storage furniture this quarter.Williams Sonoma branded products. In our Pottery Barn Kids and Teen business, we had 4.8%saw double digit comparable brand revenue growth. One areagrowth of softness has been18.0% during the quarter and an almost 23% comparable brand revenue growth on a two-year basis, with strength across our backpack business as most schools are starting the academic year with distance learning, however, we are seeingproprietary 100% GREENGUARD GOLD furniture, back-to-school and baby businesses. And, our emerging brands Rejuvenation and Mark and Graham, combined accelerated to 42.3% comparable brand revenue growth, and an almost 58% comparable brand revenue growth on a surge in our Study at Home solutions across both Pottery Barn Kids and Teen, as we become the destination for study from home products for kids of all ages.
two-year basis.

Across the company, we are maintaining tight control over our
non-essential
expenses and capital expenditures and we are continuing to prioritize investments in strategic priorities. As of August 2, 2020,1, 2021, we had almost $950,000,000approximately $655,211,000 in cash as a resultand generated positive operating cash flow of $475,668,000 year-to-date. In addition to our strong cash balance, atwe also ended the beginning of fiscal 2020, the full draw down onquarter with no amount outstanding under our line of credit in the first quarter of fiscal 2020, as well as our performance year-to-date. In the second quarter of fiscal 2020 in order to further bolster our financial flexibility, we increased ourcredit. This strong liquidity position allowed us to fund the operations of the business by investing over $78,000,000 in capital expenditures year-to-date, providing shareholder returns of approximately $542,457,000 year-to-date through the extension ofshare repurchases and dividends, and repaying in full, prior to maturity, our $300,000,000 term loan and obtained an additional $200,000,000 in borrowing capacity through an unsecured
364-day
revolving line of credit.
facility earlier this year.

For the second quarter of fiscal 2020,2021, diluted earnings per share was $3.21 (which included a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.), versus $1.70 in the second quarter of fiscal 2020 (which included a $0.06 impact related to store asset impairments and a $0.04 impact associated with therelated to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.) versus $0.79 in the second quarter of fiscal 2019 (which included a $0.07 impact from the acquisition-related compensation expense, amortization of intangible assets, and the operations of Outward, Inc., and a $0.01 impact from employment-related expenses).

Our e-commerce performance this quarter was a powerful example of our brand and digital strategies at work. Innovative, sustainable products presented in an engaging, content-rich format online, as well as technology improvements on our multi-brand platform are our key drivers of growth. We also made a shift in our marketing strategy from
promotion-led
to
content-led
across all of our brands and we optimized our digital spend to high-returning investments. Our online experience, coupled with these strategies drove strong new customer growth as well as a substantial increase in organic traffic.
Looking Ahead
Looking Ahead
Looking forward to the second halfthe balance of the year, we feel confidentwill continue to focus on driving net revenue and operating margin growth. We believe our operating model and our pricing power resulting from our key differentiators – our in-house design, our digital-first channel strategy, and our values,will set us apart from our competition and allow us to drive long-term growth and profitability. We believe our operating margin expansion will be driven by overall sales leverage, including the additional accretion from our growth initiatives that have a higher operating margin, an accelerating shift online where the operating margin profile is higher, continued occupancy leverage from the renegotiation of our lease agreements and further store closures, the pricing power in our growth trajectory.merchandise margins (due to our differentiated product positioning, with design-led, value engineered and sustainable products), various supply chain efficiencies (including automation and in-stock inventory levels), as well as from continued emphasis on overall strong financial discipline. Our merchandise inventories increased 12% over last year, however our inventory on-hand and available for sale is still down to last year 2.5%. We expect salescontinue to remain robustbe impacted by stronger than expected demand across all brands, as well as various supply chain disruptions including industry-wide container shortages coming out of Asia, delays due to COVID-19 surges in Vietnam and Indonesia and a recent port closure in China. It is hard to predict with certainty when these supply chain challenges will be fully resolved and as a result, we believeexpect backorder levels to remain elevated with moderate improvement in our inventory will continuously improvelevels through the balance of the year. However, operationally, we expect to continue to incur higher shipping costs due to the various surcharges that have been announced by third party shippers on retailers, which are related to the increased shipping demand resulting from the
COVID-19
pandemic. These higher costs will affect us in the third quarter of 2020 and more so in the fourth quarter as a result of peak surcharges during the holiday season. We also expect to continue to incur incremental costs associated with keeping our people and customers safe during the pandemic, as well as additional supply chain costs such as peak bonuses for our hourly associates. In addition, although we have reopened the majority of our retail stores, we have experienced and may continue to experience reduced traffic. Longer term, we anticipate that the behavioral changes and industry shifts that have emerged from the pandemic will persist and continue to favor our business. With our powerful digital first platform, we are driving our
e-commerce
sales to unprecedented levels. We are planning for this trend to continue and are executing to a future where stores will be fewer in number but even better in experience and, as a result, we believe we will continue see operating margin expansion in the long-term. However,Overall, the long-term impact of
COVID-19
on our business, results of operations and financial conditioncondition still remains uncertain. A prolonged pandemic could further interrupt our operations, our vendors’ operations, the economy and overall consumer spending, which could have a material impact on our revenues, results of operations, and cash flows. 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 February 2, 2020, as well as in Note A to our Condensed Consolidated Financial Statements and Part II, Item 1A of this Quarterly Report on Form 10-Q.
January 31, 2021.
17
16
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 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.

Net revenues in the second quarter of fiscal 20202021 increased by $119,963,000,$457,562,000 or 8.8%30.7%, compared to the second quarter of fiscal 2019,2020, with comparable brand revenue growth of 10.5%29.8% and positive comparable revenue growth acrossin all our brands. This increase was primarily driven by strength in both our e-commerce and retail channels primarily due to an increase in
e-commerce
revenues, partially offset by furniture and other home decor sales, as well as the impact of stores operating at a decrease in retail revenues driven by temporary retail store closures and limited capacity in stores due to
COVID-19.
This includes an 11.6% decrease COVID-19 during the second quarter of fiscal 2020. The increase in net revenues also included a 49.7% increase in international revenues primarily related to our franchise and company-owned operations. On a two-year basis, comparable brand revenues increased 40.3%, with growth in both channels.

Net revenues for
year-to-date
fiscal 20202021 increased by $114,034,000,$971,388,000, or 4.4%35.6%, compared to
year-to-date
fiscal 2019,2020, with comparable brand revenue growth of 6.7%34.6% and positivedouble-digit comparable revenue growth across all our brands. This growth was primarily driven by strength in both our e-commerce and retail channels due to an increase in
e-commerce
revenues partially offset by furniture and other home decor, and the impact of stores operating at a decrease in retail revenues driven by temporary retail store closures and limited capacity in stores due to
COVID-19.
This includes COVID-19 during fiscal 2020. The increase in net revenues also included a 23.9% decrease62.8% increase in international revenues primarily related to our franchise and company-owned operations. On a two-year basis, comparable brand revenues increased 41.4%, with growth in both channels.

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. Comparable stores that were temporarily closed during the year due to
COVID-19
were not excluded from the comparable stores 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		 
Twenty-six

Weeks Ended		 Thirteen Weeks EndedTwenty-six Weeks Ended
Comparable brand revenue growth (decline)
  August 2,
2020		 August 4,
2019		 August 2,
2020		 August 4,
2019		 
Comparable brand revenue growthComparable brand revenue growthAugust 1,
2021		August 2,
2020		August 1,
2021		August 2,
2020
Pottery Barn
   8.1%  4.2%  3.6%  2.9% Pottery Barn29.6 %8.1 %35.0 %3.6 %
West Elm
   7.0%  17.5%  5.3%  14.8% West Elm51.1 %7.0 %51.0 %5.3 %
Williams Sonoma
   29.4%  (1.1%)  17.4%  (1.3%) Williams Sonoma6.4 %29.4 %19.4 %17.4 %
Pottery Barn Kids and Teen
   4.8%  3.7%  6.4%  2.6% Pottery Barn Kids and Teen18.0 %4.8 %22.3 %6.4 %
Total
1
   10.5%  6.5%  6.7%  5.1% 
Total 1
29.8 %10.5 %34.6 %6.7 %
1 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.
1
Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.

STORE DATA
   Store Count   Average Leased Square
Footage Per Store		 
    
May 3,
2020
1
   Openings   Closings  
August 2,
2020
1
   
August 4,
2019
   
August 2,
2020
   
August 4,
2019
 
Williams Sonoma
   212    —      (2)   210    218    6,800    6,800 
Pottery Barn
   201    —      —     201    205    14,400    14,400 
West Elm
   119    3    (1)   121    112    13,200    13,100 
Pottery Barn Kids
   74    —      (2)   72    78    7,800    7,500 
Rejuvenation
   10    —      —     10    10    8,500    8,500 
Total
   616    3    (5)   614    623    10,700    10,600 
18
17
STORE DATA
   Store Count   Average Leased Square
Footage Per Store		 
    
May 3,
2020
1
  Openings  Closings  
August 2,
2020
1
   
August 4,
2019
   
August 2,
2020
   
August 4,
2019
 
Store selling square footage at
period-end
       4,145,000    4,124,000 
Store leased square footage at
period-end
             6,571,000    6,587,000 
 
Store Count 1
Average Leased Square
Footage Per Store
  May 2,
2021		OpeningsClosingsAugust 1,
2021		August 2,
2020		August 1,
2021		August 2,
2020
Williams Sonoma195 3 (2)196 210 6,800 6,800 
Pottery Barn195 1 (1)195 201 14,600 14,400 
West Elm121 2 — 123 121 13,100 13,200 
Pottery Barn Kids57 — — 57 72 7,800 7,800 
Rejuvenation10 — — 10 10 8,500 8,500 
Total578 6 (3)581 614 10,900 10,700 
Store selling square footage at period-end  3,994,000 4,145,000 
Store leased square footage at period-end  6,319,000 6,571,000 
1Store count data does not reflect temporary closures due to COVID-19.

1
Store counts as of August 2, 2020 and May 3,2020 do not exclude those stores temporarily closed due to
COVID-19.
COST OF GOODS SOLD
 Thirteen Weeks EndedTwenty-six Weeks Ended
In thousandsAugust 1,
2021		% Net
Revenues		August 2,
2020		% Net
Revenues		August 1,
2021		% Net
Revenues		August 2,
2020		% Net
Revenues
Cost of goods sold 1
$1,089,951 55.9 %$939,575 63.0 %$2,086,127 56.4 %$1,760,518 64.6 %
   Thirteen Weeks Ended  
Twenty-six
Weeks Ended		 
In thousands
  
August 2,
2020
   
% Net
Revenues
  
August 4,
2019
   
% Net
Revenues
  
August 2,
2020
   
% Net
Revenues
  
August 4,
2019
   
% Net
Revenues
 
Cost of goods sold
1
  $939,575    63.0%  $886,953    64.7%  $1,760,518    64.6%  $1,683,754    64.5% 
1Includes total occupancy expenses of $176.0 million and $166.2 million for the second quarter of fiscal 2021 and the second quarter of fiscal 2020, respectively, and $351.7 million and $341.1 million for year-to-date fiscal 2021 and year-to-date fiscal 2020, respectively.
1
Includes total occupancy expenses of $166,222,000 and $176,814,000 for the second quarter of fiscal 2020 and the second quarter of fiscal 2019, respectively, and $341,095,000 and $350,667,000 for
year-to-date
fiscal 2020 and
year-to-date
fiscal 2019, 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 shrinkage,replacements, damages, obsolescence and replacements.shrinkage. Occupancy expenses consist of rent, depreciation and other occupancy costs, including common area maintenance, property taxes and utilities. 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.

Second Quarter of Fiscal 20202021 vs. Second Quarter of Fiscal 2019
2020
Cost of goods sold increased by $52,622,000,$150,376,000, or 5.9%16.0%, in the second quarter of fiscal 20202021 compared to the second quarter of fiscal 2019.2020. Cost of goods sold as a percentage of net revenues decreased to 55.9% in the second quarter of fiscal 2021 from 63.0% in the second quarter of fiscal 2020 from 64.7% in the second quarter of fiscal 2019.2020. This decrease was primarily driven by higher merchandiseselling margins from less promotions during the second quarter of fiscal 2020,reduced promotional activity and the leverage of occupancy costs primarily due to overall strength in
e-commerce
revenuesfrom higher sales and the impact of reduced rent and operating costs from less stores year-over-year, as well as
COVID-19
related rent concessions. This decrease was partially offset by increased shipping costs due to a significantly greater portion of our total revenues being generated from
e-commerce
and surcharges from our third-party shippers related to
COVID-19,
as well as the year-over year impact from incremental China tariffs.low occupancy dollar growth.

Year-to-date
Fiscal 20202021 vs.
Year-to-date
Fiscal 2019
2020
Cost of goods sold increased by $76,764,000,$325,609,000, or 4.6%18.5%, for
year-to-date
fiscal 20202021, compared to
year-to-date
fiscal 2019.2020. Cost of goods sold as a percentage of net revenues decreased to 56.4% for year-to-date fiscal 2021 from 64.6% for year-to-date fiscal 2020. This increasedecrease was primarily driven by increased shippinghigher selling margins from reduced promotional activity and the leverage of occupancy costs due to a significantly greater portion of our total revenues being generated from
e-commerce
higher sales and surcharges from our third-party shippers related to
COVID-19,
the year-over year impact from incremental China tariffs,low occupancy dollar growth, as well as expenses for inventory write-offs of approximately $11,378,000 due tofrom the closure of our outlet stores due to COVID-19 in the first quarter of 2020. This increase was partially offset by higher merchandise margins from less promotions during fiscal 2020 the leveragethat did not recur in fiscal 2021.
18
Table of occupancy costs primarily due to overall strength in
e-commerceContents
revenues and the impact of reduced rent and operating costs from less stores year-over-year, as well as
COVID-19
related rent concessions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

  Thirteen Weeks Ended 
Twenty-six
Weeks Ended		 Thirteen Weeks EndedTwenty-six Weeks Ended
In thousands
  
August 2,
2020
   % Net
Revenues		 
August 4,
2019
   % Net
Revenues		 
August 2,
2020
   % Net
Revenues		 
August 4,
2019
   % Net
Revenues		 In thousandsAugust 1,
2021		% Net RevenuesAugust 2,
2020		% Net RevenuesAugust 1,
2021		% Net RevenuesAugust 2,
2020		% Net Revenues
Selling, general and administrative expenses
  $365,841    24.5%  $397,696    29.0%  $731,456    26.8%  $767,895    29.4% Selling, general and administrative expenses$535,288 27.5 %$365,841 24.5 %$1,012,964 27.4 %$731,456 26.8 %

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Table of Contents
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.

Second Quarter of Fiscal 20202021 vs. Second Quarter of Fiscal 2019
2020
Selling, general and administrative expenses decreasedincreased by $31,855,000,$169,447,000, or 8.0%46.3%, in the second quarter of fiscal 20202021, compared to the second quarter of fiscal 2019.2020. Selling, general and administrative expenses as a percentage of net revenues decreasedincreased to 27.5% in the second quarter of fiscal 2021 from 24.5% in the second quarter of fiscal 2020 from 29.0%2020. This increase was primarily driven by higher advertising costs in the second quarter of fiscal 2019.2021 compared to significantly reduced advertising costs as a result of our initial financial response to COVID-19 in the second quarter of fiscal 2020. This decreaseincrease was primarily drivenpartially offset by the leverage of advertising costs as we further optimized our digital spend to drive strong returns on our advertising investments,other general expenses from higher sales and the leverage of employment costs primarily due to the overall strength in
e-commerce
revenues and lower variable store payroll. This decrease was partially offset by store asset impairment charges of approximately $6,355,000 due to the impact of
COVID-19
on our retail stores.cost discipline.

Year-to-date
Fiscal 2021 vs. Year-to-date Fiscal 2020 vs.
Year-to-date
Fiscal 2019
Selling, general and administrative expenses decreasedincreased by $36,439,000,$281,508,000, or 4.7%38.5%, for
year-to-date
fiscal 20202021, compared to
year-to-date
fiscal 2019.2020. Selling, general and administrative expenses as a percentage of net revenues decreasedincreased to 27.4% for year-to-date fiscal 2021 from 26.8% for
year-to-date
fiscal 2020 from 29.4% for
year-to-date
fiscal 2019.2020. This decreaseincrease was primarily driven by the leverage ofhigher advertising costs for year-to-date fiscal 2021 compared to significantly reduced advertising costs as we further optimizeda result of our digital spendinitial financial response to drive strong returns on our advertising investments, and the leverage of employment costs primarily due to the overall strength in
e-commerce
revenues and lower variable store payroll.COVID-19 for year-to-date fiscal 2020. This decreaseincrease was partially offset by the leverage of other general expenses and employment costs from higher sales and overall cost discipline, as well as store asset impairment charges of approximately $21,975,000 due to the impact of
COVID-19
on our retail stores.stores in year-to-date fiscal 2020 that did not recur in year-to-date fiscal 2021.
INCOME TAXES

The effective tax rate was 20.6% for year-to-date fiscal 2021 compared to 24.6% for the
year-to-date
fiscal 2020, and 25.8% for
year-to-date
fiscal 2019.2020. The decrease in the effective tax rate is primarily due to an increase in our excess tax benefit from stock-based compensation in fiscal 20202021 compared to the deficiency of the tax benefit in fiscal 2019.2020.
LIQUIDITY AND CAPITAL RESOURCES

As of August 2, 2020,1, 2021, we held $947,760,000$655,211,000 in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which $93,543,000$217,580,000 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.

InFor the remainder of fiscal 2020,2021, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, stock repurchases and dividend payments, advertising and marketing initiatives, and property and equipment purchases and dividend payments. Wepurchases.

In addition to our cash balances, we have a credit facility which provides for a $500,000,000 unsecured revolving line of credit (“revolver”), and a $300,000,000 unsecured term loan facility (“term loan”). 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. As a precautionary measure to maximize our liquidity and to increase our available cash on hand in the event of a protracted
COVID-19
pandemic, during the first quarter of fiscal 2020, we drew down $487,823,000 on our revolving line of credit, for an outstanding balance on our revolver of $499,495,000 as of August 2, 2020. We had no additional borrowings under the revolver during
During the second quarter of fiscal 2020 and ended the quarter with an outstanding balance of $499,495,000. For
year-to-date
fiscal 2019,2021, we had no borrowings of $60,000,000 under the revolver. Additionally, as of August 2, 2020,1, 2021, a total of $11,672,000$12,927,000 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’ compensation and other insurance programs.
19

In orderaddition to further strengthen our liquidity position, maximize our balance sheet and maintain financial flexibility, in May 2020, we entered into an amendment to our credit facility which, among other changes, extends the maturity date and amends the interest rate of the term loan, modifies covenants under the credit facility, and maintainsduring the maturity date and interest ratesecond quarter of the revolver. Under the credit facility amendment, the term loan now matures on January 8, 2022, at which time all outstanding principal and any accrued interest must be repaid. Additionally, in Mayfiscal 2020 we entered into a new agreement (the “364-Day Credit Agreement”) for an additional $200,000,000 unsecured
364-day
revolving line of credit.
As During the second quarter of August 2, 2020,fiscal 2021 and for year-to-date fiscal 2021, we had three unsecured letter of credit reimbursement facilities for a total of $70,000,000, of which $11,335,000 was outstanding. These letter of credit facilities represent only a future commitment to fund inventory purchases to which we hadno borrowings under the 364-Day Credit Agreement. We did not taken legal title. On August 23, 2020 we renewed all three of our letter of credit facilities and reducedrenew the aggregate credit available under these facilities from $70,000,000 to $35,000,000 due to our lower level of usage, and extended each of these facilities’ maturity dates until August 22, 2021.
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Table of Contents
The Credit Facility Amendment and the
364-Day
Credit Agreement containupon 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. We are currentlyAs of August 1, 2021, we were in compliance with our financial covenants under ourthe credit facilitiesfacility and, based on our current projections, we expect to remain in compliance with the covenants under our credit facility throughout the next 12 months. We believe our cash on hand, in addition to our available credit facilities,facility, will provide adequate liquidity for our business operations over the next 12 months.

Letter of Credit Facilities
As of August 1, 2021, we had three unsecured letter of credit reimbursement facilities for a total of $35,000,000. The letter of credit facilities contains covenants that are consistent with our credit facility. Interest 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 August 1, 2021, an aggregate of $8,404,000 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. On August 22, 2021 we renewed all three of our letter of credit facilities on substantially similar terms and extended each of these facilities' maturity dates until August 22, 2022. 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
year-to-date
fiscal 2020,2021, net cash provided by operating activities was $216,400,000$475,668,000 compared to net cash used in operating activities of $26,636,000$216,400,000 for
year-to-date
fiscal 2019.2020. For
year-to-date
fiscal 2020,2021, net cash provided by operating activities was primarily attributable to net earnings adjusted for
non-cash
items, and a decrease in merchandise inventories, partially offset by a decreasean increase in accounts payable. Cashmerchandise inventories. Net cash provided by operating activities for
year-to-date
fiscal 20202021 increased compared to cash used in operating activities for
year-to-date
fiscal 2019 was2020 primarily due to a year-over-year reduction in merchandise inventories, an increase in net earnings and an increase in accrued expenses and other liabilities.accounts payable, partially offset by an increase in merchandise inventories.

Cash Flows from Investing Activities
For
year-to-date
fiscal 2020,2021, net cash used in investing activities was $75,882,000$78,184,000 compared to $76,719,000$75,882,000 for
year-to-date
fiscal 2019,2020, and was primarily attributable to purchases of property and equipment.

Cash Flows from Financing Activities
For
year-to-date
fiscal 2020,2021, net cash used in financing activities was $942,617,000 compared to net cash provided by financing activities wasof $377,910,000 compared tofor year-to-date fiscal 2020. For year-to-date fiscal 2021, net cash used in financing activities of $113,471,000 for
year-to-date
fiscal 2019. For
year-to-date
fiscal 2020, net cash provided by financing activities was primarily attributable to borrowings underrepurchases of common stock, the repayment of our revolving line of credit partially offset by the payment of dividendsterm loan and tax withholdings related to stock-based awards. Cash provided by financing activities for
year-to-date
fiscal 2020 compared toNet cash used in financing activities for
year-to-date
fiscal 2019 was2021 increased compared to net cash provided by financing activities for year-to-date fiscal 2020 primarily attributabledue to borrowings under our revolving line of credit in year-to date fiscal 2020 and a reductionthat did not recur in year-to-date fiscal 2021, an increase in repurchases of common stock.stock, and the repayment of our term loan in year-to-date fiscal 2021.

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.

Critical Accounting Policies
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
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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 second quarter of fiscal 2020,2021, there were no significant changes to the critical accounting policies discussed in our Annual Report on Form
10-K
for the fiscal year ended February 2, 2020.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
Except as described in Note BOther than the natural expiration of Part I, Item 1,our 364-Day Credit Agreement, 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 February 2, 2020,January 31, 2021, which is incorporated herein by reference.
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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 revolver and our term loan each havehas a variable interest rate which, when drawn upon, subjects us to risks associated with changes in that interest rate. During the second quarter of fiscal 2020,2021, we had no borrowings of $487,823,000 under the revolver. Additionally, we have $300,000,000 outstanding under our term loan and a $200,000,000 unsecured revolving line of credit that has not been drawn upon. 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.

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 August 2, 2020,1, 2021, 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 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 second quarter of fiscal 20202021 or the second quarter of fiscal 2019.2020. 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 second quarter of fiscal 20202021 or the second quarter of fiscal 2019,2020, 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).
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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
As of August 2, 2020,1, 2021, 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 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 waswere no changechanges in our internal control over financial reporting that occurred during our most recentthe second quarter of fiscal quarter2021, that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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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 February 2, 2020 and Part II, Item 1A of our Quarterly Report on Form
10-Q
for the fiscal quarter ended May 3, 2020 (the “Prior
10-Q”)
January 31, 2021 for a description of the risks and uncertainties associated with our business. We are providing the following information regardingThere were no material changes that have occurred to the previously disclosedsuch risk factors in our
Form 10-K
and the Prior
10-Q. Except
for such additional information, we believe there have been no material changes from the risk factors previously disclosed in our
Form 10-K
and the Prior
10-Q.
Our business has been and may continue to be materially impacted by the
COVID-19
pandemic, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
Our business has been and may continue to be materially impacted by the
COVID-19
pandemic, which has negatively affected the U.S. and global economies, disrupted businesses and financial markets, and led to significant travel and transportation restrictions, mandatory closures of
non-essential
retailers and other businesses, and orders to
“shelter-in-place”.
The preventative or protective actions that governments and businesses around the world have taken to contain the spread of
COVID-19
have resulted in a period of disruption that has and may continue to negatively impact our retail store revenues, which comprised approximately 44% of our net revenues in fiscal 2019. In March 2020, we temporarily closed all of our retail stores to protect our employees, customers and the communities in which we operate and to help contain the
COVID-19
pandemic. As of August 2, 2020, we had reopened the majority of our retail stores, but have experienced and may continue to experience reduced traffic. We have also extended closures in locations where retail restrictions have not been lifted, and it is unclear when such restrictions will be lifted. Such reduced traffic and closures have and may continue to result in material reductions in our retail store revenues and operating income as well as store asset impairment charges and write-offs, which have and may continue to negatively affect our operating results. Further, while we have implemented strict safety protocols based on Center for Disease Control and Prevention and government recommendations in stores that we have
re-opened,
there is no guarantee that such protocols will be effective, and any virus-related illnesses linked or alleged to be linked to our stores, whether accurate or not, may negatively affect our reputation, operating results and/or financial condition.
Although to date, the impact of our store closures on our retail store revenues has been more than offset by growth in our
e-commerce
business, there is no guarantee that such growth will continue if the current recession continues over a prolonged period of time or worsens due to the
COVID-19
pandemic, and results in decreased consumer spending in the markets in which we operate.
We have also implemented work-from-home policies for certain employees, which continue to be in effect. While such policies have not significantly impacted productivity or disrupted our business to date, over a prolonged period of time, such policies could adversely impact our ability to conduct our business in the ordinary course.
Governmental mandates, illness or the absence of a substantial number of distribution center employees has in the past and may require in the future that we temporarily close one or more of our distribution centers, or may prohibit or significantly limit us, or our third party logistics providers from delivering packages to our customers and our stores, which could complicate or prevent us from fulfilling
e-commerce
orders and, once some or all of our stores reopen, could complicate or prevent our ability to supply merchandise to our stores. As of the date of this report, all our distribution centers remain open and operational, and we are not experiencing material disruptions in the delivery of our products.
We also have incurred and expect to continue to incur higher shipping costs due to the various surcharges that have been announced by third party shippers on retailers, which are related to the increased shipping demand resulting from the
COVID-19
pandemic. These higher costs will affect us in the third quarter of 2020 and more so in the fourth quarter as a result of peak surcharges during the holiday season and could continue to affect us thereafter.
Further,
COVID-19
related containment efforts and illnesses could also impact our vendors who manufacture or deliver our merchandise to us or our customers, which could adversely affect our ability to acquire and sell our merchandise, thus adversely affecting our results of operations, cash flows and liquidity.
While the extent of the economic impact of
COVID-19
and the duration of that impact may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, which adversely impacted the value of our common stock in the first quarter. In addition, a prolonged recession or long-term market correction, could in the future adversely impact the value of our common stock over the long-term, impact our access to capital and affect our business in the near and long-term.
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quarterly reporting period.
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We currently believe that our available cash, cash equivalents and cash flow from operations will be sufficient to finance our operations and expected capital requirements for at least the next 12 months unless we experience a material decline in revenue relating to the
COVID-19
pandemic. However, we might experience periods during which we encounter additional cash needs, and we might need additional external funding to support our operations. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results. Further, additional borrowings on our revolving line of credit has resulted or will result in us incurring additional interest expense, which would negatively affect our earnings.
The
COVID-19
pandemic continues to rapidly evolve. The ultimate impact of the
COVID-19
pandemic on our results, financial position and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, such as the transmission rate of the disease, the extent and effectiveness of containment actions, particularly as areas are reopened, and the impact of these and other factors on our stores, offices, employees, distributors, vendors and customers. If we are not able to respond to and manage the impact of such events effectively, our business, operating results, financial condition and cash flows could be adversely affected.
Please see Note A to our Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about the potential impact of the
COVID-19
pandemic on our business, and the actual operational and financial impacts that we have experienced to date.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information as of August 1, 2021 with respect to shares of common stock we repurchased during the second quarter of fiscal 2021 under our current stock repurchase program. For additional information, please see Note G to our Condensed Consolidated Financial Statements within Part I of this Form 10-Q.
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
May 3, 2021 – May 30, 2021116,095 $171.91 116,095 $683,875,000 
May 31, 2021 – June 27, 2021644,966 $161.67 644,966 $579,605,000 
June 28, 2021 – August 1, 202173,233 $158.82 73,233 $567,974,000 
Total834,294 $162.84 834,294 $567,974,000 
1 Excludes shares withheld for employee taxes upon vesting of stock-based awards.

On August 25, 2021, we announced a new $1,250,000,000 stock repurchase authorization, which is an increase of approximately $700,000,000 to our current stock repurchase program and superseded the remaining amount outstanding under our prior stock repurchase authorization.

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. There were no repurchases of common stock in the second quarter of fiscal 2020. For additional information, please see Note G to our Condensed Consolidated Financial Statements within Part I of this Form
10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
ITEM 5. OTHER INFORMATION

None.
None.
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ITEM 6. EXHIBITS
(a) Exhibits
Exhibit
Number		Exhibit Description
10.1+
Exhibit
Number10.2+*
    3.110.3+*
  10.1*First Amendment to Seventh Amended and Restated Credit Agreement, dated January 8, 2018 (as amended on May 11, 2020), between the Company and Bank of America, N.A., as administrative agent, letter of credit issuer and swingline lender, Wells Fargo Bank, National Association, as syndication agent and the lenders party thereto
  10.2*31.1*
  31.1*Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2*
32.1*
32.2*
101*
The following financial statements from the Company’s Quarterly Report on
Form 10-Q
for the quarter ended
August 2
, 2020,1, 2021, 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
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted under Exhibit 101).

+Indicates a management contract or compensatory plan or arrangement.
*Filed herewith
*
Filed herewith.
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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.
WILLIAMS-SONOMA, INC.
WILLIAMS-SONOMA, INC.By:/s/ Julie Whalen
By:/s/ Julie Whalen
Julie Whalen
Duly Authorized Officer and Chief Financial Officer

Date: September 9, 20202021

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