Williams-Sonoma, Inc. announces second quarter 2014 results Net revenues grow 5.8%, operating margin expands to 8.2% EPS increases to $0.53

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the second fiscal quarter ended August 3, 2014 (“Q2 14”) versus the second fiscal quarter ended August 4, 2013 (“Q2 13”).

2nd QUARTER 2014 RESULTS

Laura Alber, President and Chief Executive Officer, commented, “We are pleased to have delivered another quarter of solid performance, once again demonstrating the competitive advantages resulting from our multi-brand, multi-channel business model.”

Alber continued, “We enter the second half of 2014 well-positioned across our brands from a marketing, merchandise offering, store and online experience standpoint. We remain focused on disciplined execution against our growth initiatives and a balanced approach to capital allocation to continue to drive shareholder value.”

Comparable brand revenue growth in Q2 14 increased 5.7% on top of 8.4% in Q2 13 as shown in the table below:

Direct-to-customer (“DTC”) net revenues in Q2 14 increased 9.4% to $523 million from $478 million in Q2 13, primarily driven by West Elm, Pottery Barn, Williams-Sonoma, and Pottery Barn Kids. DTC net revenues generated 50% of total company net revenues in Q2 14, compared to 49% in Q2 13.

Retail net revenues in Q2 14 increased 2.4% to $517 million from $505 million in Q2 13, primarily driven by West Elm and Pottery Barn, partially offset by a decrease in Williams-Sonoma.

Operating margin in Q2 14 increased to 8.2% compared to 8.0% in Q2 13:

EPS in Q2 14 increased 8.2% to $0.53 from $0.49 in Q2 13.

Merchandise inventories at the end of Q2 14 increased 21.4% to $895 million from $737 million at the end of Q2 13. Toward the end of Q2 13, we began taking ownership of our inventory earlier in the supply chain. Excluding the impact of this year-over-year additional inventory in transit, Q2 14 merchandise inventories increased 17.0% on a comparable basis.

The effective income tax rate in Q2 14 was 40.5% versus 37.5% in Q2 13, reflecting certain unfavorable income tax matters.

STOCK REPURCHASE PROGRAM

During Q2 14, we repurchased 847,946 shares of common stock at an average cost of $69.28 per share and a total cost of approximately $59 million. As of August 3, 2014, there was approximately $399 million remaining under the $750 million stock repurchase program announced in March 2013.

FISCAL YEAR 2014 FINANCIAL GUIDANCE

3rd Quarter 2014 Guidance

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, August 27, 2014, at 2:00 PM (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, will be open to the general public via live webcast and can be accessed at www.williams-sonomainc.com/webcast. A replay of the webcast will be available at www.williams-sonomainc.com/webcast.

SEC REGULATION G — NON-GAAP INFORMATION

This press release includes non-GAAP diluted EPS. This non-GAAP financial measure excludes the impact of employee separation charges in Q1 13 and FY 13. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure in Exhibit 1. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our quarterly FY 14 actual results and FY 14 guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

FORWARD-LOOKING STATEMENTS

This press release 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 results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements relating to: our competitive advantages; the execution of our growth initiatives; our approach to capital allocation; our future financial guidance, including Q3 14 and FY 2014 guidance; our three-year stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q2 14; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; and other risks and uncertainties described more fully in our public announcements, reports to stockholders and other documents filed with or furnished to the SEC, including our Annual Report on Form 10-K for the fiscal year ended February 2, 2014, and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 589 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines.