This summary is based on the first quarter fiscal 2008 earnings call conducted by Williams-Sonoma, Inc. (WSM) on June 4, 2008.
Management:
Director, Investor Relations: Stephen C. Nelson
Chairman of the Board, Chief Executive Officer: W. Howard Lester
Chief Financial Officer, Chief Operating Officer, Executive Vice President: Sharon L. McCollam
Group President - Williams-Sonoma, Williams-Sonoma Home, West Elm: David DeMattei
President: Laura J. Alber
Executive Vice President, Chief Marketing Officer, Director: Patrick J. Connolly
Key Investors Issues
- EPS were 10 cents a share compared to 16 cents a share last year.
- Net income was $10.4 million compared to $18.2 million a year earlier.
- Net revenues decreased 4.2% to approximately $782 million.
First Quarter Highlights
GAAP earnings per share decreased 6 cents per share to 10 cents per share versus 16 cents per share in the first quarter of 2007.
Excluding 5 cents per share net benefit associated with an incentive payment for early lease termination, non-GAAP earnings per share were 5 cents per share. Throughout the quarter, an intense focus on operational execution and cost containment allowed to deliver non-GAAP operating results that were 2 cents per share above the high-end of guidance and 4 cents per share above estimate.
Net revenues decreased 4.2% to approximately $782 million.
- Comparable store sales decreased 9%.
- In core brands, net revenues decreased 7%. This decline was driven by a 7.9% decrease in the Pottery Barn brand, an 11.1% decrease in Pottery Barn Kids, and a 1.7% decrease in the Williams-Sonoma brand.
- In emerging brands, which include West Elm, Williams-Sonoma Home, and PBteen, net revenues increased a better-than-expected 16.3% despite the overall softness in the home centered retail environment.
- In direct marketing, the company continues to move forward with catalog circulation optimization strategy with favorable results. These results are a direct benefit of the proprietary direct marketing systems implemented over the past two years.
- In supply chain, the company continues to roll out the next phase of returns, replacements, and damages reduction initiatives.
Retail lease square footage increased 6.9% while catalog circulation decreased 16.3%.
Page circulation decreased 25.2%. This compares to a catalog circulation decrease of 3% and a page circulation increase of 5.7% in the first quarter of 2007.
- Gross margin, expressed as a percentage of net revenue, was 35.3% versus 37% in the first quarter of 2007. Excluding the impact of accelerated depreciation associated with the early lease termination, non-GAAP gross margin was 35.5%. This 150 basis point year-over-year decrease was primarily driven by the deleverage of fixed occupancy expenses due to declining sales and an increase in cost of merchandise sold, partially offset by reductions in replacements and damages.
- SG&A as a percentage of net revenues was 33.2% versus 33.5% in the first quarter of 2007. Excluding the benefit associated with the early lease termination, non-GAAP SG&A was 34.4%. This 90-basis point year-over-year increase was primarily driven by the deleverage of employment and advertising costs due to declining sales.
- The effective income tax rate was 38.8% versus 40.3% in the first quarter of 2007. This decrease was driven by certain favorable income tax resolutions in the first quarter of 2008.
Cash and cash equivalents decreased $91 million to $27 million after returning over $230 million to shareholders through share repurchases and dividends over the past 12 months, and advancing $61 million on revolving line of credit.
- Accounts receivable increased $17 million to $60 million. This increase was driven by the timing of landlord receivables related to the construction of stores.
- Merchandise inventories increased $74 million, or 11.6% to $714 million, in line with expectations. Of this $74 million increase, approximately $30 million represents the year-over-year increase in fixed investment for new and remodeled stores, approximately $21 million represents increased units in the new and emerging brands, and approximately $23 million represents cost and mix shift increases in the Williams-Sonoma brand. Pottery Barn and Pottery Barn Kids inventory, excluding new and remodeled stores, were virtually flat year over year.
- Accounts payable increased $21 million or 13.6% to $177 million. This increase was primarily driven by the timing of payments in merchandise payables at the end of the quarter.
Williams-Sonoma brand net revenues decreased 1.7% versus last year due to ongoing softness in retail traffic.
- Comparable store sales decreased 4.8%, partially offset by incremental revenues from new and expanded stores and positive e-commerce growth.
- From a merchandising perspective, premium assortment, including electrics, cookware, and cutlery, drove positive growth. This growth was more than offset, however, by ongoing softness in traffic driven categories like food, housewares, and cook’s tools.
- In the
Williams-Sonoma Home brand, results on both the top and bottom line were ahead of expectations as the company continued to make progress on the brand-building initiatives it set at the beginning of the year. From a merchandising perspective, home furnishings and decorative accessories were the primary drivers of growth.
