Williams-Sonoma, Inc. (WSM)
Q2 2010 Earnings Call Transcript
August 19, 2010 10:00 a.m. ET

Executives

Stephen C. Nelson – Director, Investor Relations
Laura J. Alber – President and Chief Executive Officer
Sharon L. McCollam – Chief Operating Officer and Chief Financial Officer
Patrick J. Connolly – Chief Marketing Officer

Analysts

Budd Bugatch – Raymond James
Colin McGranahan – Sanford C. Bernstein
Trisha Dill – Wells Fargo Securities
Joseph Feldman – Telsey Advisory Group
David Magee – SunTrust Robinson Humphrey
Scot Ciccarelli – RBC Capital Markets
Alan Rifkin – Bank of America/Merrill Lynch
Christopher Horvers – J.P. Morgan
Neely Tamminga – Piper Jaffray
Bradley Thomas – KeyBanc Capital Markets
P.J. Juvekar – Citi Investment Research
Laura Champine – Cowen and Company
Brian Nagel – Oppenheimer
Michael Lasser – Barclays Capital
Jennifer Milan – Sterne, Agee & Leach, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Williams-Sonoma, Incorporated Second Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after the presentation. This conference is being recorded.

I would now like to turn the call over to Steve Nelson, Director of Investor Relations, to discuss non-GAAP measures and forward-looking statements.

Stephen C. Nelson

Good morning. This morning''s conference call should be considered in conjunction with the press release that we issued earlier today. Our press release in this call contain non-GAAP financial measures that exclude the impact of unusual business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful are discussed in the press release.

The forward-looking statements included in this morning''s call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, guidance, growth plans and prospects of the company in 2010 and beyond and are subject to certain risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company''s current press release and SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after this call.

I will now turn the conference call over to Laura Alber, our President and Chief Executive Officer.

Laura J. Alber

Good morning and thank you for joining us. With me today are Pat Connolly, our Chief Marketing Officer and Sharon McCollam, our Chief Operating and Chief Financial Officer. While many retailers saw a slowdown in consumer spending in the second quarter, we continued to see ongoing strength across all of our brands. Innovative merchandising at compelling price points, combined with highly-targeted marketing and a superior customer experience, drove these better-than-expected results.

During the second quarter, net revenues increased 15% and we delivered the highest second quarter non-GAAP diluted EPS in our history at $0.31. Throughout the quarter, revenue trended at or above the high end of expectations and gross margins continued to substantially improve versus last year.

Across all brands, we capitalized on the competitive strengths that are driving our business today, creativity and product and presentation, service, a best-in-class multi-channel strategy, and a world-class supply chain. In our core brands, net revenues increased 15%.

Pottery Barn saw the greatest increase followed by Pottery Barn Kids and Williams-Sonoma. In our emerging brands, including West Elm, PBteen and Williams-Sonoma Home, net revenues increased 16%.

Initiatives, including innovative products at a great value, e-marketing and our retail clienteling program, were the key drivers of our overall better-than-expected top-line performance. In the retail channel, comparable store sales increased 13.6%.