Building on a year of consistent growth in 2021, Williams-Sonoma reported a record performance for the first quarter of 2022, which ended on May 1. According to president and CEO Laura Alber, the company had a 9.5 percent comp growth on the top line over the same quarter last year, and 19.5 percent growth on the bottom line to $3.50 per share.
“These results continue to demonstrate the strength of our multi-brand portfolio and our team’s ability to navigate challenges and outperform,” she said. “These results are even more impressive when considering that we were up against last year’s strong performance with a comp of more than 40 percent.”
Breaking it down by brand, Pottery Barn delivered a comp of 14.6 percent on top of 41.3 percent last year or 55.9 percent on a two-year basis. West Elm had a 12.8 percent comp in the first quarter on top of 50.9 percent last year or 63.7 percent on a two-year basis. West Elm’s quarterly growth was driven by strong performance in furniture. Alber said the company will expand into B2B with the West Elm brand during the second quarter.
“We are particularly excited to launch our expanded B2B West Elm assortment and customer experience, specifically servicing the many small- and medium-sized businesses in the U.S.,” she said. “We are uniquely positioned to offer a broad assortment of full space, performance-led design solutions directly to these customers. This is an important initiative in our long-term strategy to capture additional growth [and] become a $3 billion brand.”
Supply chain challenges in Vietnam continued to impact the company’s Pottery Barn Kids and Teens label, which ran a negative 3.1 percent comp this quarter. Stocking issues hit the Williams-Sonoma brand, too, which had a comp of negative 2.2 percent following a 35.3 percent comp last year.
“Unfortunately, these out-of-stocks were in some key programs that had an outsized impact on our exclusive products,” Alber said. “On a three-year basis, on-hand inventories are down almost 40 percent in Williams-Sonoma on sales growth of 30 percent. We are focused on getting more in stock, and we believe we will see the recovery before Q4.”
The company’s emerging brands—lighting and hardware label Rejuvenation, and bag and gift brand Mark and Graham—continued to show promise for Williams-Sonoma, together running a 31 percent comp this quarter.
“We are confident in these brands and their ability to contribute to the long-term growth of our company,” Alber said. “In fact, we believe Rejuvenation, which is on track to generate more than $200 million in revenue this year, has the potential to be our next $1 billion brand.”
Gross margin came in at a record 43.8 percent, an 80 basis-point expansion over last year, driven primarily by the strength of merchandise margins where the company was able to continue to preserve pricing integrity without utilizing site-wide promotions.
Occupancy costs came in at 9.9 percent of net revenues and leveraged 20 basis points, resulting from another quarter of higher sales and lower occupancy dollar growth. Occupancy dollars increased 6.1 percent to approximately $186 million, which includes the incremental costs from the company’s new East Coast distribution center. The occupancy benefits from rent renegotiations and the incremental net closure of 37 stores at the end of 2021 enabled the company to minimize occupancy dollar growth.
The SG&A rate was a first quarter low of 26.7 percent, leveraging 40 basis points over last year, driven primarily by employment and advertising.
Williams-Sonoma ended the quarter with a cash balance of $325 million and no debt outstanding. That liquidity and operating cash flow of almost $185 million during the quarter allowed the company to not only fund the operations of the business, but to also invest in the business at higher year-over-year levels in the form of $71 million in capital expenditures to pay incremental dividends increasing to over $58 million in the quarter, and to repurchase a record $500 million in shares, a 60 percent year-over-year first quarter increase off of a prior year high.
Merchandise inventories, which include in-transit inventory, were roughly $1.4 million, increasing 28.4 percent over depressed levels last year. Inventory on hand increased 17.7 percent over last year, and units were only up 1 percent year-over-year, which the company said primarily reflects the mix shift to higher AUR furniture inventory. And on a three-year basis, Williams-Sonoma’s on-hand inventory was down nearly 7 percent to 2019 pre-pandemic levels as compared to sales that have grown over 50 percent over the same time frame.
“As a result, given our ongoing higher sales volumes, our continued elevated back-order levels, and the significant macro supply chain disruptions we are still experiencing, we are still below optimal levels, particularly in our best-selling back-ordered items,” said Julie Whalen, EVP and chief financial officer for Williams-Sonoma. “And we expect this to continue into the back half of 2022.”
Net sales: Net revenues grew to nearly $1.9 billion, with comparable brand revenue growth at 9.5 percent. This growth came on top of a 40.4 percent comp last year for a two-year stack of 50 percent. According to Whalen, the company saw growth across both in-person and online retail sales.
“These strong top line results actualized in both channels, including retail at a 14.4 percent comp, which was an 82.1 percent two-year stack, despite retail traffic still negative 20 percent to pre-pandemic levels in 2019,” she said. “And in e-commerce, we delivered a 7.3 percent comp on top of a 30.6 percent comp last year, maintaining our e-commerce mix as a percent of total revenues at 65 percent.”
CEO’s Take: Despite continued supply chain issues, Alber remained confident Williams-Sonoma will continue its growth trajectory and hit estimated numbers for 2022.
“We are proud of our continued outperformance” she said. “As we look to the balance of the year, we remain confident and committed to our guidance of mid to high single-digit comps, with operating margins relatively aligned to fiscal ’21. We have a solid lineup of growth initiatives and operational improvements planned for the balance of the year. And as we look further, we are confident in our path to be a $10 billion company by 2024.”