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Williams-Sonoma, Inc. Announces Strong Third Quarter 2012 Results - EPS Grows 20% Over 2011 Raises Financial Guidance For Fiscal Year 2012

Stocks in this article: WSM

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing seven distinct merchandise strategies – Williams-Sonoma ( cookware and wedding registry), Pottery Barn ( furniture and wedding registry), Pottery Barn Kids ( kids’ furniture and baby registry), PBteen ( girls’ bedding and boys’ bedding), West Elm ( modern furniture and room decor), Williams-Sonoma Home ( luxury furniture and decorative accessories) and Rejuvenation ( lighting and hardware) – are marketed through 584 stores, seven direct mail catalogs and six e-commerce websites. In addition, on November 8, 2012, the company launched Mark and Graham ( personalized gifts and gifts for the home), which will be marketed through a direct mail catalog and an e-commerce website. Williams-Sonoma, Inc. currently operates in the United States and Canada, offers international shipping to customers worldwide, and franchises its brands throughout the Kingdom of Saudi Arabia, Kuwait, and the United Arab Emirates.

 

WILLIAMS-SONOMA, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THIRTEEN WEEKS ENDED OCTOBER 28, 2012 AND OCTOBER 30, 2011 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       
THIRD QUARTER

2012

2011

(13 Weeks) (13 Weeks)
% of % of
$ Revenues $ Revenues
 
Direct-to-customer net revenues $

 447,115

47.3

 %

$

 389,653

44.9

 %

Retail net revenues   497,439   52.7   477,523   55.1
Net revenues 944,554 100.0 867,176 100.0
 
Cost of goods sold   576,556   61.0   535,213   61.7
 
Gross margin 367,998 39.0 331,963 38.3
 
Selling, general and administrative expenses   288,702   30.6   263,219   30.4
 
Operating income 79,296 8.4 68,744 7.9
Interest (income), net   (173 ) -   (7 ) -
 
Earnings before income taxes 79,469 8.4 68,751 7.9
Income taxes   30,569   3.2   25,330   2.9
 
Net earnings $ 48,900   5.2

 %

$ 43,421   5.0

 %

 
Earnings per share:
Basic $ 0.50 $ 0.42
Diluted $ 0.49 $ 0.41
 
Shares used in calculation of earnings per share:
Basic 98,444 103,651
Diluted 100,418 105,721
 

WILLIAMS-SONOMA, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THIRTY-NINE WEEKS ENDED OCTOBER 28, 2012 AND OCTOBER 30, 2011 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       
YEAR-TO-DATE

2012

2011

(39 Weeks) (39 Weeks)
% of % of
$ Revenues

$

Revenues
 
Direct-to-customer net revenues $

 1,235,883

46.9

 %

$

 1,101,815

44.9

 %

Retail net revenues   1,400,568   53.1   1,350,936 55.1
Net revenues 2,636,451 100.0 2,452,751 100.0
 
Cost of goods sold   1,624,707   61.6   1,516,184 61.8
 
Gross margin 1,011,744 38.4 936,567 38.2
 
Selling, general and administrative expenses   813,022   30.8   752,038 30.7
 
Operating income 198,722 7.5 184,529 7.5
Interest (income) expense, net   (532 ) -   63 -
 
Earnings before income taxes 199,254 7.6 184,466 7.5
Income taxes   76,258   2.9   70,121 2.9
 
Net earnings $ 122,996   4.7

 %

$ 114,345 4.7

 %

 
Earnings per share:
Basic $ 1.24 $ 1.09
Diluted $ 1.21 $ 1.07
 
Shares used in calculation of earnings per share:
Basic 99,528 104,592
Diluted 101,285 106,835
 

WILLIAMS-SONOMA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)

                                       

      October 28,

      January 29,

      October 30,

  2012   2012   2011
Assets
Current assets
Cash and cash equivalents $ 262,484 $ 502,757 $ 379,393
Restricted cash 16,049 14,732 14,726
Accounts receivable, net 59,562 45,961 54,140
Merchandise inventories, net 688,437 553,461 626,583
Prepaid catalog expenses 44,452 34,294 46,898
Prepaid expenses 34,370 24,188 41,925
Deferred income taxes, net 91,718 91,744 85,602
Other assets   9,741   9,229   9,632
Total current assets 1,206,813 1,276,366 1,258,899
 
Property and equipment, net 763,576 734,672 740,025
Non-current deferred income taxes, net 13,691 12,382 34,061
Other assets, net   39,342   37,418   18,179
Total assets $ 2,023,422 $ 2,060,838 $ 2,051,164
 
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 236,562 $ 218,329 $ 220,689
Accrued salaries, benefits and other 96,534 111,774 89,117
Customer deposits 208,239 190,417 207,749
Income taxes payable 1,467 22,435 17,152
Current portion of long-term debt 1,753 1,795 1,815
Other liabilities   28,734   27,049   26,418
Total current liabilities 573,289 571,799 562,940
 
Deferred rent and lease incentives 177,912 181,762 188,989
Long-term debt 3,755 5,478 5,494
Other long-term obligations   50,609   46,537   45,957
Total liabilities 805,565 805,576 803,380
 
Stockholders' equity   1,217,857   1,255,262   1,247,784
Total liabilities and stockholders' equity $ 2,023,422 $ 2,060,838 $ 2,051,164

ADDITIONAL INFORMATION

    Store Count   Average Leased Square Footage Per Store

Retail Concept

July 29, 2012   Openings   Closings   October 28, 2012   October 30, 2011 October 28, 2012  

October 30,2011

Williams-Sonoma 259 1

<1

>

259 268 6,600

6,500

Pottery Barn 193 4

<4

>

193 201 13,900

13,700

Pottery Barn Kids 83 - - 83 84 8,100

8,200

West Elm 40 5 - 45 36 15,600

17,200

Rejuvenation 4 - -   4 - 13,200

-

Total 579 10

<5

>

584 589 10,000

9,900

Total Store Square Footage

July 29, 2012 October 28, 2012 October 30, 2011
Total store selling square footage 3,526,000 3,566,000 3,583,000
Total store leased square footage 5,738,000 5,813,000 5,809,000
 

WILLIAMS-SONOMA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THIRTY-NINE WEEKS ENDED OCTOBER 28, 2012 AND OCTOBER 30, 2011 (DOLLARS IN THOUSANDS)

 

   
YEAR-TO-DATE

2012

2011

(39 Weeks) (39 Weeks)
Cash flows from operating activities
Net earnings $ 122,996 $ 114,345
 
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 98,653 98,773
Loss on sale/disposal of assets 1,567 1,290
Impairment of assets - 172
Amortization of deferred lease incentives (19,785 ) (20,828 )
Deferred income taxes (8,767 ) (6,989 )
Tax benefit from exercise of stock-based awards 7,098 6,036
Stock-based compensation expense 22,778 17,834
Changes in:
Accounts receivable (13,045 ) (12,526 )
Merchandise inventories (134,545 ) (113,034 )
Prepaid catalog expenses (10,157 ) (10,073 )
Prepaid expenses and other assets (12,883 ) (19,125 )
Accounts payable 4,832 (17,687 )
Accrued salaries, benefits and other current and long-term liabilities (9,069 ) (38,535 )
Customer deposits 17,773 15,284
Deferred rent and lease incentives 15,866 8,027
Income taxes payable   (20,929 )   (24,847 )
Net cash provided by (used in) operating activities   62,383     (1,883 )
 
Cash flows from investing activities:
Purchases of property and equipment (116,398 ) (102,255 )
Restricted cash deposits (1,317 ) (2,214 )
Proceeds from insurance reimbursement - 707
Other   (231 )   (536 )
Net cash used in investing activities   (117,946 )   (104,298 )
 
Cash flows from financing activities:
Repurchase of common stock (124,293 ) (93,986 )
Payment of dividends (66,185 ) (51,334 )
Tax withholdings related to stock-based awards (12,327 ) (8,376 )
Proceeds from exercise of stock-based awards 12,009 7,651
Excess tax benefit from exercise of stock-based awards 7,399 4,895
Repayments of long-term obligations (1,765 ) (1,515 )
Other   (405 )   (86 )
Net cash used in financing activities   (185,567 )   (142,751 )
 
Effect of exchange rates on cash and cash equivalents 857 (78 )
Net decrease in cash and cash equivalents (240,273 ) (249,010 )
Cash and cash equivalents at beginning of period   502,757     628,403  
Cash and cash equivalents at end of period $ 262,484   $ 379,393  
 

Exhibit 1

 
Reconciliation of Q3 12 and Q3 11 Actual GAAP to Non-GAAP

Operating Margin By Segment*

(Dollars in millions)

               
DTC   RETAIL   UNALLOCATED   TOTAL
  Q3 12   Q3 11 Q3 12   Q3 11 Q3 12   Q3 11 Q3 12   Q3 11
Net Revenues $ 447 $ 390 $ 497 $ 478 $ - $ - $ 945 $ 867

GAAP Operating Income/<Expense>**

  101   84   44   46  

<65>

 

<62>

  79   69
GAAP Operating Margin***   22.5%   21.6%   8.8%   9.7%  

<6.9%>

 

<7.1%>

  8.4%   7.9%

Unusual Business Events (Note 2)

  -   -   -   0   -   -   -   0

Non-GAAP Operating Income/<Expense>Excluding Unusual Business Events

$ 101 $ 84 $ 44 $ 46

$

<65>

$

<62>

$ 79 $ 69
Non-GAAP Operating Margin   22.5%   21.6%   8.8%   9.7%  

<6.9%>

 

<7.1%>

  8.4%   7.9%
* See the company’s 10-K and 10-Q filings for additional information on segment reporting.
** Operating Income/<Expense> is defined as earnings before net interest income or expense and income taxes.
*** Operating Margin is defined as operating income as a percentage of net revenues.
 

Reconciliation of FY 12 Guidance and FY 11 Actual GAAP to Non-GAAPDiluted Earnings Per Share*

(Totals rounded to the nearest cent per diluted share)

                       
Q1 12

ACT

  Q2 12

ACT

  Q3 12

ACT

  Q4 12

GUID

 

Weighted Share Effect

  FY 12

GUID

  (13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks) (53 Weeks)
2012 GAAP Diluted EPS $0.30 $0.43 $0.49 $1.21 - $1.28 <$0.02> $2.41 - $2.48
Impact of Employee Separation Charges (Note 1) $0.04 - - - - $0.04
Subtotal of Unusual Business Events $0.04 - - - - $0.04

2012 Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 3)

$0.34 $0.43 $0.49

$1.21 - $1.28

<$0.02>

$2.45 - $2.52
                     
Q1 11

ACT

Q2 11

ACT

Q3 11

ACT

Q4 11

ACT

Weighted Share Effect

FY 11

ACT

  (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (52 Weeks)
2011 GAAP Diluted EPS $0.29 $0.37 $0.41 $1.17 <$0.02> $2.22

Impact of Asset Impairment and Early LeaseTermination Charges for Underperforming RetailStores (Note 2)

$0.01 $0.00 $0.00 $0.01 - $0.02
Subtotal of Unusual Business Events $0.01 $0.00 $0.00 $0.01 - $0.02

2011 Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 3)**

$0.30 $0.37 $0.41 $1.17

<$0.01>

$2.24
* Due to the differences between quarterly share counts and the year-to-date weighted average share count calculations and the effect of quarterly rounding to the nearest cent per diluted share, the year-to-date calculation of GAAP and non-GAAP diluted EPS may not equal the sum of the quarters.

**

Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.

 

 

Note 1: Impact of Employee Separation Charges – During Q1 12, we incurred charges of approximately $0.04 per diluted share or approximately 90 basis points of SG&A expenses and less than 10 basis points of gross margin, primarily associated with the previously announced retirement of our former Executive Vice President, Chief Operating and Chief Financial Officer. For FY 12, we anticipate approximately 20 basis points of SG&A expenses and less than 10 basis points of gross margin. These charges were recorded within the unallocated segment.
 
Note 2: Impact of Asset Impairment and Early Lease Termination Charges for Underperforming Retail Stores (FY 11) – During Q1 11, we incurred charges associated with asset impairment and early lease terminations of approximately $0.01 per diluted share or approximately 20 basis points of SG&A expenses. During Q2 11, we incurred charges associated with early lease terminations of approximately $0.00 per diluted share, or less than 10 basis points of SG&A expenses and less than a 10 basis point impact to gross margin. During Q3 11, we incurred charges associated with early lease terminations of approximately $0.00 per diluted share or less than a 10 basis point impact to gross margin. For Q4 11, we incurred charges associated with asset impairment and early lease terminations of approximately $0.01 per diluted share, or less than 10 basis points of SG&A expenses and less than a 10 basis point impact to gross margin. For FY 11, we incurred total charges associated with asset impairment and early lease terminations of approximately $0.02 per diluted share, or approximately 10 basis points of SG&A expenses and less than a 10 basis point impact to gross margin. All of these charges were recorded within the retail segment.
 
Note 3: SEC Regulation G – Non-GAAP Information – This table includes one non-GAAP financial measure, Diluted EPS Excluding Unusual Business Events. 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 and FY 12 diluted EPS actual results and guidance on a comparable basis with our quarterly and FY 11 actual results. 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 financial measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.




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