Williams-Sonoma Inc. (WSM)

Q3 2010 Earnings Call Transcript

November 18, 2010 10:00 am ET

Executives

Steve Nelson – Director, IR

Laura Alber – President and CEO

Sharon McCollam – EVP, COO and CFO

Pat Connolly – EVP and Chief Marketing Officer

Analysts

Matt Fassler – Goldman Sachs

Colin McGranahan – Bernstein

Budd Bugatch – Raymond James

Janet Kloppenburg – JJK Research

Alan Rifkin – Bank of America-Merrill Lynch

Joe Feldman – Telsey Advisory Group

Brad Thomas – KeyBanc Capital Markets

Kate Mcshane – Citi Investment Research

Brian Nagel – Oppenheimer

Neely Tamminga – Piper Jaffray

Scot Ciccarelli – RBC Capital Markets

David Magee – SunTrust Robinson Humphrey

Chris Horvers – JPMorgan

Laura Champine – Cowen & Company

Michael Lasser – Barclays Capital

Jennifer Milan – Sterne, Agee

Peter Benedict – Robert Baird

David Strasser – Janney Montgomery Scott

Matt McGinley – ISI Group

Matt Nemer – Wells Fargo Securities

Presentation

Operator

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» Williams-Sonoma CEO Discusses Q2 2010 Results - Earnings Call Transcript
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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Williams-Sonoma, Inc. Third 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.

Steve 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 contains 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 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 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.

Before I begin this morning, I would like to take a moment on behalf of all of us here at Williams-Sonoma to acknowledge the passing of Howard Lester, our Chairman Emeritus. Howard’s vision and leadership has truly guided our company and is alive in the culture that we have today and we’ll carry into the future. He was a pioneer in retail, a mentor and a friend to many and he will be dearly missed. I know that Howard would be so thrilled with the results that we are aloof sharing with you today and so proud of what this team will accomplish in the future.

So, let me begin by discussing our third quarter results. The third quarter was another strong quarter for our brands and we continue to outperform the industry. During the quarter, net revenues increased 12% and we delivered the highest third quarter diluted EPS in our history. Non-GAAP diluted earnings per share were $0.35 versus $0.16 last year.

Innovative merchandise at compelling price points supported by a superior customer experience and a highly targeted multi-channel marketing strategy drove these better than expected results.

In our core brands, net revenues increase 11%. Pottery Barn saw the greatest increase saw by Pottery Barn Kids and Williams-Sonoma.

In our emerging brands including West Elm, PBteen and Williams-Sonoma Home, net revenues increased 19%. West Elm and PBteens continued to exceed expectations on both the top and bottom lines and we continue to make progress on the retail restructuring of Williams-Sonoma Home.

In the retail channel, comparable store sales increased 8.1%. In the DTC channel, net revenues increased 18%, eCommerce revenues increased 29% driven by strong merchandise strategies and a comprehensive eMarketing strategy including paid search, natural search, targeted email and affiliate marketing.

These initiatives are also driving enhanced brand awareness and greater customer engagement across all channels in addition to driving increased traffic and conversion on the web.

In our International business, the performance of our first four franchise stores in Dubai and Kuwait continue to exceed expectations. We see this as a strategic first step toward a longer-term international growth plan and are currently planning to see an additional seven stores open in 2011. We are also planning to begin shipping internationally through our eCommerce channel next year.

In supply chain, we continue to be focused on our customer and this focus has allowed us to not only deliver improved quality, but also reduce costs. Our initiatives include network redesign, refinements in our sourcing base and packaging reengineering.

As we look forward to the fourth quarter, we continue to be encouraged by the sales and margin trends that we are seeing in our business today, particularly in our home furnishings brands and are operationally poised for an exceptional holiday season.

We’re also well positioned to drive significant multi-channel traffic through newly launched eMarketing and client telling initiative. As such, we are increasing our full year guidance for the outperformance we saw in the third quarter and the upside we are currently seeing in the fourth quarter. This brings our fiscal year 2010 revenue growth to a rage of 11% to 12% and a non-GAAP diluted EPS to a range of $1.75 to $1.80 versus $0.95 last year.

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