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Williams-Sonoma (WSM)

Q1 2011 Earnings Call

May 19, 2011 10:00 am ET


Stephen Nelson - Director of Investor Relations

Laura Alber - Chief Executive Officer and President

Pat Connolly - Chief Marketing Officer, Executive Vice President, Director and Member of Incentive Award Committee

Sharon Mccollam - Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Joseph Feldman - Telsey Advisory Group

Austin Pauls - RBC Capital Markets, LLC

Peter Benedict - Robert W. Baird & Co. Incorporated

Matthew McGinley - ISI Group Inc.

Bradley Thomas - KeyBanc Capital Markets Inc.

Matt Nemer - Wells Fargo Securities, LLC

Mark-Andre Saucier-Nadeau - Goldman Sachs Group Inc.

TJ McConville

Brian Nagel - Oppenheimer & Co. Inc.

Avery Sheffield

Michael Baker - Deutsche Bank AG

Laura Champine - Cowen and Company, LLC

Janet Kloppenburg - JJK Research



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Ladies and gentlemen, thank you for standing by, and welcome to the Williams-Sonoma, Inc. First Quarter 2011 Earnings Conference Call. [Operator Instructions] Also, this conference is being recorded. Now I'd like to turn the call over to Steve Nelson, Vice President of Investor Relations, to discuss non-GAAP measures and forward-looking statements. Please go ahead, sir.

Stephen Nelson

Good morning. This morning's conference call should be considered in conjunction with the press releases that we issued earlier today. Our press release and 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 measure, and an explanation of why these non-GAAP financial measures are useful are discussed in Exhibit 1 of this press release.

Also included in this morning's press release and conference call is a new metric, comparable brand revenue growth, that includes both retail comparable store revenues and total direct-to-customer revenues. This metric also incorporates outlet stores within their respective brands. At the brand level, this new metric will replace our existing comparable store sales metrics. However, we will continue to report comparable store sales at the total company level. Please refer to Exhibit 2 of this morning's press release for a 5-year history of this metric by brand by quarter.

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 2011 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 releases 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 the date of this call.

I will now turn the conference call over to Laura Alber, our President and Chief Executive Officer, to discuss our first quarter 2011 results and our fiscal year 2011 outlook.

Laura Alber

Thanks, Steve. Good morning and thank you for joining us. With me today are Pat Connolly, our Chief Marketing Office; and Sharon Mccollam, our Chief Operating and Chief Financial Officer.

The first quarter was another very strong quarter for our company. Net revenues increased 7% and non-GAAP diluted earnings per share increased 30% to a record $0.30 per share. Comparable brand revenues increased 9%. Non-GAAP operating margin increased 110 basis points, including the planned impact of incremental SG&A that is being invested in e-commerce, international and business development. What drove these better-than-expected results were an innovative merchandising assortment supported by compelling price points, highly targeted multichannel marketing initiatives and a superior customer experience. We are particularly pleased to see such strong growth in both channels as direct-to-customer revenues increased 13% and retail comparable store sales increased 7%.

During the quarter, we continued to invest in our key growth initiatives, including increasing our penetration in e-commerce, expanding the reach of the west elm brand and extending our international presence. In e-commerce, net revenues increased 21% to 38% of total company revenue as web traffic reached a new quarterly high. Several key initiatives drove these strong results including the ongoing optimization of natural search and improved relevance of event-triggered marketing. In west elm, comparable brand revenues increased a record 31%.

In international, we added 2 new franchise stores in Saudi Arabia and launched our first international e-commerce site in PBteen. Our remaining international sites will launch in Q2.

Across all brands and all channels, we continued to focus on enhancing the customer experience. During the quarter, we launched a new Professional Chef program. We introduced several new online community activities and streamlined website usability. We also expanded our retail clientele-ing and in-store event programs. Each of these initiatives is allowing us to attract new customers to our brands and taking our existing customer relationships to a new level.

In our core brands, comparable brand revenues increased 7%. Pottery Barn Kids saw the greatest increase, followed by Pottery Barn and Williams-Sonoma. In our emerging brands including west elm and PBteen, comparable brand revenues increased 22%. In international, we are onboarding our new leadership team and are now aggressively exploring opportunities for retail expansion in other regions of the world. Our 8 franchise stores in Dubai, Kuwait and Saudi Arabia continue to exceed expectations, and we expect to add 5 additional stores in the back half of the year.

In our supply chain, we are continuing to see ongoing customer service and cost reduction benefits from our distribution, transportation, packaging and upholstered furniture initiatives. These initiatives include optimizing our inbound and outbound packaging costs, streamlining our southeast home furniture delivery operations and leveraging our expanded in-country sourcing operations in Asia.

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