Williams-Sonoma Management Discusses Q2 2012 Results - Earnings Call Transcript

Williams-Sonoma (WSM)

Q2 2012 Earnings Call

August 21, 2012 5:00 pm ET

Executives

Stephen C. Nelson - Vice President of Investor Relations

Laura J. Alber - Chief Executive Officer, President, Director and Member of Incentive Award Committee

Julie P. Whalen - Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Corporate Controller and Treasurer

Patrick J. Connolly - Chief Marketing Officer, Executive Vice President and Director

Analysts

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Matthew McGinley - ISI Group Inc., Research Division

Joseph I. Feldman - Telsey Advisory Group LLC

Budd Bugatch - Raymond James & Associates, Inc., Research Division

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Jason Smith

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Alan M. Rifkin - Barclays Capital, Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Marni Shapiro

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Williams-Sonoma, Inc. Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded. I would like to turn the call over to Steve Nelson, Vice President of Investor Relations to discuss non-GAAP measures and forward-looking statements.

Stephen C. Nelson

Good afternoon. This afternoon's call should be considered in conjunction with the press releases that we issued earlier today.

Our earnings 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 measures and an explanation of why these non-GAAP financial measures are useful are discussed in Exhibit 1 and elsewhere in the earnings release.

The forward-looking statements included in this morning -- this afternoon'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, trends, guidance, growth plans and prospects of the company in 2012 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, including the most recent 10-Q, 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 to Laura Alber, our President and Chief Executive Officer, to discuss our second quarter 2012 results and our outlook for Q3 and fiscal year 2012.

Laura J. Alber

Thank you, Steve. Good afternoon, and thank you, all for joining us at our new time. On the call today are Pat Connolly, our Chief Marketing Officer, and Julie Whalen, our newly appointed Chief Financial Officer. I couldn't be more pleased to have Julie in her official role for this call. It's such an important appointment for us, and Julie brings a wealth of internal experience and has been an incredible partner to me. I know many of you have met her and have sent me very complimentary notes, and I look forward to all of you getting to know her better and to many years of success with her as our CFO.

Today, we'll be discussing our second quarter 2012 results and our outlook for the third quarter and fiscal year. During the quarter, we delivered strong performance in revenues, operating margins and earnings per share. Diluted earnings per share grew 16% on net revenue growth of 7%, with comparable brand revenue growth accelerating from 5.4% in Q1 to 7.4% in Q2. Also during the quarter, e-commerce net revenues increased 14%.

Most importantly, we drove this growth in revenue and earnings while simultaneously investing in our long-term growth initiative. All brands contributed to these results. Pottery Barn and West Elm again performed very well during the quarter. Pottery Barn Kids and Pottery Barn Teens both posted year-over-year increases, and Williams-Sonoma improved its revenue trend versus the prior quarter. This performance demonstrates to us that the strategies we are executing in each of our brands are working.

As we outlined in the beginning of year, our growth long term is going to come from 3 areas: growing our core brands, new brands and global expansion. Foundational to our growth strategies are e-commerce and supply chain, and we continue to make investments in both to improve customer service and quality.

In e-commerce, we implemented enhancements that further improve the shopping experience. We improved site navigation to accommodate our growing product assortment, making easier for our customers to find and buy. Data and algorithmically driven product recommendations, which we began implementing last fall, are having a measurable impact on increasing revenue per visitor.

In e-marketing, our focus on relevance in all of our marketing streams contributed to increases in advertising productivity.

In supply chain, we continue to be focused on improving the customer experience while reducing cost, and this quarter, we made progress against that initiative.

And now let's talk about our core brand. In the Williams-Sonoma brand, comparable brand revenues decreased 0.4%. We are pleased with the progress we are beginning to see in the Williams-Sonoma brand as we execute the transformational strategies we have previously outlined for you. In addition to the improvement in revenue trends, we also saw substantial improvement in our selling margins on a sequential basis, and our product margins were up on a year-over-year. This is a very encouraging trend. It demonstrates that we can drive sales while at the same time improving our selling margins in this brand.

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