Williams-Sonoma, Inc. — Form 10-Q Summary
Period: The filing covers the 13 and 26 weeks ended August 2, 2020, compared with periods ended August 4, 2019. The request metadata says “2019 Q2,” which does not match the filing period.
Business context and results
Williams-Sonoma is a specialty home-products retailer operating through e-commerce, catalogs, retail stores and franchise channels. At quarter-end it had 614 stores. Most stores had reopened, though some remained closed or operated with restrictions; e-commerce and distribution centers continued operating.
| Metric | Q2 2020 | Q2 2019 | Year to date 2020 | Year to date 2019 |
|---|---|---|---|---|
| Revenue | $1,490.8 million | $1,370.8 million | $2,726.0 million | $2,611.9 million |
| Gross profit | $551.2 million | $483.9 million | $965.5 million | $928.2 million |
| Operating income | $185.4 million | $86.2 million | $234.0 million | $160.3 million |
| Net earnings | $134.6 million | $62.6 million | $170.0 million | $115.3 million |
| Diluted EPS | $1.70 | $0.79 | $2.16 | $1.45 |
| Operating cash flow | Not separately presented for the quarter | $216.4 million | $(26.6) million |
Q2 revenue increased 8.8%, with comparable brand revenue growth of 10.5%; year-to-date revenue increased 4.4%, with comparable growth of 6.7%. Q2 gross margin was approximately 37.0% versus 35.3%; operating margin was 12.4% versus 6.3%. Year-to-date gross margin was 35.4% versus 35.5%, and operating margin was 8.6% versus 6.1%. Figures are calculated from reported amounts.
Financial position, liquidity and capital
At August 2, 2020, cash and equivalents were $947.8 million, current assets $2,255.4 million and current liabilities $1,664.2 million. The company had $487.8 million drawn on its $500 million revolver and $300 million outstanding under its term loan; approximately $11.7 million of standby letters of credit were also outstanding under the revolver. It reported compliance with credit covenants and expected to remain compliant over the next 12 months. Lease liabilities were $1,302.2 million in total, including current and long-term operating lease liabilities.
Year-to-date investing cash outflow was $75.9 million, principally capital expenditures. Financing cash inflow was $377.9 million, primarily from revolver borrowings; dividends paid were $79.3 million. No shares were repurchased in the first half. The company declared dividends of $0.96 per share year to date.
Changes, outlook and risks
- Q2 comparable growth was positive across brands: Williams Sonoma 29.4%, Pottery Barn 8.1%, West Elm 7.0%, and Pottery Barn Kids and Teen 4.8%. International revenue declined 11.6% in Q2 and 23.9% year to date.
- SG&A fell to 24.5% of Q2 revenue from 29.0%, reflecting advertising and employment-cost leverage. Cost of goods sold fell to 63.0% of revenue from 64.7%, supported by fewer promotions, occupancy leverage and rent concessions, partly offset by higher shipping costs and tariffs.
- COVID-19-related store asset impairments were approximately $6.4 million in Q2 and $22.0 million year to date. The first half also included $11.4 million of inventory write-offs related to damaged inventory that could not be liquidated through closed outlets. Q2 diluted EPS included stated impacts of $0.06 from store impairments and $0.04 from Outward-related compensation and intangible amortization.
- Management expected sales to remain robust across brands in the second half and inventory to improve. It anticipated higher shipping surcharges, pandemic safety costs and supply-chain costs, with shipping surcharges expected to be greater in Q4. Management described a long-term strategy of fewer, better-experienced stores and expected long-term operating-margin expansion, while emphasizing uncertainty about the pandemic’s duration and effects. No specific numerical earnings or revenue guidance was provided.
- Key risks include renewed or prolonged store closures and reduced traffic, weaker consumer spending, disruption to vendors or distribution, rising shipping expenses, liquidity needs and possible future asset impairments. The company said current cash and available credit were expected to support operations for at least 12 months, absent a material COVID-related revenue decline.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for Q2 2020, not Q2 2019.
- Track whether e-commerce growth can offset reduced store traffic and international weakness.
- Monitor shipping, pandemic-related and other costs for effects on margins and cash generation.
- Review revolver utilization, term-loan maturity in January 2022, covenant compliance and liquidity if sales weaken.
- Assess further impairment exposure, lease concessions and the sustainability of dividends amid ongoing pandemic uncertainty.