MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements may involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and operating results to differ materially from those expressed or implied by such statements. Such forward-looking statements include, without limitation, statements related to: our ability to provide products that are designed and built for durability and longevity at competitive prices; changes in and the related impact of U.S. (federal, state and local) and international tax laws and trade policies and regulations; our ability to mitigate current and potential future tariffs and realize tariff refunds; the complementary nature of our e-commerce and retail channels; the plans, strategies, initiatives and objectives of management for future operations; our ability to execute strategic priorities and growth initiatives, including those regarding digital leadership, product and technology innovation, cross-brand initiatives, retail transformation and operational excellence; the strength of our business and our brands; our marketing efforts; our ability to provide world-class customer service through supply chain improvements; our belief that our key differentiators, growth strategies and the efficiencies of our operating model will allow us to reduce costs and manage inventory levels in both the short- and long-term; the highly competitive nature of our industry; our beliefs about our competitive advantages and areas of potential future growth in the market; the seasonal variations in demand; our ability to recruit, retain and motivate skilled personnel; our ability to protect our intellectual property rights; our ability to comply with the laws, rules and regulations of the U.S. and multiple foreign jurisdictions in which we operate; factors, including but not limited to general economic conditions, inflationary pressures, consumer disposable income, rising fuel prices, recession and fears of recession, unemployment, war and fears of war, adverse weather, availability of consumer credit, conditions in the housing market, elevated interest rates, and consumer confidence in current and future economic conditions that can affect consumer spending; the impact of periods of decreased home purchases; challenges we may face growing our business-to-business division; our ability to anticipate consumer preferences and buying trends overall and as they relate to specific brands; effective inventory management; timely and effective sourcing of merchandise from our foreign and domestic suppliers and delivery of merchandise through our supply chain to our stores and customers; factors, including but not limited to fuel costs, labor disputes, union organizing activity, geopolitical instability, and acts of terrorism and war, that can affect the global supply chain, including our third-party providers; our belief in the adequacy of our facilities and the availability of suitable additional or substitute space; our ability to successfully manage our order-taking and fulfillment operations; our ability to protect our brand reputation; our ability to respond to the growing use of and also to adopt new technologies, including artificial intelligence; changes to our technology; uncertainties in e-marketing infrastructure and regulation; our belief in the reasonableness of the steps taken by us and our suppliers to protect the security and confidentiality of the information we collect; multi-channel and multi-brand complexities; our retail initiatives; our brands, products and related initiatives, including our ability to introduce new products, product lines, brands, and brand extensions, and bring in new customers; our belief in the ultimate resolution of current legal proceedings; challenges associated with our global presence and expansion efforts; shortages of raw materials used to make our products; the impact of non-adherence by our suppliers to our global compliance program and quality control standards; the effects of fluctuations in foreign currency rates and the impact of our hedging against such risks; our ability to maintain proper and effective internal controls; our compliance with financial covenants; disruptions in the financial markets; our ability to control employment, advertising, occupancy and other operating costs; the adequacy of our insurance coverage; our stock repurchase program; payment of dividends; the impact of new accounting pronouncements; our belief that our cash on hand and available credit facilities will provide adequate liquidity for our business operations; our belief regarding the effects of potential losses under our indemnification obligations; the effects of changes in our inventory reserves; our ability to deliver core-brand growth and growth from our emerging brands; our ability to drive long-term sustainable returns; our capital allocation strategy in fiscal 2026; our planned use of cash in fiscal 2026; projections of earnings, revenues, growth and other financial items; and statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of words such as "will," "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "continue," or the negative of such terms, or other comparable terminology. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading "Risk Factors" in this document and our Annual Report on Form 10-K for the fiscal year ended February 1, 2026, and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.
OVERVIEW
Williams-Sonoma, Inc., (the "Company", "we", or "us") is a specialty retailer of high-quality products for the home. We are the world's largest digital-first, design-led and sustainable home retailer. Our brands - Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, Mark and Graham, GreenRow, and Dormify - represent distinct merchandise strategies that are marketed through e-commerce, direct-mail catalogs, retail stores, and business-to-business. These brands collectively support The Key Rewards, our loyalty and credit card program that offers members exclusive benefits. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, and have unaffiliated franchisees that operate stores in Mexico, South Korea, India and the Philippines, as well as e-commerce websites in certain locations.
The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended May 3, 2026 ("first quarter of fiscal 2026"), as compared to the thirteen weeks ended May 4, 2025 ("first quarter of fiscal 2025"), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. Explanations of changes in operational results are discussed in order of magnitude.
Beginning in fiscal 2025, the tariff landscape has evolved and impacted our business. While our tariff mitigation efforts reduced the overall effect, tariffs had a greater impact on our Condensed Consolidated Statement of Earnings in the first quarter of fiscal 2026 than in the first quarter of fiscal 2025 due to increased flow-through of higher tariffs into cost of goods sold.
First Quarter of Fiscal 2026 Financial Results
Net revenues in the first quarter of fiscal 2026 increased $75.3 million, or 4.4%, due to (i) company comparable brand revenue ("company comp") growth of $78.6 million, or 4.8%, partially offset by (ii) a decrease in non-comparable brand revenue of $3.3 million due to lower franchise net revenues and the closure of retail stores. From a channel perspective, the company comp growth of 4.8% was driven by comp growth of 4.8% in our e-commerce channel and comp growth of 4.7% in our retail channel.
In the first quarter of fiscal 2026, Pottery Barn, our largest brand, saw comparable brand revenue ("brand comp") growth of 1.0% driven by strength in furniture, textiles and lighting.
The Pottery Barn Kids and Teen brands saw brand comp growth of 4.5% in the first quarter of fiscal 2026 driven by strength in furniture and non-furniture categories, collaborations and baby offerings.
West Elm saw brand comp growth of 8.5% in the first quarter of fiscal 2026 driven by strength in retail, new furniture and non-furniture products and collaborations.
The Williams Sonoma brand saw brand comp growth of 5.0% in the first quarter of fiscal 2026 driven by strength in the brand's kitchen business supported by exclusive products and collaborations.
Finally, our emerging brands, Rejuvenation, Mark and Graham, and GreenRow, delivered double-digit brand comp growth on a combined basis.
For the first quarter of fiscal 2026, diluted earnings per share grew by 4.3% to $1.93, compared to $1.85 in the first quarter of fiscal 2025.
As of May 3, 2026, we had $651.6 million in cash and cash equivalents and generated operating cash flow of $156.3 million in the first quarter of fiscal 2026. In addition to our cash balance, we also ended the first quarter of fiscal 2026 with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business, invest $57.7 million in capital expenditures and return $373.4 million through stock repurchases and dividends to stockholders in the first quarter of fiscal 2026.
Tariff Refunds
On April 20, 2026, we filed for refunds of previously paid tariffs assessed under the International Emergency Economic Powers Act ("IEEPA") in an aggregate amount of $197.8 million. As of May 3, 2026, due to the uncertainty with respect to the receipt of these refunds, we did not record a receivable for these refunds and a corresponding reduction to cost of goods sold or to merchandise inventories in our Condensed Consolidated Financial Statements for the first quarter of fiscal 2026. We expect to recognize the benefit for the refunds, related to tariffs that have been expensed in cost of goods sold, when we determine that the collection of the refund is probable.
Looking Ahead
We remain focused on our three key priorities of (i) accelerating growth, (ii) delivering world-class customer service and (iii) driving earnings. We believe these three key priorities will set us apart from our competition and support long-term growth and profitability. Growth creates leverage in our operating model, and improved service supports reinvestment in our business and delivers earnings growth. We have a powerful portfolio of brands, serving a range of categories, aesthetics, and life stages and we have built a strong omni-channel platform and infrastructure, which we believe positions us well for the next stage of growth.
However, the current uncertain macroeconomic environment, including higher oil prices, the evolving tariff and trade policy landscape, a weak housing market, elevated interest rates, layoffs, inflationary pressure, economic uncertainty and global geopolitical instability could continue to impact our business. The tariff environment has materially changed over the last year, and we expect that uncertainty to continue in fiscal 2026. For information on risks, please see "Risk Factors" inPart I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 1, 2026.
NET REVENUES
Net revenues consist of sales of merchandise to our customers through our e-commerce websites and retail stores, and include shipping fees received from customers for delivery of merchandise to their homes. Our revenues also include sales to our business-to-business customers and franchisees, incentives received from credit card issuers in connection with our private label and co-branded credit cards and breakage income related to our stored-value cards. Revenue from the sale of merchandise is reported net of sales returns.
First Quarter of Fiscal 2026 vs. First Quarter of Fiscal 2025
Net revenues in the first quarter of fiscal 2026 increased $75.3 million or 4.4%, due to (i) company comp growth of $78.6 million, or 4.8%, partially offset by (ii) a decrease in non-comparable brand revenue of $3.3 million due to lower franchise net revenues and the closure of retail stores. From a channel perspective, the company comp growth of 4.8% was driven by comp growth of 4.8% in our e-commerce channel and comp growth of 4.7% in our retail channel.
Comparable Brand Revenue
Comparable brand revenue includes comparable e-commerce sales, including through our direct-mail catalog, and store sales, as well as shipping fees, sales returns and other discounts associated with current period sales. Comparable stores are defined as permanent stores where gross square footage did not change by more than 20% in the previous 12 months, and which have been open for at least 12 consecutive months without closure for more than seven days within the same fiscal month. Outlet comparable store revenues are included in their respective brands. Business-to-business revenues are included in comparable brand revenue for each of our brands. Sales to our international franchisees are excluded from comparable brand revenue as their stores and e-commerce websites are not operated by us. Sales from certain operations are also excluded until such time that we believe those sales are meaningful to evaluating their performance. Additionally, comparable brand revenue for emerging brands is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.
| | | | | | | | |
|
For the Thirteen Weeks Ended 1 |
| Comparable brand revenue growth |
May 3, 2026 |
May 4, 2025 |
|
Pottery Barn |
1.0 |
% |
2.0 |
% |
|
West Elm |
8.5 | |
0.2 | |
Williams Sonoma 2 | 5.0 | |
7.3 | |
|
Pottery Barn Kids and Teen |
4.5 | |
3.8 | |
Total 3 | 4.8 |
% |
3.4 |
% |
1 Comparable brand revenue includes business-to-business revenues within each brand. |
2 Includes results from Williams Sonoma Home. |
3 Total comparable brand revenue growth includes the results of Rejuvenation, Mark and Graham, and GreenRow. |
RETAIL STORE DATA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Store Count | |
Average Leased Square
Footage Per Store |
|
February 1, 2026 | |
Openings | |
Closings | | May 3, 2026 | | May 4, 2025 | |
May 3, 2026 | |
May 4, 2025 |
|
Pottery Barn |
181 | | |
2 | | |
(3) | | |
180 | | |
180 | | |
14,900 | | |
14,900 | |
|
Williams Sonoma |
152 | | |
1 | | |
- | | |
153 | | |
154 | | |
6,800 | | |
6,900 | |
|
West Elm |
116 | | |
1 | | |
(1) | | |
116 | | |
119 | | |
13,400 | | |
13,300 | |
|
Pottery Barn Kids |
44 | | |
- | | |
(1) | | |
43 | | |
44 | | |
8,000 | | |
7,800 | |
|
Rejuvenation |
13 | | |
- | | |
- | | |
13 | | |
11 | | |
8,000 | | |
8,100 | |
|
GreenRow |
- | | |
1 | | |
- | | |
1 | | |
- | | |
5,500 | | |
- | |
|
Total |
506 | | |
5 | | |
(5) | | |
506 | | |
508 | | |
11,300 | | |
11,300 | |
|
Store selling square footage at period-end | | | | | |
3,734,000 | | |
3,751,000 | |
|
Store leased square footage at period-end | | | | | |
5,728,000 | | |
5,761,000 | |
GROSS PROFIT
Gross profit is equal to our net revenues less cost of goods sold. Cost of goods sold includes (i) cost of merchandise, tariffs, inbound freight costs, freight-to-store costs and other inventory-related costs such as replacements, damages, obsolescence and shrinkage, (ii) occupancy costs, which consists of rent, other costs (including property taxes, common area maintenance and utilities) and depreciation, and (iii) shipping costs, which consists of third-party delivery services and shipping materials.
Our classification of costs in gross profit may not be comparable to other public companies, as we do not include non-occupancy-related costs associated with our distribution network in cost of goods sold. These costs, which include distribution network employment, third-party warehouse management and other distribution-related administrative expenses, are recorded in selling, general and administrative expenses ("SG&A").
| | | | | | | | | | | | | | | | | | | | | | | |
|
For the Thirteen Weeks Ended |
| (In thousands) | May 3, 2026 | | % Net Revenues | |
May 4, 2025 | |
% Net Revenues |
Gross profit 1 | $ |
793,426 | | |
44.0 |
% | |
$ |
765,809 | | |
44.3 |
% |
1Includes occupancy expenses of $203.6 million and $197.7 million for the first quarter of fiscal 2026 and fiscal 2025, respectively.
First Quarter of Fiscal 2026 vs. First Quarter of Fiscal 2025
Gross profit increased $27.6 million, or 3.6%, compared to the first quarter of fiscal 2025. Gross margin decreased to 44.0% from 44.3% in the first quarter of fiscal 2025. This decrease in gross margin of 30 basis points was primarily driven by (i) lower merchandise margins of 100 basis points as a result of the flow-through of tariffs into cost of goods sold, partially offset by (ii) supply chain efficiencies of 50 basis points, including a lower shrink accrual, and (iii) the leverage of occupancy costs of 20 basis points due to higher sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A consists of non-occupancy-related costs associated with our retail stores and e-commerce websites, distribution and manufacturing facilities, customer care centers, supply chain operations (buying, receiving and inspection) and corporate administrative functions. These costs include employment, advertising, third-party credit card processing, impairment and other general expenses.
| | | | | | | | | | | | | | | | | | | | | | | |
|
For the Thirteen Weeks Ended |
| (In thousands) | May 3, 2026 | | % Net Revenues | |
May 4, 2025 | |
% Net Revenues |
|
Selling, general and administrative expenses |
$ |
501,738 | | |
27.8 |
% | |
$ |
475,096 | | |
27.5 |
% |
First Quarter of Fiscal 2026 vs. First Quarter of Fiscal 2025
SG&A increased $26.6 million, or 5.6%, compared to the first quarter of fiscal 2025. SG&A as a percentage of net revenues increased to 27.8% from 27.5% in the first quarter of fiscal 2025. This increase of 30 basis points was primarily driven by (i) an increase in employment expense of 30 basis points due to an investment in talent, including higher performance-based incentive compensation, and (ii) an increase in general expenses of 10 basis points, partially offset by (iii) advertising expense leverage of 10 basis points.
INCOME TAXES
The effective tax rate was 22.5% for the first quarter of fiscal 2026, compared to 23.0% for the first quarter of fiscal 2025. The decrease was primarily driven by (i) higher excess tax benefit from stock-based compensation in the first quarter of fiscal 2026, partially offset by (ii) a higher disallowed executive compensation deduction in fiscal 2026.
LIQUIDITY AND CAPITAL RESOURCES
Material Cash Requirements
There were no material changes during the quarter to the Company's material cash requirements, commitments and contingencies that are described inPart II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2026, which is incorporated herein by reference.
Stock Repurchase Program and Dividends
SeeNote G to our Condensed Consolidated Financial Statements, Stock Repurchase Program and Dividends, within Item 1 of this Quarterly Report on Form 10-Q for further information.
Liquidity Outlook
For the remainder of fiscal 2026, we plan to use our cash resources to fund our inventory purchases, employment-related costs, advertising costs, rental payments on our leases, capital expenditures, dividend payments, stock repurchases, and the payment of income taxes.
We believe our cash on hand, cash flows from operations and our available credit facilities will provide adequate liquidity for our business operations as well as dividends, capital expenditures, stock repurchases and other liquidity requirements associated with our business operations over the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that would impact our capital needs during or beyond the next 12 months.
Sources of Liquidity
As of May 3, 2026, we held $651.6 million in cash and cash equivalents, the majority of which was held in money market funds and interest-bearing demand deposit accounts, and of which $47.8 million was held by our international subsidiaries. Consistent with our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.
In addition to our cash balances on hand, we have a credit facility (the "Credit Facility") which provides for a $600 million unsecured revolving line of credit. Our Credit Facility may be used to borrow revolving loans or to request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders' option, to increase the Credit Facility by up to $250 million to provide for a total of $850 million of unsecured revolving credit.
During the thirteen weeks ended May 3, 2026 and May 4, 2025, we had no borrowings under our Credit Facility. Additionally, as of May 3, 2026, issued but undrawn standby letters of credit of $13.6 million were outstanding under our Credit Facility. The standby letters of credit were primarily issued to secure the liabilities associated with workers' compensation and other insurance programs.
Our Credit Facility contains certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for operating lease liabilities to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of May 3, 2026, we were in compliance with our financial covenants under our Credit Facility and, based on our current projections, we expect to remain in compliance throughout the next 12 months.
Letter of Credit Facilities
We have three unsecured letter of credit facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio. As of May 3, 2026, no amounts were outstanding under our letter of credit facilities. Two of our letter of credit facilities totaling $30 million mature on August 18, 2026, and the latest expiration date possible for future letters of credit issued under these facilities is January 15, 2027. One of the letter of credit facilities totaling $5 million matures on June 26, 2030, which is also the latest expiration date possible for future letters of credit issued under the facility.
Cash Flows from Operating Activities
For the first quarter of fiscal 2026, net cash provided by operating activities was $156.3 million compared to $118.9 million for the first quarter of fiscal 2025, and was primarily attributable to net earnings of $231.4 million adjusted for non-cash items, partially offset by accrued expenses and other liabilities of $148.9 million (as a result of our annual bonus payout) and accounts payable of $82.4 million (as a result of supplier payment timing).
Net cash provided by operating activities compared to the first quarter of fiscal 2025 increased $37.4 million primarily due to an increase in gift card and other deferred revenue of $14.9 million and an increase in accounts payable of $13.6 million.
Cash Flows from Investing Activities
For the first quarter of fiscal 2026, net cash used in investing activities was $57.7 million compared to $58.2 million for the first quarter of fiscal 2025, and was attributable to purchases of property and equipment, including investments in technology of $24.4 million, retail stores of $20.1 million and supply chain enhancements of $9.1 million.
Cash Flows from Financing Activities
For the first quarter of fiscal 2026, net cash used in financing activities was $467.0 million compared to $230.0 million for the first quarter of fiscal 2025, driven by repurchases of our common stock of $287.8 million, tax withholdings remittance related to stock-based awards of $93.6 million and payment of dividends of $85.6 million.
Net cash used in financing activities for the first quarter of fiscal 2026 increased by $237.0 million compared to the first quarter of fiscal 2025, primarily due to an increase in repurchases of our common stock of $197.8 million.
Seasonality
Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our revenues and net earnings have been realized during our peak selling season, the period from October through January, and levels of net revenues and net earnings have typically been lower during the period from February through September. We believe this is the general pattern within our industry. In preparation for and during our peak selling season, we hire a substantial number of additional temporary employees, primarily in our retail stores, distribution facilities and customer care centers.
CRITICAL ACCOUNTING ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates. During the first quarter of fiscal 2026, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2026.
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