Williams Sonoma 1Q17 Earnings Call Notes

Laura Alber – President & CEO

Amazon coming into the furniture market

“Great. There is more competition coming in, particularly at the low end and there is still the big box retailers who have been offering furniture for a lot of years and we’ve just learned that Amazon is going to come into the furniture business. We believe that actually Amazon will take more market share from the mass retailers than anyone else; and we will continue to carve out our specialty niche with our edited inspirational assortment and decorating ideas for our customers. We know that our stores are a competitive advantage because they are experiential and they are the first expression of our brands and as I just said it earlier, we offer our shoppers an integrated experience across channels and our retail stores help drive e-commerce sales. Retail traffic is down nine, we all read those numbers; our traffic is down a lot less and we believe there is a huge interaction between our online and our stores obviously, and we’re going to continue to maximize that opportunity. So I’d say that yes, it’s definitely competitive, we don’t see the promotional environment going away and as Julie said, we see a lot of people liquidating a lot of inventory; and we believe that we are going to outperform because of our sustainable profitable model”

Williams Sonoma’s 3Q16 Earnings Call Notes

Williams-Sonoma’s (WSM) CEO Laura Alber on Q3 2016 Results

No pullback in the promotional environment

“We haven’t seen any pullback in the promotional environment. As Julie said, we think in fact because of some people having more inventory than they like, that it could get more promotional. The customers are smart, they are looking for the best value, but not at the expense of quality. And we have also tested some different shipping offers because we want to see if they’re more price-sensitive to shipping versus total price and we haven’t come to any conclusion on that yet. But we know that customers are definitely interested in the best price they can get and what we feel great about is that our exclusive design capabilities and direct sourcing advantages allows us to deliver outstanding quality to great value.”

Julie Whalen

Expecting an even more promotional environment

“Also we believe it’s going to be a promotional environment and probably more promotional than it has been. We have seen that the customer is shopping later and later and there’s a lot of retailers that haven’t had very good results; they’ve got a lot of extra inventory and they’ve got of get rid of it a very short time period. So we’re also accounting on a little bit of some promotional pressure. Also though we still have the supply chain benefits rolling through, they have less of an impact when it’s on our largest quarter and so we don’t have as much of an ability to offset as we have in the past. So I think those are some of the biggest put and takes there.”

Williams Sonoma 2Q16 Earnings Call Notes

Williams­Sonoma’s (WSM) CEO Laura Alber on Q2 2016 Results

Retail environment has softened

“Despite this progress on our strategic initiative, the retail environment has softened since we last talked, and our sales are being impacted by a more cautious consumer. While we are confident in our long-term strategies across the company, we believe it is prudent to modify our outlook for the remainder of the year. Julie will provide more details about our guidance later in the call. As always, our focus is on what we can control, which includes our supply chain and inventory initiatives, delivering innovative products at the best value, our marketing strategies to increase new customer acquisition, and enhancing the retail experience.”

Digital has become our largest marketing channel

“In March, I spoke with you about how we would transform our marketing. One key area of focus is digital innovation. We’re seeing a transition in the marketplace that plays into our strengths and competitive advantages. We have advanced multi-dimensional attribution models that guide our investments and it has led us to surgically cut our catalog circulations to rebalance and to optimize our investments into digital channels as they continue to evolve. As a result, digital marketing has become our largest investment channel, outpacing our catalog and store-based marketing investments.”

Innovation in digital

“A big part of our digital story is our innovation. Our proprietary modeling, based on customer profiles and interactions, drives our ability to target audiences more effectively and profitably. We know that relevant marketing drives engagement with targeted audiences converting at 3x that of non-targeted audiences at half the cost. The breadth, depth, and detail in our house file provide us with a material advantage, and we are partnering with great companies to help to advance and take advantage of emerging personalization capabilities for custom segmentation and targeting. ”

Digital strategy does not include twitter

“While we leverage our existing marketing strategies for the parent, there are a number of digital-only tactics we use to capture the increasing purchase influence of the youth audience, including Facebook, Instagram, YouTube, and Snapchat.”

We know mall traffic’s down

“We know mall traffic’s down. Certain categories are more challenged than others. On the flipside, housing metrics appear to be strong, and we also are seeing growth in some of our smaller businesses. Our approach has always been the same. We’re going to focus on the things that we can control, and we would prefer to be self-critical.”

I’m not an economists so not going to go through the reasons

“I would say that it’s both. In retail, there’s reported reduced traffic from all the counter aggregate data you see. And then the customers’ just more careful right now. I’m not an economist, so I’m not going to go through all the reasons that could be.”

Customers are savvy

“Customers are savvy. As I said earlier, they know a value when they see one, including if it’s a higher price point type of item. So a sofa that’s a great value, maybe a lot more money than a candle. The truth of the matter though is that the candle a lot more people can afford. So, as I said earlier, we have to make sure that we are not just driving our furniture business but bringing in really innovative decorating and entertaining ideas into all of our brands. ”

Williams Sonoma 1Q16 Earnings Call Notes

Laura Alber

Julie Whalen

Tough to get a good read on the business at this time

“From a revenue guidance perspective, our second quarter revenue guidance reflects obviously our best estimates of the possible range of outcomes across our portfolio of brands, but it’s early in the quarter and it’s also a Memorial Day shift this year, which actually believe it or not, that holiday is pretty big for us. So it makes it extremely more challenging to get a good read on the business at this time. And like all of us, we’re seeing the relatively negative retail results out there. So at this time, we think our guidance is appropriate and it reflects our best estimate this early in the quarter.”

Supply chain initiatives growing inventories slower than sales

“So as part of our supply chain and inventory initiatives, we’ve actually been working on inventory optimization for a while now. We’ve been speaking to you about and we’re really pleased to be able to see that we’re finally able to demonstrate it, but the results are definitely becoming more apparent as we enter into 2016. As far as what we’ve been doing? We’ve been more aggressively managing the level of weeks on hand for each skew, which has allowed us not only reduce our inventory buys, but also allows us to liquidate our less productive skews and aggressively push more inventory to our outlets and this has allowed our inventory levels to be reduced obviously substantially and will allow us to ultimately generate supply chain savings by freeing up space in our distribution centers, reducing the off-site we’re trying to get out of and improving our labor productivity throughout our network.”

Williams Sonoma 4Q15 Earnings Call Notes

Laura J. Alber CEO

Revolutionizing our approach to inventory

“Second, we are revolutionizing our approach to inventory. We have a significant opportunity to improve customer service and reduce cost by advancing our inventory management practices. In 2015, we experienced supply chain challenges related to the West Coast port disruptions that resulted in increased cost and lower service levels. As we worked through resolutions it became clear to us that we have an opportunity to reduce cost through more aggressive inventory management. Our goal is to lead the market in the delivery of furniture and home furnishing.”

Better forecasting and SKU rationalization should lead to sales growth in excess of inventory growth

“In 2016 we are planning inventory growth lower than our sales growth for the year, there are two key components to this plan. First, we have begun implementation of a new inventory optimization system that advances our SKU level demand forecasting and gives our teams more sophisticated tools to replenish our regionalizing distribution network and stores. And second, we are eliminating less productive SKUs which allows us to have better in stocks and improve order fulfillment. We see this as a significant opportunity and our entire team is aligned around this initiative.”

Also regionalizing supply chain

“In addition to inventory optimization we are further regionalizing our supply chain. We know that being closer to our customers is the key to faster and lower cost delivery. As part of these plans we are opening a new distribution center in Braselton, Georgia approximately 50 miles Northeast of Atlanta. ”

We prefer to be self critical regardless of the environment

“And the second part of your question about what is going on in the world and clearly there is a lot of external factors and many people have pointed to them and frankly we would prefer to be self critical. We’d rather look at every area of our company that we can improve so that we can outperform no matter what the environment is, hence the four areas of focus that I reviewed in my prepared remarks. ”

The promotional environment will not recede

“And also we believe the promotional environment will not recede and that no matter how you package a discount, a discount is a discount and so we continue to go through a systematic category review so that we can be sure that we are well positioned versus the competition and offer price on like items that we have superior quality.”

Julie P. Whalen

Slower growth this year as investing

“Sure and I think as we said in our prepared remarks we anticipate our 2016 earnings growth to be lower than our three year outlook because of the investments that I just highlighted particularly in our supply chain. And short-term though those offset the port “benefit” that may have been expected this year, longer term those are strategic initiatives for us.”

Getting e-commerce talent is increasingly competitive

“we are also investing in higher labor cost, which I think we can’t underestimate and we are not alone here. I don’t know if other retailers have talked about it but everybody is facing this. As the world is moving more to e-commerce, the getting distribution center talent, good talent is getting more and more competitive. So, that is a reality that all retailers are facing right now and so we are investing in that as well.”

Continue to see strong furniture growth

“I guess another way to maybe answer your question is that we continue to see very strong furniture growth. Where we saw weakness was in some of the gifting categories. West Elm is predominantly a furniture brand. And we have, our top customers are doing really well with us. We do look at the whole file and it’s really important to us that we have retention and that we have new customer growth as well. And we’re always focused on both all the way down the customer curve.”

Williams Sonoma 3Q15 Earnings Call Notes

Gabrielle Rabinovitch – VP, IR

Laura Alber – CEO, President

15% comps at West Elm

“The West Elm brand continues to deliver exceptional results. Comparable brand revenue increased by 15.7% on top of 17.4% last year marking 23 consecutive quarters of double-digit comparable brand revenue growth.”

Human connection and data science

“Human connection still matter in the digital age and at West Elm we are successfully laying our world class customer insights with our innovative high touch shopkeeper program, balancing the science and art of retail. Data science will continue to provide invaluable insights on customer behavior and buying trends but by empowering our store managers to run their stores like small businesses and forge deep community connections through our West Elm local program, we’re essentially running the brand in the collection of unique small retailers linked with the powerful data and technology of a global enterprise.”

I’m optimistic about the holiday season

“I’m optimistic about the holiday season. Yes we have seen some retrenching this fall and retailers and even some really good retailers have given some mix reports out there but there is not a lot of good news out there too. We know that our customers love their homes and the holiday season is the time to decorate and obtain and also to be generous with gifts to your family and friends.”

Customers will shop at retailers who have a compelling product

“I believe that consumers will shop the retailers that they trust and who have compelling product and in store experiences, I think as you go to the stores whether you got to a mall or great street going to be a top lift in terms of destination.”

Julie Whalen – CFO, EVP

ecommerce is 51% of revenue

“net revenues in our ecommerce channel grew 7% or 22.7% on a two year basis to $628 million and represented 51% of net revenues with growth primarily resulting from the continued strength we’re seeing in the West Elm brand.”

Pat Connolly – Chief Strategy and Business Officer

Williams Sonoma 2Q15 Earnings Call Notes

Partnership with AwesomenessTV to reach Gen Z

“In order to attract new customers, PBteen continues to increase its social media reach. In July, PBteen announced a partnership with AwesomenessTV, a multi-platform media company that is a global leader in engaging the Gen Z audience.”

Still working through port strike frictions

“During the second quarter, as expected, we saw higher shipping and fulfillment related costs from shipping inefficiencies stemming from inventory shortages and unbalanced inventory positions across our distribution centers. We entered the period with elevated backorder levels as a result of delayed receipts. In order to get the goods to our customers as quickly as possible, multiple deliveries on a single order as well as out-of-market shipments were made as we got back in stock.”

Key initiative in inventory optimization

“one of our key initiatives is inventory optimization. We are investing in technology, including enhanced inventory planning and allocation systems and upgrades to our customer order visibility tools, as well as incremental labor and shipping costs throughout the back-half of the year.”

Expect additional shipping costs to continue but not to the same degree

“we expect some additional labor and incremental shipping costs will continue primarily in Q3, but obviously not to the degree we saw in the first-half as we continue to rebalance our inventory levels, especially in our West Coast DC. But we’re also accelerating our investment in technology. So it’s not just a labor cost, it’s also an investment in technology.”

Inventory tools that they’re investing in

“accelerating our investment in inventory tools that will allow us to better forecast our inventory flow and space capacity requirements by DC, brand, and channel. And additionally, future system enhancements will give us better customer order visibility, allowing us to know what every touch point where that inventory resides.”

Port disruption caused us to reexamine the whole supply chain

“while the port disruption was extremely difficult, the good news is that, it caused us to reexamine every single element of our supply chain. And we have identified significant opportunities to improve service levels and over time drive down costs.”

Sometimes customers want to shop online, sometimes in store

“obviously, sometimes the customers are going to want to shop online, sometimes they want to shop in the store. And we want to serve them wherever they want to shop.”

Three weeks into the quarter, haven’t seen much volatility

“On the macro, as I said earlier we are three weeks and we have a Labor Day shift. We haven’t had a lot of market volatility. We never read too much into short-term volatility changes that are based on all the market we’ve seen it before. But the balance of what we’re seeing is that, we have a strong lineup for the balance of the year.’

Williams Sonoma 1Q15 Earnings Call Notes

Key initiative in inventory management

“One of our key initiatives is inventory optimization. The West Coast port slowdown has further validated the importance of being in stock. We are focused not only on improving our inventory stock levels to be well positioned for the back half of the year, but also for the long term.”

Stocking has gotten better but still short

“As expected in the first quarter, we lost sales demand and saw higher back order creation as a result of the port disruption. We also incurred incremental shipping and fulfillment related costs. While our inventory flow improved throughout the first quarter we did not see meaningful improvement in our in-stock and available for sale inventory positions until April. And we have seen our sales trends get better as we improved our in-stock positions particularly in the Pottery Barn brand. That said, lingering effects exist on the port slowdown that are continuing to impact our business in the second quarter’

Browse in store shop online

“And we really believe in building that one-on-one connection in our stores and using our stores for that really high touch service. And then of course they go online and they often — they go to the store, they visit the store and then they go online and make a purchase.”

People don’t want to just buy things, they want to know where they’re from

“We also, as you think about the other two initiatives, we realized that customers don’t just want to buy things, they want to know where they are from, they want — people to source product sustainability and West Elm has really embraced this idea and has such a big footprint in the area of consciousness because of all the wonderful things that they are doing.”

Williams Sonoma 4Q14 Earnings Call Notes

West coast ports significantly affected results

“In the fourth quarter, we exceeded the high end of our expectations, despite challenges relating to the West Coast port disruption. The prolonged slowdown negatively impacted our results and will continue to impact us to an even greater degree in the beginning of this year.”

Holiday was super promotional, performance driven by multichannel model

“what our mindset was going into the holiday season. We knew it was going to be promotional, and it was, even more so than expected. We had strong performance because of our innovative exclusive products and our high service multichannel model.”

Inventory levels have deteriorated because of ports. We can’t get around it

” inventory levels available for sale have continued to deteriorate into 2015 from the ongoing impact of the West Coast port disruption. We began implementing strategies earlier last summer to prioritize receipts and divert shipments to other ports on both the east and west coasts, but given the size of our business and the type of merchandise we sell, there are limited options for mitigation.”

We’re one of the largest container importers in the US

“With our import levels amounting to approximately 30,000 containers each year, and with about 50% of these typically moving through the West coast ports alone, we are one of the 25 largest container volume importers in the United States.”

Had to ship across country in order to make sure things got to the customer on time

“Our number one priority has always been to serve our customer. To this end, we shipped merchandise across the country to our West Coast DC and incurred substantial incremental shipping expense to ensure that our customers’ orders would arrive in time.”

Targeting a dividend yield in line with the S&P 500

“We also announced in 2013 a commitment to pay dividends targeted at 35% to 40% of net income and in line with the S&P 500 dividend yield. Today, in support of this commitment, we announced a 6% increase in our quarterly dividend to $0.35 per share.”

58 year history

“This experience made me realize once again how far this company has come in its 58 year life and in the 20 years I’ve been with it. How fortunate we’ve been to attract such outstanding associates and supplier partners that have accepted the responsibility of stewardship of a great brand while constantly seeking ways to be relevant to the needs and desires of today’s consumer. ‘

West coast ports have affected different retailers differently depending on container volume

” want to make sure we’re all grounded on the fact this West Coast port disruption has impacted all retailers, all with varying impacts depending on the size of their container volume, the types of goods they sell and their levels of in stock and available for sale, inventory in particular, just prior to the disruption and during the disruption.”

Very low levels of inventory

“across the Pottery Barn brand, we saw the lowest levels of inventory on hand growth, and in the Pottery Barn brand, as I just mentioned, we had the negative 9% year over year growth of the inventory on hand, which has since deteriorated.”

A retailer needs a good landlord as a partner

“We’re so lucky to have such strong partners with very, very creative, forward thinking landlords, and we have 19 wonderful stores opening this year. And beyond that, we do have other stores that we’re working on.”

Mindset of continuous improvement. Currently focused on technology

“what could we have done better, you know, we always have a mindset of continuous improvement. And we are in the midst of a major multiyear technology transformation, which is focused largely on our supply chain. We know that our customer wants increased visibility of where their order is, and we also know that there’s a great opportunity to regionalize our assortments.’

All of our big projects for the year focus on improving supply chain

“We have put together our big, as we call them, rock projects for the year. And all of these help us remove blind spots in the supply chain, if you will. We have many of them focused on reducing cost and improving service, whether it’s scheduling, routing systems, communications delivery states.”

In marketing we’ve made strategic decisions to improve our conversion funnel

“In marketing, we’ve made, and you’ll see more of it this year, strategic decisions to drive customer acquisition across the entire conversion funnel. We’re shifting more of our marketing spend toward digital as we’re implementing the results of all of this marketing effectiveness work that we’ve talked to you about before, and increasing marketing messages.”

Our most important thing is to make the customer happy

“Regarding the gross margin, the reality is, what I was saying was it was lower selling margins, particularly in ecommerce, that drove that decline. The pure product margin was healthy. The lower selling margins were almost solely due to higher shipping costs, but there’s’ two reasons for that.

One is because we made a decision as a company to make sure to meet our customer demand and get them their product in time for the holidays. Nothing is more important to us than making sure to keep our customers happy. And so we made the decision, as the customer continues to order later and later in the peak, to ship things to them in whatever way possible to get it to them in time for the holidays. That’s one.”

West coast ports affect revenue

” It’s small, but we are seeing some order cancellations. The bigger issue is what is the lost customer demand that they never actually pushed the button to get it, because when they went through the chain, they were able to see that the back order is going to be longer than what they wanted, and/or there’s something in the category that they’re buying, one item is back ordered, they decided to not buy the whole category.”

Competitive environment is here to stay

“There’s no question all retail is still very promotional, and we don’t believe it’s going to change. So we have built some structural savings into our supply chain to offset it that make us more competitive, the first being the insourcing of our foreign agents, which is a big deal to us and allows us to both reduce cost, but also, where we need to, step up the competitive pricing to gain market share.”

When you have the best product you can protect price

“where we win is when we give our customers exclusive, innovative product at a great price with great service. That’s what we have been focused on. That’s what we are focused on. And when those things come together, and the customer buys from the retailer that has the best product, at the end of the day, and they want the price to be fair.”

When you’re buying for your home, you usually don’t compromise on quality

“We’re lucky to be in the business that we’re in. I mean, buying for your home is a considered purchase. It’s very important. There’s really nowhere to hide on quality”

Williams-Sonoma 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Solid growth

“Solid performance across our brands allowed us to deliver these results with revenue growth of 8.7%, operating margin expansion and earnings per share growth of 17.2%.”

Going to be more competitive than last year

“There is no question the holiday season will be even more competitive than last year. But I also believe ecommerce will set new sales record and with over 50% of our revenue in ecommerce, I believe we have a competitive advantage.’

The west coast port stuff could be really disruptive

“The bigger concern is obviously, if this West Coast port slowdown continues or deteriorates, we do have strategies in place to help mitigate the potential impact and of course, our teams have been watching the slowdown and planning for it, since the labor contract actually even expired. And although we are 100% confident and our teams ability to navigate this to help minimize its impact on our inventory, we are hopeful that there will be a solution soon because given the volume of goods that pass through the West Coast port longer term which isn’t good for anybody.”

People have been ready for Christmas earlier this year

“I’d say the thing that I’m really noticing is that people have been ready for Christmas earlier this year. And we’ve seen really nice response to our guests already”

Stores and ecommerce play off of each other

“In terms of the interplay between ecommerce and our stores. We really believe that when you go have a great experience in one of our stores, you are going to be more confident shopping online. And that something that people who don’t have stores – don’t have the same advantage particularly during the gift giving time of the year, when you want to be sure that you are really buying that that thoughtful gift for the people on your list.”