Williams-Sonoma, Inc. 2027 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining our second quarter earnings call.

Before we get started, I would like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including our updated annual guidance for fiscal 2026 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances that these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to our Q2 results on a non-GAAP basis, which excludes the recognition of income from tariff refunds and other tariff-related adjustments.

The amounts and detail of these adjustments, along with a reconciliation of our GAAP to non-GAAP results, appears in Exhibit 1 to the press release we issued earlier this morning. Our non-GAAP results should not be considered replacements for, and should be read together with, our GAAP results. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our investor relations website. Now, I would like to turn the call over to Laura Alber, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. We had a very strong second quarter. Our comp for Q2 came in at 6.2% with total revenue growth of 6.7%. This performance reflects strong execution by all of our brands across all of our channels and the hard work of our dedicated teams. I would like to thank everyone at the company for their commitment to our continued success. We are pleased that our strategies are continuing to gain momentum. Every brand delivered strong results in Q2. We saw significant improvement in Pottery Barn, which had a 5.1% comp. Our Williams Sonoma brand had a 7.6% comp, and West Elm continued its strong performance with a 6.4% comp. Our children's businesses delivered 3.5%, and our powerful emerging brands contributed double-digit growth. B2B grew 14.5% in Q2 with record-breaking demand in the quarter.

As you can tell, these results were broad-based. We had strength in both DTC and retail and positive comps in both furniture and non-furniture with an even stronger furniture comp than in Q1. Newness and innovation delivered, supported by our product pipeline strategy. Collaborations were again a key contributor, and as a result, we gained market share in the quarter and we continue to outperform the industry. Our strategies are driving our success and they continue to differentiate us from the competition. Across all of our brands, we have prioritized incremental newness, innovative, higher quality product lines, and more inspiring photography, floor sets, and storytelling, all of which drive full price selling. In terms of profitability, we delivered an operating margin of 17.3%. Earnings per share were $2.10.

We delivered this profitability while continuing to manage through a volatile environment, which includes war, ever-changing tariffs, rising interest rates, and broader macro uncertainty. We continue to compound results quarter after quarter despite the stagnant housing market and the other uncertain macroeconomic events of today. We believe our strong brands, our execution, and our focus on customer service is why we are delivering and why we will continue to deliver in the balance of 2026 and over the long term. We have always been known for our high-touch customer service model, and we're excited that technology that we are using can take it to the next level. We are improving the customer journey, we are strengthening product discovery, and we are scaling personalization. We're also continuing to advance our design tools and improve the checkout experience to drive conversion.

We have recently launched our next AI-powered shopping assistant, Otto, across the Pottery Barn family. Otto begins to bring the agentic discovery experience we're building with Williams-Sonoma's Olive to the furniture brands. Both Olive and Otto are helping our customers with product recommendations, and they are increasing consumer engagement with our content design tools and free design service offerings. AI is an accelerator to our strategy and our productivity. We're using it to drive sales, improve service, and make our teams more effective. So many aspects of our tactile and taste-driven business cannot be replaced by AI, but our processes can certainly be enhanced by it, especially in supply chain and inventory management, and therefore, customer service. On the supply chain front, we are pleased to see improvements in our metrics.

Our transportation team has done a very good job at mitigating increasing supply chain costs. There is never a dull moment in the logistics world today, and the whole team has been committed to minimizing the cost of war and fuel pressures by finding offsets, all whilst maintaining our high level of service. Before we turn to guidance, let's talk about tariff refunds. We're pleased to have received a refund of $200 million. I want to thank the Williams-Sonoma, Inc. team and our vendor community for all of their hard work navigating the tariff environment. The results that we have discussed so far exclude income of $174 million that we recognized in Q2 from tariff refunds.

We are excited to be able to reimburse a total of $47 million to many of our vendors for the discounts they gave us to mitigate the tariff pressures, and another $10 million to our associates, to their 401(k)s, for all their work during this difficult time. Now, let's discuss guidance. We are proud to be raising our annual outlook on both the top and bottom lines. We now expect comparable brand revenue growth of 4%-6.5%, and an operating margin in the range of 17.8%-18.2%. Our raised guidance reflects the success of our current initiatives and our confidence in our ability to execute, and also what we know today about the environment. Now, let's review our brands. Pottery Barn delivered another quarter of significant improvement with a 5.1 comp in Q2. We are encouraged by the continued acceleration in the brand.

Customers are responding to our merchandising strategy, and the brand saw strength across key categories, including furniture, lighting, and textiles. The quarter reflected Pottery Barn's continued focus on newness, product innovation, and improving the customer experience across channels. Customers responded to expanded assortments, new product introductions, and compelling collaborations. At the channel level, DTC gained traction as we enhanced the digital shopping experience and made it easier for customers to discover and shop the assortment. Retail remains strong with customers continuing to engage with our stores, design services, and the in-person shopping experience. Looking ahead, we are excited about Pottery Barn's fall collection and the pipeline of differentiated new products the brand will introduce throughout the back half of the year. We believe Pottery Barn's focus on compelling product, strong storytelling, and disciplined execution positions the brand for growth.

Now let's turn to our Pottery Barn Children's business, which delivered another strong quarter with a 3.5% comp in Q2. Growth was driven by product innovation, life stage leadership, and differentiated collaborations. LoveShackFancy and Chris Loves Julia remain strong drivers, and newer partnerships, including Pink Palm Puff and our exclusive Nuna and LoveShackFancy collection, generated a very strong customer response. The brand also saw continued momentum in baby, supported by product innovation and expanded nursery assortments. Across categories, furniture built on its momentum from earlier in the year, and textiles delivered continued strength. In dorm, the customer response has also been strong, with complete room solutions, exclusive collaborations, and enhanced shopping experience, and we are very pleased with our relaunch of Dormify. This new brand is extending our reach with differentiated, functional, style-driven solutions. Now let's review West Elm. West Elm delivered a positive 6.4% comp in quarter 2.

The brand continued to make progress across product, brand heat, and channel excellence, and the results are compounding. New introductions in both furniture and non-furniture fueled growth, with summer and fall newness each delivering double-digit comps. The strength of newness, combined with promotional discipline, drove full-price selling, and this strong performance was broad-based across both retail and direct-to-customer. Collaborations continue to be a big part of the West Elm strategy. In Q2, West Elm launched its second Pierce & Ward collection with an expanded assortment following the success of last year's debut. Strategic marketing targeted both repeat and new customers, drove higher social engagement, and earned strong press coverage. The Emma Chamberlain collection also continues to be one of the brand's most successful collaborations, exceeding expectations and attracting younger customers. Overall, we are thrilled with the momentum at West Elm.

The brand is executing, and we feel good about the opportunity to build on this progress. Now let's review the Williams Sonoma brand. Williams Sonoma continued its strong performance, delivering a 7.6% comp in Q2. The brand saw strength throughout the assortment across categories and price points. Our summer assortment was strong with exciting exclusive collaborations, including Sanderson and the newly launched collaboration with Hill House Home for both Williams Sonoma and Williams Sonoma Home. Beyond product, our team remains committed to bringing the Williams Sonoma brand to life through experiences that deepen customer engagement and extend our reach. We continue to engage customers through culinary events, book signings, and our Skills series classes, all of which create meaningful ways for customers to experience our brands and our products in person. Q2 also marked the launch of the 2026 No Kid Hungry campaign, featuring celebrity design spatulas from Cher, Shania Twain, and leading food creators.