Williams-Sonoma, Inc. Announces Third Quarter 2013 Results Revenues Grow 11%, EPS Increases 18% to $0.58 Raises Financial Guidance for Fiscal Year 2013

Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the 13 weeks ended November 3, 2013 (“Q3 13”) versus the 13 weeks ended October 28, 2012 (“Q3 12”).

Q3 13 Results

• Net revenues grew 11.3% to $1.052 billion versus $945 million in Q3 12 with comparable brand revenue growth of 8.2%.
• Operating margin increased to 8.8% from 8.4% in Q3 12.
• Diluted earnings per share (“EPS”) grew 18.4% to $0.58 compared to $0.49 in Q3 12.
• Cash returned to stockholders totaled $115 million comprising $85 million in stock repurchases and $30 million in dividends.

Laura Alber, President and Chief Executive Officer commented, “Our strong third quarter and our performance year-to-date illustrate the power of our business model and the relevancy of our brands. We delivered an 11% increase in revenue and EPS growth in excess of 18%. Importantly, we delivered this revenue growth and accompanying operating margin expansion while simultaneously investing in our multi-faceted growth initiatives.”

Alber continued, “We believe we are well-positioned heading into the holiday season and will continue to execute our key strategies to deliver an exceptional experience for our customers. We are focused on generating top-line results in conjunction with operational and capital discipline to deliver long-term shareholder value.”

Alber concluded, “Given our year-to-date results, and our confidence in the fourth quarter, we are raising our fiscal year 2013 revenue and EPS guidance to reflect our outperformance in the third quarter. We are now guiding fiscal year 2013 revenue to a range of $4.290 billion to $4.350 billion and our non-GAAP diluted EPS guidance to a range of $2.76 to $2.83.”

Comparable brand revenue growth in Q3 13 increased 8.2% on top of 8.5% in Q3 12 as shown in the table below:

Direct-to-customer (“DTC”) net revenues in Q3 13 increased 14.5% to $512 million from $447 million in Q3 12, with growth across all brands, primarily driven by Pottery Barn and West Elm. DTC net revenues generated 49% of total company net revenues in Q3 13, compared to 47% in Q3 12.

Retail net revenues in Q3 13 increased 8.5% to $540 million from $497 million in Q3 12, primarily driven by Pottery Barn and West Elm. Including five net new stores within Q3 13, retail leased square footage increased 1.6% from the end of Q3 12.

Operating margin in Q3 13 was 8.8% compared to 8.4% in Q3 12:

• Gross margin was 38.6% versus 39.0% in Q3 12.
• Selling, general and administrative (“SG&A”) expenses were $313 million or 29.8% of net revenues versus $289 million or 30.6% in Q3 12.

EPS in Q3 13 increased 18.4% to $0.58 from $0.49 in Q3 12.

Merchandise inventories increased 30.5% to $899 million versus $688 million at the end of Q3 12. Excluding the impact of additional inventory in transit due to taking ownership of our inventory earlier in the supply chain in Q3 13 versus Q3 12, merchandise inventories increased 18.5% on a comparable basis.

STOCK REPURCHASE PROGRAM

During Q3 13, we repurchased 1.5 million shares of common stock at an average cost of $55.89 per share and a total cost of approximately $85 million. As of November 3, 2013, $534 million remained under the three-year $750 million stock repurchase program announced in March 2013.

FY 13 FINANCIAL GUIDANCE

• Fourth Quarter 2013 Guidance (13 weeks)

• Net revenues in the fourth quarter of fiscal 2013 (“Q4 13”) are expected to be in the range of $1.370 billion to $1.430 billion.
• Comparable brand revenue growth in Q4 13 is expected to be in the range of 3% to 6%.
• Diluted EPS in Q4 13 is expected to be in the range of $1.30 to $1.37.

• Fiscal Year 2013 Guidance (52 weeks)

• Fiscal Year 2013 Store Opening and Closing Guidance by Retail Concept

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 20, 2013, at 2:00 P.M. (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, will be open to the general public via live webcast and can be accessed at www.williams-sonomainc.com/webcast. A replay of the webcast will be available at www.williams-sonomainc.com/webcast.

SEC REGULATION G -- NON-GAAP INFORMATION

This press release includes non-GAAP diluted EPS. This non-GAAP financial measure excludes the impact of employee separation charges. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure in Exhibit 1. We believe that this non-GAAP financial measure provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of our diluted EPS results and guidance on a comparable basis with prior periods. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements relating to: our expectations for the holiday season; execution of our key strategies; our future financial guidance, including Q4 13 and fiscal year 2013 guidance; our three-year stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q3 13; recent changes in general economic conditions, and the impact on consumer confidence and consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; and other risks and uncertainties described more fully in our public announcements, reports to stockholders and other documents filed with or furnished to the SEC, including our Annual Report on Form 10-K for the fiscal year ended February 3, 2013 and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma (cookware and wedding registry), Pottery Barn (furniture and wedding registry), Pottery Barn Kids (kids’ furniture and baby registry), PBteen (girls’ bedding and boys’ bedding), West Elm (modern furniture and room decor), Williams-Sonoma Home (luxury furniture and decorative accessories), Rejuvenation (lighting and hardware) and Mark and Graham (personalized gifts and gifts for the home) – are marketed through e-commerce websites, direct mail catalogs and 595 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada and Australia, offers international shipping to customers worldwide, and has an unaffiliated franchisee that operates 27 stores in the Middle East.