Financial Release
05/30/07 | Williams-Sonoma, Inc. Reports First Quarter 2007 Results
| PRESS RELEASE WILLIAMS-SONOMA, INC. 3250 Van Ness Avenue San Francisco, CA 94109 |
CONTACT: |
FOR IMMEDIATE RELEASE
First Quarter Net Revenues Increase 2.7% to $816.1 Million
Excluding Hold Everything, First Quarter Net Revenues Increase 5.2%
San Francisco, CA, May 30, 2007 -- Williams-Sonoma, Inc. (NYSE: WSM) today announced operating results for the first quarter ended April 29, 2007 and quantified the quarterly and fiscal 2007 impact of adopting FASB Interpretation No. 48 ("FIN 48")-Accounting for Uncertainty in Income Taxes, which was implemented on January 29, 2007.
FIRST QUARTER 2007 -- RESULTS FOR THE 13 WEEKS ENDED APRIL 29, 2007
Net revenues for the first quarter of fiscal year 2007 increased 2.7% to $816.1 million versus $794.3 million in the first quarter of fiscal year 2006. Excluding Hold Everything (see Note 1 of Exhibit 1), net revenues for the first quarter of fiscal year 2007 increased 5.2%.
Diluted earnings per share for the first quarter of fiscal year 2007, including a $0.005 per diluted share impact from the implementation of FIN 48 (see Note 5 in Exhibit 1), decreased 20.0% to $0.16 per diluted share versus $0.20 per diluted share in the first quarter of fiscal year 2006, which included a $0.017 per diluted share impact from unusual business events (see reconciliation below). Excluding the $0.005 per diluted share impact from the implementation of FIN 48 in the first quarter of fiscal year 2007 and the $0.017 per diluted share impact from unusual business events in the first quarter of 2006, diluted earnings per share on a non-GAAP basis for the first quarter of fiscal year 2007 decreased 19.0% to $0.17 per diluted share versus $0.21 per diluted share in the first quarter of fiscal year 2006 (see reconciliation below).
(See Exhibit 1 for Notes 1, 5, and 6)
| Q1 2007 Actual |
Q1 2006 Actual |
% YOY Increase/ <Decrease> |
|
| GAAP Diluted EPS * | $0.16 | $0.20 | <20.0%> |
| Impact of Hold Everything Transition Charge (Note 1) | - | $0.017 | - |
| Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 6)* | $0.16 | $0.21 | <23.8%> |
| Impact of FIN 48 (Note 5) | $0.005 | - | - |
| Non-GAAP Diluted EPS Excluding New Accounting Pronouncements and Unusual Business Events (Note 6)* |
$0.17 | $0.21 | <19.0%> |
*Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.
Also during the first quarter of fiscal year 2007, the company repurchased and retired 281,345 shares of its common stock at a weighted average cost of $34.71 per share and a total cost of approximately $9.8 million.
Howard Lester, Chairman and Chief Executive Officer, commented, "Although the macro-environment in the home furnishings sector in the first quarter of 2007 continued to be very challenging, we aggressively managed the rapid changes in our business and delivered better than expected earnings for the quarter."
Mr. Lester continued, "What we were particularly pleased with during the quarter was the performance of our emerging brands and our progress to date on our strategic initiatives. During the quarter, our emerging brands delivered better than expected sales growth and we saw significant improvement in their year-over-year operational execution. In our core brands, the home-centered retail environment continued to be difficult, but we remained focused on our most important initiative-the revitalization of the Pottery Barn brand."
"As we look forward to the balance of the year, we are remaining cautious in our guidance-particularly in the short-term. We continue to see higher inventory levels among our competition, and are concerned about the ongoing pressure of industry-wide markdowns and rising raw material costs. Both of these factors could lead to a further deterioration in the overall macro-environment and lower gross margins. Therefore, we are reducing our second quarter non-GAAP diluted earnings per share guidance by $0.02 to the range of $0.14 to $0.18. We are, however, reiterating our full year non-GAAP diluted earnings per share guidance in the range of $1.76 to $1.84 due to achieving higher than expected earnings results in the first quarter."
Retail net revenues in the first quarter of fiscal year 2007 increased 4.5% to $453.4 million versus $433.9 million in the first quarter of fiscal year 2006. This increase was driven by a 6.3% year-over-year increase in retail leased square footage, including 15 net new stores. Net revenues generated in the West Elm, Williams-Sonoma Home and Pottery Barn brands were the primary contributors to the year-over-year revenue increase, partially offset by lost revenues in the Hold Everything brand. Excluding Hold Everything, retail net revenues for the first quarter of fiscal year 2007 increased 5.6% versus the first quarter of fiscal year 2006. First quarter year-over-year comparable store sales by retail concept are shown in the table below.
| 13-Weeks Ended | ||
| Retail Concept | 4/29/07 | 4/30/06** |
| Williams-Sonoma | <0.6%> | 1.8% |
| Pottery Barn | <1.2%> | 1.1% |
| Pottery Barn Kids | <3.8%> | 3.3% |
| Outlets | 9.3% | <4.0%> |
| Total | <0.8%> | 1.3% |
*Comparable stores are defined as those stores in which 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 seven or more consecutive days. Comparable stores exclude new retail concepts until such time as we believe that comparable store results in those concepts are meaningful to evaluating the performance of the retail strategy. In the first quarter of fiscal year 2007, the company excluded West Elm and Williams-Sonoma Home. In the first quarter of fiscal year 2006, the company excluded only West Elm as there were no Williams-Sonoma Home stores that were open for at least 12 months.
**Hold Everything stores are excluded from the 2006 comparable store sales calculation due to all stores being closed in the first quarter of 2006 (see Note 1 of Exhibit 1).
Direct-to-customer net revenues (comprised of both catalog and Internet revenues) in the first quarter of fiscal year 2007 increased 0.6% to $362.7 million versus $360.4 million in the first quarter of fiscal year 2006. This increase was primarily driven by increases in net revenues generated in the West Elm, PBteen, Pottery Barn Kids, Pottery Barn, Williams-Sonoma and Williams-Sonoma Home brands. This increase was partially offset by lost revenues in the Hold Everything brand. Excluding Hold Everything, direct-to-customer net revenues for the first quarter of fiscal year 2007 increased 4.8% versus the first quarter of fiscal year 2006. Internet revenues in the first quarter of fiscal year 2007 increased 15.2% to $231.5 million versus $201.0 million in the first quarter of fiscal year 2006. Excluding Hold Everything, Internet revenues for the first quarter of fiscal year 2007 increased 19.7% versus the first quarter of fiscal year 2006. Although the amount of Internet revenues that are incremental to our direct-to-customer channel cannot be identified precisely, we estimate that approximately 45% of our company-wide non-gift registry Internet revenues are incremental to the direct-to-customer channel and approximately 55% are driven by customers who recently received a catalog.
Gross margin expressed as a percentage of net revenues in the first quarter of fiscal year 2007 was 37.0% versus 38.5% of net revenues in the first quarter of fiscal year 2006. Excluding the $1.7 million or approximately 20 basis point impact of unusual business events in the first quarter of 2006 (see Notes in Exhibit 1), non-GAAP gross margin as a percentage of net revenues in the first quarter of fiscal year 2006 was 38.7%. This non-GAAP 170 basis point decrease as a percentage of net revenues was primarily driven by increased markdowns and cost of merchandise sold in our Pottery Barn and Pottery Barn Kids brands, increased liquidation activity in our Outlet stores, and increased occupancy costs. The increase in occupancy costs as a percentage of net revenues was primarily driven by the retail rollout of the emerging brands, fixed cost deleverage in our core brands due to negative comparable store sales growth, and increased distribution capacity. These costs were partially offset, however, by the elimination of fixed occupancy and all other costs of goods sold associated with the Hold Everything brand.
Selling, general and administrative expenses in the first quarter of fiscal year 2007 were $273.5 million or 33.5% of net revenues versus $270.7 million or 34.1% of net revenues in the first quarter of fiscal year 2006. Excluding the $1.5 million or approximately 20 basis point impact of unusual business events in the first quarter of 2006 (see Notes in Exhibit 1), non-GAAP selling, general and administrative expenses in the first quarter of fiscal year 2006 were $269.2 million or 33.9% of net revenues. This non-GAAP 40 basis point decrease as a percentage of net revenues was primarily driven by reduced stock-based compensation, increased income from unredeemed gift certificates and the elimination of all selling, general, and administrative expenses associated with the Hold Everything brand. This decrease was partially offset by increased employment costs associated with the growth of the emerging brands.
The effective income tax rate in the first quarter of fiscal year 2007 was 40.3% versus 38.4% in the first quarter of fiscal year 2006. This increase was primarily driven by the implementation of FIN 48, which we implemented on January 29, 2007. The implementation of this accounting pronouncement resulted in a negative cumulative effect adjustment to retained earnings of $11.7 million and an approximate 200 basis point increase in the effective income tax rate or $0.005 per diluted share in the first quarter of fiscal year 2007 (see Note 5 in Exhibit 1).
STOCK REPURCHASE PROGRAM
During the first quarter of fiscal 2007, we repurchased and retired 281,345 shares of our common stock at a weighted average cost of $34.71 per share and a total cost of approximately $9.8 million. An aggregate of 5,914,155 shares remain available for repurchase under previously authorized stock repurchase programs.
Stock repurchases under this program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.
SECOND QUARTER 2007 FINANCIAL GUIDANCE
Net Revenues
- Net revenues are projected to be in the range of $855.0 million to $873.0 million, unchanged from previous guidance. This represents a projected increase in net revenues in the range of 3.6% to 5.8% versus $825.5 million in the second quarter of fiscal year 2006. Excluding Hold Everything, net revenue growth in the second quarter of fiscal year 2007 is projected to increase in the range of 4.1% to 6.3%.
- Retail net revenues are projected to be in the range of $476.0 million to $486.0 million, unchanged from previous guidance. This represents a projected increase in retail net revenues in the range of 2.7% to 4.9% versus $463.4 million in the second quarter of fiscal year 2006.
- Change in comparable store sales is projected to be in the range of <2.0%> to flat, unchanged from previous guidance. This compares to comparable store sales growth in the second quarter of fiscal year 2006 of 1.2%. Comparable stores exclude new retail concepts until such time as we believe that comparable store results in those concepts are meaningful to evaluating the performance of the retail strategy. For fiscal year 2007, we expect to continue to exclude West Elm and Williams-Sonoma Home.
- Retail leased square footage is projected to increase in the range of 5.0% to 6.0%, versus previous guidance in the range of 4.0% to 5.0%. Retail selling square footage is projected to increase in the range of 5.0% to 6.0%, versus previous guidance in the range of 4.5% to 5.5%. This compares to retail leased and selling square footage growth in the second quarter of fiscal year 2006 of 7.5% and 6.9%, respectively.
- Direct-to-customer net revenues (comprised of both catalog and Internet revenues) are projected to be in the range of $379.0 million to $387.0 million, unchanged from previous guidance. This represents a projected increase in direct-to-customer net revenues in the range of 4.6% to 6.8% versus $362.2 million in the second quarter of fiscal year 2006. Excluding Hold Everything, direct-to-customer net revenue growth in the second quarter of fiscal year 2007 is projected to increase in the range of 5.9% to 8.1%.
- Gross margin as a percentage of net revenues in the second quarter of fiscal year 2007 is expected to be in the range of 36.2% to 36.5%, versus previous guidance in the range of 36.9% to 37.2%.
- Gross margin as a percentage of net revenues in the second quarter of fiscal year 2006, including the $0.7 million or approximately 10 basis point impact of unusual business events, was 38.1%. The 2007 guidance represents a projected decrease in the gross margin rate in the range of 160 to 190 basis points.
- Gross margin as a percentage of net revenues in the second quarter of fiscal year 2006, excluding the $0.7 million or approximately 10 basis point impact of unusual business events, was 38.2%. The 2007 guidance represents a projected decrease in the gross margin rate on a comparable year-over-year basis in the range of 170 to 200 basis points. This is a non-GAAP comparison.
- Selling, general and administrative expenses as a percentage of net revenues in the second quarter of fiscal year 2007 are expected to be in the range of 32.9% to 33.2%, versus previous guidance in the range of 33.2% to 33.5%.
- Selling, general and administrative expenses as a percentage of net revenues in the second quarter of fiscal year 2006, including the $10.0 million credit or approximately 120 basis point net benefit from unusual business events, were 31.5%. The 2007 guidance represents a projected increase in the SG&A expense rate of 140 to 170 basis points.
- Selling, general and administrative expenses as a percentage of net revenues in the second quarter of fiscal year 2006, excluding the $10.0 million credit or approximately 120 basis point net benefit from unusual business events, were 32.7%. The 2007 guidance represents a projected increase in the SG&A expense rate on a comparable year-over-year basis in the range of 20 to 50 basis points. This is a non-GAAP comparison.
- Interest <Income> Expense - Net in the second quarter of fiscal year 2007 is projected to be interest income in the range of $0.3 million to $0.9 million, unchanged from previous guidance. This compares to net interest income in the second quarter of fiscal year 2006 of $3.5 million.
- The income tax rate in the second quarter of fiscal year 2007 is projected to be in the range of 40.8% to 41.1%, versus previous guidance in the range of 38.5% to 38.8%. This compares to an income tax rate in the second quarter of fiscal year 2006 of 38.4%. The projected income tax rate for the second quarter of fiscal year 2007 in the updated guidance includes an approximate 230 basis point increase in the effective income tax rate or $0.006 per diluted share impact from the implementation of FIN 48, which we implemented in the first quarter of fiscal year 2007, but was not assumed in our previous guidance. Throughout the year, we expect that there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated.
- Diluted earnings per share on a GAAP basis in the second quarter of fiscal year 2007, including an approximate 230 basis point increase in the effective income tax rate or $0.006 per diluted share related to FIN 48, are expected to be in the range of $0.13 to $0.17, versus previous guidance in the range of $0.16 to $0.20. Diluted earnings per share in the second quarter of fiscal year 2007 on a non-GAAP basis, excluding an approximate 230 basis point increase in the effective income tax rate or $0.006 per diluted share related to FIN 48, are expected to be in the range of $0.14 to $0.18 (see reconciliation below).
(See Exhibit 1 for Notes 1 through 6)
| Q2 2007 Guidance |
Q2 2006 Actual |
% YOY Increase/ <Decrease> |
|
| GAAP Diluted EPS * | $0.13-$0.17 | $0.30 | <43.3%>-<56.7%> |
| Impact of Hold Everything Transition Charge (Note 1) |
- | $0.005 | - |
| Impact of CEO Departure Charge (Note 2) | - | $0.023 | - |
| Benefit of Unredeemed Gift Certificate Income (Note 3) |
- | <$0.065> | - |
| Benefit of Visa/MasterCard Litigation Settlement (Note 4) |
- | <$0.011> | - |
| Subtotal of Unusual Business Events | - | <$0.048> | - |
| Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 6)* | $0.13-$0.17 | $0.25 | <32.0%>-<48.0%> |
| Impact of FIN 48 (Note 5) | $0.006 | - | - |
| Non-GAAP Diluted EPS Excluding New Accounting Pronouncements and Unusual Business Events (Note 6)* | $0.14-$0.18 | $0.25 | <28.0%>-<44.0%> |
*Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.
- This reconciliation is being provided to facilitate a meaningful evaluation of the company's second quarter of fiscal year 2007 diluted earnings per share guidance on a comparable basis with our 2006 quarterly results.
- Merchandise inventories at the end of the second quarter of fiscal year 2007 are projected to be in the range of $645.0 million to $665.0 million, unchanged from previous guidance. Merchandise inventories were $565.7 million at the end of the second quarter of fiscal year 2006. This represents a projected increase in merchandise inventories in the range of 14.0% to 17.6%.
- Depreciation and amortization expense in the second quarter of fiscal year 2007 is projected to be approximately $34.0 million versus previous guidance of $35.0 million. Depreciation and amortization was $32.9 million in the second quarter of fiscal year 2006.
- Amortization of deferred lease incentives in the second quarter of fiscal year 2007 is projected to be approximately $7.0 million, unchanged from previous guidance. Amortization of deferred lease incentives was $6.8 million in the second quarter of fiscal year 2006.
Net Revenues
- Net revenues during fiscal year 2007, a 53-week year, are projected to be in the range of $3.945 billion to $4.013 billion, versus previous guidance in the range of $3.941 billion to $4.027 billion. This represents a projected increase in net revenues in the range of 5.8% to 7.6%, versus $3.728 billion during the 52 weeks of fiscal year 2006. On a 53-week to 53-week basis, this represents a projected increase in the range of 3.8% to 5.6%.
- Retail net revenues during fiscal year 2007, a 53-week year, are projected to be in the range of $2.278 billion to $2.318 billion, versus previous guidance in the range of $2.268 billion to $2.318 billion. This represents a projected increase in retail net revenue in the range of 5.8% to 7.6% versus $2.154 billion during the 52 weeks of fiscal year 2006. On a 53-week to 53-week basis, this represents a projected increase in the range of 4.2% to 6.0%.
- Change in comparable store sales is projected to be in the range of <1.0%> to 1.0%, unchanged from previous guidance. This compares to comparable store sales growth in fiscal year 2006 of 0.3%. Comparable stores exclude new retail concepts until such time as we believe that comparable store results in those concepts are meaningful to evaluating the performance of the retail strategy. For fiscal year 2007, we expect to exclude West Elm and Williams-Sonoma Home.
- Retail leased square footage is projected to increase in the range of 5.0% to 5.5%, versus previous guidance in the range of 5.5% to 6.0%. Selling square footage is projected to increase in the range of 4.5% to 5.0%, versus previous guidance in the range of 5.5% to 6.0%. This compares to retail leased and selling square footage growth in fiscal year 2006 of 8.3% and 7.9%, respectively.
| Q4 2006 Actual |
Q1 2007 Actual |
Q2 2007 Guidance |
Q3 and Q4 2007 Guidance |
FY 2007 Guidance |
|||||||||
| Concept | Total | Open | Close | End | Open | Close | End | Open | Close | End | Open | Close | |
| Williams-Sonoma | 254 | 1 | <5> | 250 | 6 | <3> | 253 | 10 | <9> | 254 | 17 | <17>* | |
| Pottery Barn | 197 | 0 | <2> | 195 | 2 | <5> | 192 | 12 | <5> | 199 | 14 | <12>* | |
| Pottery Barn Kids | 92 | 1 | 0 | 93 | 1 | <2> | 92 | 1 | 0 | 93 | 3 | <2>* | |
| West Elm | 22 | 0 | 0 | 22 | 1 | 0 | 23 | 4 | 0 | 27 | 5 | 0 | |
| Williams-Sonoma Home | 7 | 1 | 0 | 8 | 0 | 0 | 8 | 1 | 0 | 9 | 2 | 0 | |
| Outlets | 16 | 0 | 0 | 16 | 1 | 0 | 17 | 0 | 0 | 17 | 1 | 0 | |
| Total | 588 | 3 | <7> | 584 | 11 | <10> | 585 | 28 | <14> | 599 | 42 | <31> | |
* Fiscal year 2007 total store opening and closing numbers for Williams-Sonoma, Pottery Barn and Pottery Barn Kids include 13 stores, 8 stores and 1 store, respectively, for temporary closures due to remodeling. Remodeled stores are defined as those stores temporarily closed and subsequently reopened due to square footage expansion, store modification, or relocation. Consistent with our definition of comparable stores, remodeled stores are removed from the comparable store base upon closure if the gross square footage changes by more than 20% or if the store is closed for seven or more consecutive days.
- Direct-to-customer net revenues (comprised of both catalog and Internet revenues) are projected to be in the range of $1.667 billion to $1.695 billion during fiscal year 2007, a 53-week year, versus previous guidance in the range of $1.673 billion to $1.709 billion. This represents a projected increase in direct-to-customer net revenue in the range of 5.9% to 7.7% versus $1.574 billion during the 52 weeks of fiscal year 2006. On a 53-week to 53-week basis, this represents a projected increase in the range of 3.2% to 5.0%.
- Catalog circulation is projected to increase in the range of 4.0% to 5.0% with pages circulated projected to increase in the range of 8.0% to 9.0%, unchanged from previous guidance. This compares to an approximate 1.6% decrease in catalog circulation and a 3.2% increase in pages circulated in fiscal year 2006. Excluding the circulation for the Hold Everything catalog in fiscal year 2006, catalog and page circulation in fiscal year 2007 is expected to increase in the range of 6.0% to 7.0% and 9.0% to 10.0%, respectively.
(All Amounts in Millions, Except Percentages)
| Q1 2007 Actual (13 Weeks) |
Q2 2007 Guidance (13 Weeks) |
Q3 2007 Guidance (13 Weeks) |
Q4 2007 Guidance (14 Weeks) |
FY 2007 Guidance (53 Weeks) |
|
| Total Net Revenue | $816 | $855-$873 | $887-$907 | $1,387-$1,417 | $3,945-$4,013 |
| % Growth | 2.7% | 3.6%-5.8% | 4.0%-6.4% | 10.5%-12.9% | 5.8%-7.6% |
| % Growth (53-week to 53-week basis) |
- | - | - | 4.4%-6.6% | 3.8%-5.6% |
| Retail Net Revenue | $453 | $476-$486 | $488-$500 | $861-$879 | $2,278-$2,318 |
| % Growth | 4.5% | 2.7%-4.9% | 3.6%-6.2% | 9.6%-11.9% | 5.8%-7.6% |
| % Growth (53-week to 53-week basis) |
- | - | - | 5.2%-7.4% | 4.2%-6.0% |
| Comparable Store Sales |
<0.8%> | <2.0%>-0.0% | <1.0%>-1.5% | 0.5%-2.5% | <1.0%>-1.0% |
| Direct-to-Customer Net Revenue | $363 | $379-$387 | $399-$407 | $526-$538 | $1,667-$1,695 |
| % Growth | 0.6% | 4.6%-6.8% | 4.5%-6.6% | 12.1%-14.7% | 5.9%-7.7% |
| % Growth (53-week to 53-week basis) |
- | - | - | 3.1%-5.4% | 3.2%-5.0% |
Gross Margin
- Gross margin as a percentage of net revenues in fiscal year 2007 is expected to be in the range of 39.2% to 39.4%, versus previous guidance in the range of 39.6% to 39.8%.
- Gross margin as a percentage of net revenues in fiscal year 2006 was 39.9%, including the $2.7 million or approximately 10 basis point impact of unusual business events. The revised 2007 guidance represents a projected decrease in the gross margin rate in the range of 50 to 70 basis points.
- Gross margin as a percentage of net revenues in fiscal year 2006, excluding the $2.7 million or approximately 10 basis point impact of unusual business events, was 40.0%. The revised 2007 guidance represents a projected decrease in the gross margin rate on a comparable year-over-year basis in the range of 60 to 80 basis points. This is a non-GAAP comparison.
- Selling, general and administrative expenses as a percentage of net revenues in fiscal year 2007 are expected to be in the range of 31.1% to 31.3%, versus previous guidance of 31.4% to 31.6%.
- Selling, general and administrative expenses as a percentage of net revenues in fiscal year 2006, including the $8.6 million or approximately 20 basis point net benefit from unusual business events, were 31.1%. The revised 2007 guidance represents no change in the SG&A expense rate at the low end of the guidance range and a projected increase of 20 basis points at the high end of the range.
- Selling, general and administrative expenses as a percentage of net revenues in fiscal year 2006, excluding the $8.6 million or approximately 20 basis point net benefit from unusual business events, were 31.3%. The revised 2007 guidance represents a projected decrease in the SG&A expense rate on a comparable year-over-year basis of 20 basis points at the low end of the range and no change at the high end of the range. This is a non-GAAP comparison.
- Interest <Income> Expense - Net for fiscal year 2007 is projected to be interest income in the range of $4.5 million to $6.0 million versus previous guidance in the range of $4.0 million to $6.0 million. This compares to net interest income in fiscal year 2006 of $9.7 million.
- The income tax rate for fiscal year 2007 is projected to be in the range of 39.5% to 39.8%, versus previous guidance in the range of 38.5% to 38.8%. This compares to an income tax rate in fiscal year 2006 of 38.1%. The projected income tax rate for fiscal year 2007 in the updated guidance includes an approximate 100 basis point increase in the effective income tax rate or $0.03 per diluted share impact from the implementation of FIN 48, which we implemented in the first quarter of fiscal year 2007, but was not assumed in our previous guidance. Throughout the year, we expect that there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated.
- Diluted earnings per share on a GAAP basis, including an approximate 100 basis point or $0.03 per diluted share increase in the effective income tax rate related to FIN 48, are expected to be in the range of $1.73 to $1.81, versus previous guidance in the range of $1.76 to $1.84. Diluted earnings per share in fiscal year 2007 on a non-GAAP basis are expected to be in the range of $1.76 to $1.84, excluding an approximate 100 basis point or $0.03 per diluted share increase in the effective income tax rate related to FIN 48, unchanged from previous guidance (see reconciliation below).
(See Exhibit 1 for Notes 1 through 6)
| FY 2007 Guidance |
FY 2006 Actual |
% YOY Increase/ <Decrease> |
|
| GAAP Diluted EPS * | $1.73-$1.81 | $1.79 | <3.4%>-1.1% |
| Impact of Hold Everything Transition Charge (Note 1) | - | $0.023 | - |
| Impact of CEO Departure Charge (Note 2) | - | $0.023 | - |
| Benefit of Unredeemed Gift Certificate Income (Note 3) |
- | <$0.065> | - |
| Benefit of VISA/MasterCard Litigation Settlement (Note 4) |
- | <$0.011> | - |
| Subtotal of Unusual Business Events | - | <$0.030> | - |
| Non-GAAP Diluted EPS Excluding Unusual Business Events (Note 6)* | $1.73-$1.81 | $1.76 | <1.7%>-2.8% |
| Impact of FIN 48 (Note 5) | $0.03 | - | - |
| Non-GAAP Diluted EPS Excluding New Accounting Pronouncements and Unusual Business Events (Note 6)* | $1.76-$1.84 | $1.76 | 0.0%-4.5% |
*Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.
- This reconciliation is being provided to facilitate a meaningful evaluation of the company's fiscal year 2007 diluted earnings per share guidance on a comparable basis with our 2006 fiscal year results.
- Merchandise inventories at the end of fiscal year 2007 are projected to be in the range of $665.0 million to $690.0 million, unchanged from previous guidance. This represents a projected increase in the range of 8.9% to 13.0%, versus $610.6 million at the end of fiscal year 2006.
- Fiscal year 2007 capital spending is projected to be in the range of $220.0 million to $240.0 million, unchanged from previous guidance. This compares to capital spending of $191.0 million in fiscal year 2006.
- Depreciation and amortization expense in fiscal year 2007 is projected to be in the range of $140.0 million to $143.0 million, versus previous guidance of $142.0 million to $145.0 million. Depreciation and amortization was $135.0 million in fiscal year 2006.
- Amortization of deferred lease incentives in fiscal year 2007 is projected to be in the range of $28.0 million to $30.0 million, unchanged from previous guidance. Amortization of deferred lease incentives was $28.7 million in fiscal year 2006.
Williams-Sonoma, Inc. will host a live conference call today, May 30, 2007, at 7:00 A.M. (PT). The call, hosted by Howard Lester, Chairman and Chief Executive Officer, will be open to the general public via a live webcast and can be accessed through the Internet 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 net revenue and revenue growth percentages, non-GAAP gross margin percentages, non-GAAP selling, general and administrative expenses, and non-GAAP diluted earnings per share. These non-GAAP financial measures exclude the impact of the Hold Everything consolidation charge, the impact of the CEO departure charge, the benefit of unredeemed gift certificate income, and the benefit of the VISA/MasterCard litigation settlement in fiscal year 2006. They also include the accounting impact of the implementation of FIN 48 in fiscal year 2007. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our quarterly results and fiscal year 2007 guidance on a comparable basis with our 2006 quarterly and fiscal year results. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP measures 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 future financial guidance and results, our plans for our Pottery Barn brand and our stock repurchase programs.
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 the first quarter of 2007; new interpretations of current accounting rules; our ability to successfully transition the Hold Everything merchandise strategies; changes to current accounting rules; changes in tax laws applicable to cash dividends or share repurchases; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; construction and other delays in store openings; competition from companies with concepts or products similar to our concepts and products; 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 commensurate with customer demand; our ability to anticipate and manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in Internet marketing, infrastructure and regulation; changes in consumer spending based on weather, economic, political, competitive and other conditions beyond our control; construction delays on infrastructure projects based on weather or other events; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; dependence on external funding sources for operating capital; our ability to control employment, occupancy and other operating costs; our ability to improve and control 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 shareholders and other documents filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended January 28, 2007 and all subsequent 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
Williams-Sonoma, Inc. is a nationwide specialty retailer of high quality products for the home. These products, representing six distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home – are marketed through 584 stores, seven mail order catalogs and six e-commerce websites.