Williams-Sonoma Q2
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Williams-Sonoma Q2
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Williams-Sonoma, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSGC)") else Response.Write("(NASDAQ: WSGC)") end if %> UNION CITY, Ca., August 8, 1996/FOOLWIRE/ --- Williams-Sonoma reported Q2 1996 results this morning. They reported sales of $155,499,000, up 22% from last year which brings their year to date total revenue increase to 27% over last year.
Q2 comp store sales were up 2.6% and their mail order business was up 5.4%. While Q2 sales were slightly below their original sales plan, they were in line with their recent forecast. There are two primary factors contributing to the slowdown from Q1. They cleared considerable inventory in Q1, while in Q2 they were up against some heavy clearance a year ago. In the mail order business, the early Easter moved some volume out of the early part of Q2 and into the latter part of Q1. The company delayed some drops on some of the catalogs during the Olympics and moved some volume out of July and August.
Overall they feel good about their topline growth given their objectives to lower inventories and improve their merchandise margins in Q2.
Gross margins were at 34.6%, up from 34.2% a year ago. This includes an approximately 100 basis points increase in occupancy costs reflecting the added depreciation in new stores and the distribution center.
They are very pleased that their SG&A was again lower than last year, particularly given the modest sales increase in Q2. This makes two quarters in a row where they have been able to enjoy improved SG&A.
Interest expense is up from last year for two reasons -- they did a $40 million private placement in August of last year and they sold $40 million of convertible notes in April of this year. They are particularly pleased with their progress to both improve their margins while continuing to lower their SG&A.
Earnings from operations in the quarter improved from a loss of ($516,000) a year ago to a profit of $404,000 this year. This resulted in a per share loss of ($0.02) compared with a loss of ($0.03) last year.
BALANCE SHEET HIGHLIGHTS
They are pleased with the progress to reduce inventories. They have significantly strengthened their inventory management team in the last 12 months and they are clearly seeing the benefits of this along with an added focus on the planning and forecasting of inventories.
Their revolving line of credit stands at zero, compared with $75 million a year ago. Tight inventory control and expense management have allowed them to end the quarter with a zero balance on their line. They have more than adequate borrowing capability to meet their seasonal needs between now and the holiday season.
In long-term debt, they have the $40 million private placement as well as the $40 million in notes, so they have an additional $80 million from a year ago in long-term debt.
UPDATES ON THE NEW MEMPHIS DISTRIBUTION FACILITY
They had three principal objectives this Spring in Memphis. First was to complete the construction. That is done and they are operating three buildings in Memphis with their management and their systems. The second objective was to finish the systems work. That is done and they are now going through the normal debugging and settling-in process that is normally seen with these types of projects. Their third objective was to strengthen their management team and they are pleased to say that all managers have been hired, are in place, and are currently learning the job and the facility.
Their immediate efforts in Memphis are to finalize their planning for the peak season in their mail order business, to train their current staff and prepare to train their seasonal hires in October/November, and to maximize productivity and throughput in preparation for the peak season.
POTTERY BARN
The company was asked a question about perceived product availability problems in the Pottery Barn stores. They responded that they are now transitioning into their first phase of the new cleaner, modern aesthetic which they dubbed "City Living." They said that the goods would flow in during mid-to-late August so they are raltivel light now and think people will see more of an impact in the new goods over the next several weeks. Right now Pottery Barn is having a nice month with positive comps so they think they are in good shape. The good news is that the initial goods that have started to hit -- the initial reactions to the new aesthetic -- has been terrific. Some of the key items are some of the best items they have ever seen.
Given the response to the new items, they were asked what they expect the same store sales to be for the balance of the year and what they are planning for from an inventory standpoint. The company responded that they are planning comp store sales around 5% for the remainder of the year. Last quarter was 2.6%, but they hope that the 5% will be conservative figure going forward. They think a bigger issue with Pottery Barn is not so much how they are planning the comps but the volume of the new stores because so many of the bigger design stores are not in the comp base, same with the new stores they are opening this year. If those stores do exceptionally well, given how tight they have managed their inventories, they could be a little short of inventory depending on how the stores do. Right now they are trying to find the right level to run the stores with from an inventory standpoint and they have had a lot of focus on that. They could have erred on the tight side.
They purposely planned Pottery Barn pretty tight from an inventory point of view because of last year's situation where they had a lot of markdowns and sold a lot of merchandise at sale prices. They had a real risk, they think, of long-term damaging the franchise and wanted to reposition the business and get the customer used to buying at full price. So, if they run out of some stuff it may cause a little pressure on the sales line, but they think long-term for the franchise and for the gross margins of the business it will be positive. The gross margins in Pottery Barn are picking up dramatically and they expect that to continue versus a year ago.
FUTURE EXPANSION PLANS
They will be opening a second call center this month in Las Vegas. They will retain the facility they have in San Francisco so this will be a second center for the company. The facility is completed and their management team is in place. They have initiated hiring and will start taking calls in the latter part of the month.
In terms of store openings and store count, they ended the quarter with 144 Williams-Sonoma stores. 46 of those are in the Grand Cuisine format. They had 71 Pottery Barn stores, of which 26 are in the Design Studio format. And they had 31 Hold Everything stores for a total of 246 stores.
They will end Q3 with 149 Williams-Sonoma stores for a net increase of 5. They will end Q3 with 76 Pottery Barn stores for a net increase of 5. And they will end Q3 with the same 31 Hold Everything stores for a total of 256 stores, or a net increase of 10 stores in the quarter.
They are pleased to say that they continue to open their stores on time and on budget and have been successful this year getting the store opening schedule done earlier so they don't negatively impact the Q4 peak season. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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