Image source: The Motley Fool.
CALL PARTICIPANTS
President & Chief Executive Officer — Laura Alber
Executive Vice President & Chief Financial Officer — Jeff Howie
Need a quote from one of our analysts? Email [email protected]
TAKEAWAYS
Comparable Brand Revenue: Comparable brand revenue increased 3.4% in Q1 FY2025, with all brands achieving positive comps with furniture comps turning positive for the first time since Q4 FY2022.
Operating Margin: Operating margin reached 16.8% in Q1 FY2025, 70 basis points higher than the prior year, excluding the Q1 FY2024 out-of-period freight adjustment.
Earnings Per Share (EPS): GAAP earnings per share were $1.85 in Q1 FY2025, representing 8.8% year-over-year growth, excluding the prior year’s accounting adjustment.
Gross Margin: Gross margin was 44.3% in Q1 FY2025, down 60 basis points from the prior year when normalized for the 2024 adjustment, primarily due to a 220 basis point decline in merchandise margins from higher input and tariff mitigation costs, partially offset by 120 basis points in supply chain efficiencies and 40 basis points in occupancy leverage.
SG&A Expense: SG&A expense was 27.5% of revenues in Q1 FY2025, 130 basis points lower year over year, with employment expense leveraging 60 basis points and advertising expense 60 basis points lower year over year.
Retail & E-commerce Performance: Retail comps rose 6.2% in Q1 FY2025, e-commerce comps increased 2.1%.
Brand Segment Highlights: Pottery Barn comp up 2%; West Elm up 0.2%. Williams-Sonoma comp up 7.3%; Rejuvenation delivered double-digit comp growth; B2B segment grew 8% and posted another record quarter; emerging brands Mark and Graham and Green Row reported strong growth.
Inventory Position: Inventory was $1.3 billion at the end of Q1, up 10% year-over-year compared to Q1 FY2024; this includes $60 million–$70 million in strategic pull-forward of inventory to mitigate tariff impact.
Cash & Debt: Cash on hand was $1 billion at the end of Q1, and no outstanding debt following $58 million in capital expenditures and $165 million returned to shareholders through dividends and share repurchases.
2025 Guidance Reiterated: The company guides for full-year comparable brand revenue growth of flat to 3% for FY2025, and operating margin of 17.4%-17.8%, with total net revenues expected in the range of down 1.5% to up 1.5% for FY2025, due to the prior year’s 53-week calendar.
Tariff Mitigation Plan: Management implemented a six-point plan—including vendor cost concessions, country resourcing, supply chain efficiencies, SG&A reduction, expanding made-in-USA sourcing, and selective price increases—to manage tariff-related costs in FY2025.—to offset incremental risks from new and existing tariffs, including a 30% China tariff and 10% global reciprocal tariffs in FY2025.
Capital Expenditure Outlook: The FY2025 plan calls for $250 million–$275 million in capital expenditures, about 10% below prior guidance; 85% of FY2025 capital expenditures are targeted toward e-commerce, retail optimization, and supply chain efficiency.
Dividend Policy: The quarterly dividend is maintained at $0.66 per share for FY2025, a 16% increase year over year, marking the 16th consecutive year of dividend growth as of FY2025.
Share Repurchase Capacity: $1.1 billion remains on existing authorizations for opportunistic repurchases.
Geographic Expansion: Pottery Barn brand to launch online in the UK.
China Sourcing: Goods sourced from China have been reduced from 50% to 23% over the last few years, with further reductions made since last disclosed figure.
SUMMARY
Williams-Sonoma, Inc. reported above-expectation Q1 results, citing growth across all brands and positive momentum in both furniture and non-furniture categories. Management emphasized supply chain and cost discipline as key earnings drivers while confirming that market share was gained in a contracting home furnishings industry. Strategic inventory pull-forwards and a multi-pronged tariff mitigation plan positioned the company to absorb anticipated tariff headwinds without altering full-year guidance for FY2025. The B2B segment and emerging brands contributed significantly to top-line results, and global and digital initiatives continued expanding, supported by focused investments in core operational levers.
Howie stated, “We expect 2025 net revenue comps to be in the range of flat to positive 3%” despite new tariffs.
Guidance assumes no major changes in existing macroeconomic, interest rate, or housing conditions, reflecting a conservative planning approach.
Management reported, “operating margin finished 70 basis points higher than last year,” when adjusting for prior-year accounting adjustments on a comparable basis.
Management expects capex to be approximately 10% below previous guidance for FY2025, prioritizing digital and operational efficiency over footprint expansion.
Dividend growth and share repurchases both remain prioritized, with FY2025 marking the 16th consecutive year of increased dividend payouts.
INDUSTRY GLOSSARY
Comp (Comparable Brand Revenue): Year-over-year sales growth comparison for stores, e-commerce, or business segments open during both periods.
B2B: Business-to-business segment in which Williams-Sonoma, Inc. supplies home furnishings to commercial clients such as hotels, education, hospitality, and entertainment enterprises.
SG&A: Selling, General, and Administrative expenses—major category of operating costs outside of cost of goods sold.
Tariff Mitigation Plan: Management’s articulated six-point approach to offset direct cost impacts from government-imposed tariffs on imported goods, including resourcing, supply chain, and pricing levers.
Full-Price Selling (Penetration of Full-Price Sales): Ratio of sales achieved at regular or standard price versus discounted or promotional pricing.
Full Conference Call Transcript
Laura Alber: Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I’m excited to talk to you this morning about our first quarter. Before we get into our results, I want to take a minute to recognize our team for their contributions. Their passion, dedication, and talent continue to drive our results. We are proud to deliver strong results in the first quarter of 2025, driven by a positive top-line comp and continued strength in our profitability. In Q1, our comp came in above expectations at positive 3.4% with all brands running positive comps. We exceeded profitability estimates with an operating margin of 16.8% and earnings per share of $1.85, with earnings growth of 8.8%.
In the quarter, we saw an acceleration of the positive comp trend coming out of Q4 despite continued geopolitical uncertainty and no material improvement in the housing market. We continue to outperform the industry, which declined 3% in Q1. Our growing outperformance was driven by an improvement in furniture sales, effective collaboration, and strong performance in our retail and e-commerce channels. As we continue into 2025, we are confident that we have laid the foundation for growth and profitability. Even though there are significant macro and geopolitical uncertainties, we are focused on our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings.
Now let’s review our strategies to continue our positive momentum from Q1 and deliver growth during the remainder of this year and beyond. First, we remain confident in delivering core brand growth supported by a strong pipeline of newness and compelling innovation. Our ability to differentiate through in-house design and a vertically integrated sourcing model continues to be a key advantage, enabling us to offer high-quality products at exceptional value. We recognize that the housing market and therefore the furniture industry may remain soft this year as interest rates are still high. Therefore, our growth strategy emphasizes a broad and inspirational non-furniture assortment, including seasonal and decorative accessories, textiles, and housewares.
Also, strategic collaborations are another critical part of our plan. These collaborations continue to expand new customer growth and drive sales. Most importantly, they drive relevance and excitement for our brands and customers. Our B2B program is also a key growth engine. B2B started the year strong, growing 8% and delivering another record-breaking quarter. Leveraging our design experience and commercial-grade product assortment, we’ve built a strong and growing client base across multiple industries. Our B2B offering remains a powerful differentiator, and we are seeing continued momentum. We’re also seeing positive traction and strong comps in our emerging brands, Rejuvenation, Mark and Graham, and Green Row.
With our proven ability to incubate and scale brands in-house, we’re confident in the continued growth of these concepts and their ability to deliver profitably to our results. Alongside these growth drivers, we’re focused on elevating every customer touchpoint in our channel experiences. One area of continued investment is our next generation of design services. We’ve introduced new tools, both online and in stores, to help customers visualize and plan their spaces. We’re also making meaningful progress in integrating AI across our digital platforms. From personalized emails to tailored home pages, we are enhancing the customer journey with smart, data-driven experiences.
We believe AI will be a transformational force in our business, and we will be a leader in the use of AI in our industry. In our retail stores, the momentum continues. Our strong Q4 retail comps continued into Q1 and were driven by an improved in-store experience, with more inventory availability, fresh product assortments, enhanced design services, and engaging events. Our omni-channel capabilities are another core strength, and we are further optimizing them with AI. This includes improvements in sales performance, cost efficiency, and delivery speed. Looking ahead to the balance of the year, we are focused on delivering exceptional customer service with perfect orders that are on time and damage-free from start to finish.
Our operational metrics are surpassing pre-pandemic levels, and we are working to optimize these metrics even further. That includes reducing split shipments, lowering returns and damages, and streamlining our fulfillment processes. From a cost perspective, we are committed to staying lean on headcount using AI tools to drive productivity gains in areas that make sense. In marketing, our in-house teams are finding ways to maximize ROI and deliver a strong impact with less investment. In summary, there is no doubt that existing macroeconomic and geopolitical uncertainties are a focal point for the market. But volatility is not new in our industry, and we are confident in our ability to adapt and navigate whatever lies ahead.
Therefore, we are optimistic about 2025. We are planning to gain market share, enhance the customer experience, and deliver strong earnings. Our commitment to our three key priorities remains unwavering. Turning to guidance, I’d like to take a moment to walk through our current assumptions. We are reiterating the same outlook that we shared with you last quarter. Our guidance reflects that which we know today; we are not assuming any significant upside or downside from broader macroeconomic factors. As we said last quarter, our guidance incorporates our current initiatives and the existing tariff environment, which includes the tariffs that we discussed in March and now the additional China tariff at 30% and the global reciprocal tariff at 10%.
It does not assume any other tariffs. If there are material changes in future tariffs, we will revisit our guidance. For fiscal 2025, we continue to guide comp brand revenue growth of flat to positive 3% and operating margin in the range of 17.4% to 17.8%. As it relates to tariffs, we have been actively and aggressively managing through these additional costs with our six-point plan, which includes several key actions. First, we are successfully obtaining cost concessions from our strong vendor community. This includes reductions on current product pricing, but also reductions in price on the newness that we are bringing in and developing in the future.
Second, we are actively resourcing goods to lower tariff countries, including further reductions from China. Third, we are identifying further supply chain efficiencies in our network. Fourth, we are reducing SG&A expense through tight cost control and financial discipline. Fifth, we are expanding our made-in-the-USA assortment production and partnerships, and lastly, we are carefully taking select price increases on products to offer strong value with a focus on maintaining competitive pricing. We believe the six-point plan will allow us to absorb the additional tariffs since we last spoke and yet still reiterate our annual guidance today. Now let’s review our brands. Pottery Barn ran a positive 2% comp in Q1.
Now on a five-year basis, the brand ran a 46.7% comp. Pottery Barn continues to increase innovation in their product lines and to launch more collaborations. The brand launched four strategic collaborations in the quarter with partnerships with Kravitz, Love Shack Fancy, Monique Lier, and Mark Sykes. We continue to strengthen our proprietary and easy decorating, entertaining updates for the home. The Pottery Barn continues to see outside strength in seasonal offerings. We are pleased with the Easter and Valentine’s Day results that the brand delivered. We believe we are well-positioned for the balance of 2025 due to increased newness, exciting brand collaborations, and a focus on seasonal decorating and entertaining.
Our collection with Aaron Lauder across the kids and teen brands. Additionally, our Love Shack Fancy collections continue to gain popularity with new styles in nursery and dorm. Innovation for us is more than product. It is in the channel experience too. We have revamped tools that help inspire baby registry online and have increased our take-it-home-today products in our stores. We’ve also expanded in-store and online offerings and services for dorm, including pickup near campus at over 450 participating Williams-Sonoma, Inc. stores along with a first-of-its-kind concierge service for dorm deliveries. We’re encouraged by the customer response to our products and service innovations and have a robust pipeline ahead to fuel continued growth. Now let’s review West Elm.
The brand ran a positive 0.2% in Q1 with a five-year comp of 44%. We continue to make progress against the brand’s four key pillars: product, brand heat, channel excellence, and operational efficiencies. The West Elm brand continues to focus on its non-furniture categories as a percent of the total assortment, driving positive comps in lighting, bath, kids, and textiles. The brand continues to see success in new product introductions across all categories, with both spring and summer newness driving double-digit positive comp to last year. In March, West Elm launched the Veric setting collaboration with award-winning designers Pearson Ward, featuring 165 pieces across furniture, textiles, and decorative accessories.
The co-design line received widespread acclaim, earning top-tier press coverage, including an editorial feature in Architectural Digest and articles in leading publications such as Vogue, Domino, Better Homes and Gardens, and New York Magazine. The line is on track to be one of West Elm’s most commercially successful collaborations to date. Now let’s review the Williams-Sonoma brand. We’re thrilled to report another strong quarter for the brand, which ran a positive 7.3% comp. On a five-year basis, the brand ran a 36.9% comp. Our customers at Williams-Sonoma continue to respond well to products that are both highly functional and aesthetically pleasing.
We’re excited to see that our curation and our creation of these items is working, with spectacular strength in the cookware, entertaining, and housewares department, which outperformed. The electrics category benefited from the launch of Breville Brass, an exclusive line of kitchen countertop appliances that combine Breville’s cutting-edge technology with bold brass-colored trim and accents. The category also saw success with the launch of KitchenAid’s new butter yellow stand mixer, another Williams-Sonoma exclusive. Our in-house product design teams developed the new Williams-Sonoma Thermoplad Copper Pro cookware collection, which launched in early Q1. This best-in-class high-performance cookware combines the heat conduction and control of copper with the durability and easy care of stainless steel, quickly becoming a best seller.
Also, our stores hosted several successful book events for celebrities and celebrity chefs like Alton Brown, Morimoto, and Michael Simon. We look forward to continuing to invite our customers to meet their culinary heroes at our retail locations across the country throughout the rest of the year. We’re also making progress with our Williams-Sonoma Home brand. We continued our refresh and integration of our furniture assortment into our Williams-Sonoma stores. Also, we have increased the offer of in-house design tech go-printed bedding, novelty pillows, and occasional furniture pieces. The brand benefited from an expansion of our popular collaboration with Aaron Water. We continue to believe we have an opportunity with Williams-Sonoma Home to disrupt the high-end furniture market.
Now I’d like to update you on B2B. We continue to gain momentum in the hospitality space, including an impressive roster of Q1 projects with St. Regis, Hendry, Aubert, Sheraton, Hilton, Tapestry, Hyatt House, Weston, Spring Hill Suites, and Element Brands. In addition to the wins in the hospitality space, the team is focused on expanding our book of business, including wins in the education space with Tulane University, sports and entertainment with Gaylord, Opryland Waterpark, and Live Nation, and a wide range of restaurant projects coast to coast, including Bagatel in Montauk and Sireges Ova in Yountville. Now I’d like to update you on our emerging brands, which continue to drive strong growth and profitability.
Our Rejuvenation brand continues to exceed our expectations with another quarter of double-digit comps. Growth was fueled by continued strength in our core categories: cabinet hardware, lighting, and bath, all supported by our commitment to design-forward, high-quality products that meet the needs of home renovation and refresh projects. At Rejuvenation, product innovation continues to drive results. In Q1, we introduced Heritage Brass, a new finish inspired by the warmth of naturally aged metal across lighting, hardware, and bath, generating a strong customer response. We also expanded into new categories, including closet hardware and outdoor pillows, while vanities and seasonal textiles delivered double-digit comps. As we look to the rest of 2025, we’re confident in Rejuvenation’s continued momentum and long-term potential.
At Mark and Graham, the brand is leaning into more frequent gifting occasions and milestones as a key strategy. The brand’s two newest incremental businesses, Pet and Baby, have been very successful and are driving new customer acquisition. Turning to our newest brand, Green Row, the brand delivered strong growth in Q1, driven by demand for vintage and beautiful colorful products. This year, we’re excited to watch Green Row continue to grow through new and innovative products and materials as well as some exciting partnerships. Last, I’d like to talk about our global business. We continue to see strong growth across our strategic global markets.
In Canada, we are driving growth through our compelling product offerings, complemented by our design and trade services. In Mexico, we are expanding our footprint with four new store openings this quarter: West Elm in Puerto Vallarta and Pottery Barn Kids and West Elm in Medipeq. We’re also seeing continued growth across both existing retail and e-commerce channels. Our UK business is gaining momentum, particularly in the trade segment, and we’re excited to have announced the upcoming launch of the Pottery Barn brand this fall online. In summary, we are proud of our strong execution and outperformance in the first quarter.
There’s no doubt that uncertainty is top of mind for all of us, but we at Williams-Sonoma, Inc. have been and will continue to be focused on our industry-leading channel experiences and our cultivation of a strong portfolio of brands. We are a house of innovation, fueling a product development machine that positions us as an industry leader with strong financial results. With our focus on our three key priorities—returning to growth, enhancing our world-class customer service, and driving earnings—we are set up well to continue executing in 2025.
