Release Date: March 19, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Williams-Sonoma Inc (WSM, Financial) reported a positive 3.1% comp in Q4, outperforming the industry decline of 2%.
- The company achieved a record annual operating margin of 17.9% for 2024, with full-year earnings per share of $8.50.
- Strong performance in both retail and online channels, with retail stores delivering a positive 7% comp in Q4.
- Williams-Sonoma Inc (WSM) successfully leveraged supply chain efficiencies and cost control to exceed profitability estimates.
- The company is optimistic about 2025, focusing on brand growth, innovative product offerings, and strategic partnerships to drive sales.
Negative Points
- The housing market remains a challenge, with no significant improvement expected in 2025.
- Tariffs on China, Mexico, and Canada, as well as on metals and aluminum, are expected to impact operating margins.
- E-commerce comp was only positive 1.3% in Q4, indicating slower growth compared to retail stores.
- Full-year comp for 2024 was negative 1.6%, reflecting challenges in the furniture segment.
- The macroeconomic and geopolitical environment remains unpredictable, posing potential risks to future performance.
Q & A Highlights
Q: Within your comp guide of 1% to 3%, how do you see SG&A leverage on a flat comp versus a plus 3% comp?
A: Jeffrey Howie, CFO: We don't guide to specific lines or provide guidance by quarter. For the full year, we're guiding operating margin to be in the range of 17.4% to 17.8%. We expect some leverage in SG&A from expense savings to partially offset gross margin headwinds from tariffs. Employment costs are variable, and we see opportunities to leverage AI for savings, especially in call centers and back-office operations.
Q: How do you see e-commerce versus stores performing in 2025?
A: Jeffrey Howie, CFO: We were pleased with retail performance in Q4 at plus 7%. While we don't provide specific guidance for channel mix, we believe e-commerce will continue to constitute about 66% of total revenues. We're optimistic about both channels in 2025, and this is reflected in our guidance.
Q: On gross margin for 2025, if we ignore tariffs, how much room do you see across supply chain, product margins, and occupancy?
A: Jeffrey Howie, CFO: Our guidance includes the full impact of tariffs. We expect some erosion in gross margin due to tariffs but anticipate offsets from supply chain efficiencies and SG&A savings. We have significant opportunities to improve returns, damages, and replacements, and our supply chain team is focused on harnessing additional savings.
Q: Can you discuss the structural opportunity for higher product margins given the positive comp and no degradation in margin structure?
A: Laura Alber, CEO: Our scale and supply chain capabilities, along with exclusive product lines, give us a competitive advantage. We design most of what we sell, allowing us to avoid price wars. We've been moving goods away from China and have taken targeted price increases on certain items. Our Sutter Street manufacturing in the U.S. offers competitive pricing and quality, with the shortest lead times in the market.
Q: What is your tariff posture embedded in the guide, and how do you plan to protect operating margin if the consumer weakens?
A: Jeffrey Howie, CFO: Our guidance includes the full impact of tariffs, including 20% on China, 25% on Mexico and Canada, and 25% on metals and aluminum. We have a six-point plan to offset tariffs, including cost concessions, resourcing goods, targeted price increases, supply chain efficiencies, SG&A reductions, and expanding Made In USA products. Laura Alber, CEO: Our strategies, such as driving non-furniture business and leveraging B2B, are resonating with consumers, giving us confidence in our guidance.
Q: How are you planning for the store base in 2025, and is the 25% closure framework still appropriate?
A: Laura Alber, CEO: We love our retail business and operate stores as profit centers. We've closed about 17% of our fleet since 2019, focusing on optimizing locations. Our new store remodels are exceeding expectations, and we continue to invest in renovations and repositions.
Q: How should we think about incentive comp growth in fiscal year '25?
A: Jeffrey Howie, CFO: We are a pay-for-performance company, so incentive compensation ebbs and flows with performance. It's not anticipated to have a specific impact on guidance unless we substantially exceed estimates, in which case it would pay for itself.
Q: Can you provide insights into West Elm's performance, particularly non-furniture offerings and demographic trends?
A: Laura Alber, CEO: West Elm's positive comps in Q4 reflect traction in initiatives like product newness, collaborations, and seasonal offerings. We've improved brand heat through organic social and marketing, and enhanced channel strategies by restocking stores with take-to-go products. Our digital improvements include better photography and storytelling, contributing to West Elm's success.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
