WILLIAMS SONOMA INC

Previous wording

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended August 3, 2025 (“second quarter of fiscal 2025”), as compared to the thirteen weeks ended July 28, 2024 (“second quarter of fiscal 2024”) and twenty-six weeks ended August 3, 2025 ("first half of fiscal 2025"), as compared to the twenty-six weeks ended July 28, 2024 ("first half of fiscal 2024"), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. All explanations of changes in operational results are discussed in order of magnitude.

Current wording

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended November 2, 2025 (“third quarter of fiscal 2025”), as compared to the thirteen weeks ended October 27, 2024 (“third quarter of fiscal 2024”) and thirty-nine weeks ended November 2, 2025 ("first thirty-nine weeks of fiscal 2025"), as compared to the thirty-nine weeks ended October 27, 2024 ("first thirty-nine weeks of fiscal 2024"), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. All explanations of changes in operational results are discussed in order of magnitude.

Previous wording

Second Quarter of Fiscal 2025 Financial Results

Current wording

Third Quarter of Fiscal 2025 Financial Results

Previous wording

West Elm saw brand comp growth of 3.3% in the second quarter of fiscal 2025, driven by strength in furniture and non-furniture categories including new product introductions and collaborations.

Current wording

West Elm saw brand comp growth of 3.3% in the third quarter of fiscal 2025, driven by strength in new non-furniture and furniture product introductions and a strong retail performance.

Previous wording

The Williams Sonoma brand saw brand comp growth of 5.1% in the second quarter of fiscal 2025 with strength in the brand's kitchen business driven by electrics, cookware and housewares, as well as through exclusive partnerships, partially offset by reduced furniture sales in the brand's home business.

Current wording

The Williams Sonoma brand saw brand comp growth of 7.3% in the third quarter of fiscal 2025 with strength in the brand's kitchen business driven by electrics and cookware as well as a strong retail performance.

Previous wording

For the second quarter of fiscal 2025, diluted earnings per share grew by 19.8% to $2.00, compared to $1.67 in the second quarter of fiscal 2024.

Current wording

For the third quarter of fiscal 2025, diluted earnings per share grew by 4.8% to $1.96, compared to $1.87 in the third quarter of fiscal 2024.

Previous wording

As of August 3, 2025, we had $985.8 million in cash and cash equivalents and generated operating cash flow of $401.7 million in the first half of fiscal 2025. In addition to our cash balance, we also ended the second quarter of fiscal 2025 with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business, invest $110.3 million in capital expenditures and return $445.1 million through stock repurchases and dividends to stockholders in the first half of fiscal 2025.

Current wording

As of November 2, 2025, we had $884.7 million in cash and cash equivalents and generated operating cash flow of $718.0 million in the first thirty-nine weeks of fiscal 2025. In addition to our cash balance, we also ended the third quarter of fiscal 2025 with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business, invest $178.5 million in capital expenditures and return $792.3 million through stock repurchases and dividends to stockholders in the first thirty-nine weeks of fiscal 2025.

Previous wording

Subsequent to the filing of our fiscal 2023 Form 10-K, in April 2024, we determined that we over-recognized freight expense in fiscal 2021, 2022 and 2023 for a cumulative amount of $49.0 million. We evaluated the error, both qualitatively and quantitatively, and determined that no prior interim or annual periods were materially misstated. We then evaluated whether the cumulative amount of the over-accrual was material to our projected fiscal 2024 results, and determined the cumulative amount was not material. Therefore, the Condensed Consolidated Financial Statements for the twenty-six weeks ended July 28, 2024 include an out-of-period adjustment of $49.0 million, recorded in the first quarter of fiscal 2024, to reduce cost of goods sold and accounts payable, which corrected the cumulative error on the Consolidated Balance Sheet as of January 28, 2024.

Current wording

Subsequent to the filing of our fiscal 2023 Form 10-K, in April 2024, we determined that we over-recognized freight expense in fiscal 2021, 2022 and 2023 for a cumulative amount of $49.0 million. We evaluated the error, both qualitatively and quantitatively, and determined that no prior interim or annual periods were materially misstated. We then evaluated whether the cumulative amount of the over-accrual was material to our projected fiscal 2024 results, and determined the cumulative amount was not material. Therefore, the Condensed Consolidated Financial Statements for the thirty-nine weeks ended October 27, 2024 include an out-of-period adjustment of $49.0 million, recorded in the first quarter of fiscal 2024, to reduce cost of goods sold and accounts payable, which corrected the cumulative error on the Consolidated Balance Sheet as of January 28, 2024.

Previous wording

As we look forward to the balance of the year, our focus will remain on our three key priorities of (i) returning to growth, (ii) elevating our world-class customer service and (iii) driving earnings. We believe these key priorities will set us apart from our competition and allow us to drive long-term growth and profitability. We believe we have a powerful portfolio of brands, serving a range of categories, aesthetics, and life stages and we have built a strong omni-channel platform and infrastructure, which will position us well for the next stage of growth. However, the current uncertain macroeconomic environment, including the evolving tariff and trade policy landscape, a weak housing market, elevated interest rates, layoffs, inflationary pressure, economic uncertainty and global geopolitical instability could negatively impact our business. Since the end of the first quarter of fiscal 2025, the tariff environment has materially evolved. Specifically, our incremental tariff rate has doubled from 14% to 28% since we filed our previous Quarterly Report on Form 10-Q for the thirteen weeks ended May 4, 2025. These tariffs, as well as any future tariffs, are expected to result in increased cost for imported materials and finished goods. While we believe that we can offset a portion of these costs, we do not expect to be able to offset all the additional costs. Our inability to minimize the impact of tariffs on our products, increase prices or find alternative sources for our products may have a material impact on our earnings. For information on risks, please see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 2, 2025.

Current wording

We remain focused on our three key priorities of (i) returning to growth, (ii) elevating our world-class customer service and (iii) driving earnings. We believe these key priorities will set us apart from our competition and allow us to drive long-term growth and profitability. We believe we have a powerful portfolio of brands, serving a range of categories, aesthetics, and life stages and we have built a strong omni-channel platform and infrastructure, which will position us well for the next stage of growth. However, the current uncertain macroeconomic environment, including the evolving tariff and trade policy landscape, a weak housing market, elevated interest rates, layoffs, inflationary pressure, economic uncertainty and global geopolitical instability could negatively impact our business. Since the end of the first quarter of fiscal 2025, the tariff environment has materially evolved. Specifically, our incremental tariff rate has more than doubled from 14% in May 2025 to 29% as of this Quarterly Report on Form 10-Q. These tariffs, as well as any future tariffs, are expected to result in increased cost for imported materials and finished goods. While we believe that we can offset a portion of these costs, we may not be able to offset all the additional costs. Our inability to minimize the impact of tariffs on our products, increase prices or find alternative sources for our products may have a material impact on our earnings. For information on risks, please see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 2, 2025.

Previous wording

Net revenues in the first half of fiscal 2025 increased by $118.2 million, or 3.4%, with company comp growth of 3.6%. This was driven by strong furniture and non-furniture sales, including new product introductions and collaborations as well as higher full-price selling. From a channel perspective, the company comp growth of 3.6% was driven by comp growth of 6.8% in our retail channel and comp growth of 2.0% in our e-commerce channel. Both channels benefited from improved in-stock inventory levels.

Current wording

Net revenues in the first thirty-nine weeks of fiscal 2025 increased by $200.4 million, or 3.8%, with company comp growth of 3.7%. This was driven by strong non-furniture and furniture sales, including new product introductions and collaborations, as well as higher full-price selling. From a channel perspective, the company comp growth of 3.7% was driven by comp growth of 7.4% in our retail channel and comp growth of 2.0% in our e-commerce channel. Both channels benefited from improved in-stock inventory levels.

Previous wording

Gross profit is equal to our net revenues less cost of goods sold. Cost of goods sold includes (i) cost of goods, which consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage; (ii) occupancy expenses, which consists of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation; and (iii) shipping costs, which consists of third-party delivery services and shipping materials.

Current wording

Gross profit is equal to our net revenues less cost of goods sold. Cost of goods sold includes (i) cost of goods, which consists of cost of merchandise, inbound freight expenses, freight-to-store expenses, tariff expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage, (ii) occupancy expenses, which consists of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation, and (iii) shipping costs, which consists of third-party delivery services and shipping materials.

Previous wording

1 Includes occupancy expenses of $201.4 million and $197.2 million for the second quarter of fiscal 2025 and fiscal 2024, respectively, and $399.0 million and $393.4 million for the first half of fiscal 2025 and fiscal 2024, respectively.

Current wording

1 Includes occupancy expenses of $206.5 million and $195.0 million for the third quarter of fiscal 2025 and fiscal 2024, respectively, and $605.6 million and $588.3 million for the first thirty-nine weeks of fiscal 2025 and fiscal 2024, respectively.

Previous wording

Gross profit increased $60.7 million, or 7.5%, compared to the second quarter of fiscal 2024. Gross margin increased to 47.1% from 44.9% in the second quarter of fiscal 2024. This increase in gross margin of 220 basis points was driven by (i) higher merchandise margins of 190 basis points due to select price increases and higher full-price selling and (ii) supply chain efficiencies of 30 basis points, including reductions in returns, damages, outbound shipping expense and accommodations. The occupancy rate was flat compared to the second quarter of fiscal 2024.

Current wording

Gross profit increased $50.2 million, or 6.1%, compared to the third quarter of fiscal 2024. Gross margin increased to 46.1% from 45.4% in the third quarter of fiscal 2024. This increase in gross margin of 70 basis points was primarily driven by higher merchandise margins of 60 basis points due to (i) the flow-through of tariffs into cost of goods sold being slower than anticipated due to delayed tariff effective dates, (ii) results from our tariff mitigation plan, including select price increases, and (iii) lower inbound transportation costs. Additionally, supply chain efficiencies contributed 30 basis points, including reductions in outbound shipping expense, damages, replacements and accommodations. These improvements were partially offset by higher occupancy costs of 20 basis points due to our retail outperformance and the higher occupancy costs in that channel.

Previous wording

Gross profit increased $31.3 million, or 2.0%, compared to the first half of fiscal 2024. Gross margin decreased to 45.7% from 46.4% in the first half of fiscal 2024. This decrease in gross margin of 70 basis points was driven by (i) the out-of-period freight adjustment in the first quarter of fiscal 2024 of 140 basis points and (ii) lower merchandise margins of 10 basis points, partially offset by (iii) supply chain efficiencies of 60 basis points, including reductions in returns, accommodations, damages and replacements and (iv) the leverage of occupancy costs of 20 basis points resulting from higher sales.

Current wording

Gross profit increased $81.5 million, or 3.4%, compared to the first thirty-nine weeks of fiscal 2024. Gross margin decreased to 45.8% from 46.0% in the first thirty-nine weeks of fiscal 2024. This decrease in gross margin of 20 basis points was driven by (i) the out-of-period freight adjustment in the first quarter of fiscal 2024 of 90 basis points, partially offset by (ii) supply chain efficiencies of 40 basis points, including reductions in damages, replacements and accommodations, (iii) higher merchandise margins of 20 basis points, and (iv) the leverage of occupancy costs of 10 basis points resulting from higher sales.

Previous wording

SG&A increased $10.5 million, or 2.0%, compared to the second quarter of fiscal 2024. SG&A as a percentage of net revenues decreased to 29.2% from 29.4% in the second quarter of fiscal 2024. This leverage of 20 basis points was primarily driven by (i) lower advertising expenses of 80 basis points and (ii) lower general expenses of 40 basis points, partially offset by (iii) an increase in employment expense of 100 basis points due to higher performance-based incentive compensation.

Current wording

SG&A increased $36.1 million, or 7.0%, compared to the third quarter of fiscal 2024. SG&A as a percentage of net revenues increased to 29.1% from 28.5% in the third quarter of fiscal 2024. This increase of 60 basis points was primarily driven by (i) an increase in employment expense of 50 basis points due to higher performance-based incentive compensation and (ii) an increase in advertising expenses of 20 basis points, partially offset by (iii) general expense leverage of 10 basis points.

Previous wording

SG&A increased $7.6 million, or 0.8%, compared to the first half of fiscal 2024. SG&A as a percentage of net revenues decreased to 28.4% from 29.1% in the first half of fiscal 2024. This leverage of 70 basis points was primarily driven by (i) lower advertising expenses of 70 basis points and (ii) lower general expenses of 30 basis points, partially offset by (iii) an increase in employment expense of 30 basis points due to higher performance-based incentive compensation.

Current wording

SG&A increased $43.6 million, or 2.9%, compared to the first thirty-nine weeks of fiscal 2024. SG&A as a percentage of net revenues decreased to 28.6% from 28.9% in the first thirty-nine weeks of fiscal 2024. This leverage of 30 basis points was primarily driven by (i) lower advertising expenses of 40 basis points and (ii) lower general expenses of 20 basis points, partially offset by (iii) an increase in employment expense of 30 basis points due to higher performance-based incentive compensation.

Previous wording

The effective tax rate was 24.9% for the first half of fiscal 2025, compared to 23.8% for the first half of fiscal 2024. The increase was primarily driven by (i) lower excess tax benefit from stock-based compensation in the first half of fiscal 2025 and (ii) the tax effect of the change in earnings mix.

Current wording

The effective tax rate was 25.4% for the first thirty-nine weeks of fiscal 2025, compared to 24.2% for the first thirty-nine weeks of fiscal 2024. The increase was primarily driven by (i) lower excess tax benefit from stock-based compensation in the first thirty-nine weeks of fiscal 2025, (ii) the tax effect of the change in earnings mix and (iii) the tax benefit of state amended returns filed in fiscal 2024.

Previous wording

Since the Organization for Economic Co-operation and Development (“OECD”) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“Framework”) in 2021, a number of countries have begun to enact legislation to implement the OECD international tax framework, including the Pillar Two minimum tax regime. Our subsidiaries were not subject to Pillar Two minimum tax in the first half of fiscal 2025. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, and monitoring legislative developments by other countries, especially in the regions in which we operate.

Current wording

Since the Organization for Economic Co-operation and Development (“OECD”) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“Framework”) in 2021, a number of countries have begun to enact legislation to implement the OECD international tax framework, including the Pillar Two minimum tax regime. Our subsidiaries were not subject to Pillar Two minimum tax in the first thirty-nine weeks of fiscal 2025. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, and monitoring legislative developments by other countries, especially in the regions in which we operate.

Previous wording

For the remainder of fiscal 2025, we plan to use our cash resources to fund our inventory purchases, employment-related costs, advertising and marketing initiatives, dividend payments, capital expenditures, stock repurchases, rental payments on our leases and the payment of income taxes.

Current wording

For the remainder of fiscal 2025, we plan to use our cash resources to fund our inventory purchases, employment-related costs, advertising and marketing initiatives, rental payments on our leases, capital expenditures, dividend payments, stock repurchases, and the payment of income taxes.

Previous wording

As of August 3, 2025, we held $985.8 million in cash and cash equivalents, the majority of which was held in money market funds and interest-bearing demand deposit accounts, and of which $66.9 million was held by our international subsidiaries. Consistent with our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.

Current wording

As of November 2, 2025, we held $884.7 million in cash and cash equivalents, the majority of which was held in money market funds and interest-bearing demand deposit accounts, and of which $64.2 million was held by our international subsidiaries. Consistent with our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.

Previous wording

During the thirteen and twenty-six weeks ended August 3, 2025 and July 28, 2024, we had no borrowings under our Credit Facility. Additionally, as of August 3, 2025, issued but undrawn standby letters of credit of $11.9 million were outstanding under our Credit Facility. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.

Current wording

During the thirteen and thirty-nine weeks ended November 2, 2025 and October 27, 2024, we had no borrowings under our Credit Facility. Additionally, as of November 2, 2025, issued but undrawn standby letters of credit of $12.0 million were outstanding under our Credit Facility. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.

Previous wording

We have three unsecured letter of credit facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio. As of August 3, 2025, the aggregate amount outstanding under our letter of credit facilities was $0.8 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 7, 2025, we renewed two of our letter of credit facilities totaling $30 million on substantially similar terms. The two letter of credit facilities mature on August 18, 2026, and the latest expiration date possible for future letters of credit issued under these facilities is January 15, 2027. One of the letter of credit facilities totaling $5 million matures on June 26, 2030, which is also the latest expiration date possible for future letters of credit issued under the facility.

Current wording

We have three unsecured letter of credit facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio. As of November 2, 2025, the aggregate amount outstanding under our letter of credit facilities was $0.6 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 7, 2025, we renewed two of our letter of credit facilities totaling $30 million on substantially similar terms. The two letter of credit facilities mature on August 18, 2026, and the latest expiration date possible for future letters of credit issued under these facilities is January 15, 2027. One of the letter of credit facilities totaling $5 million matures on June 26, 2030, which is also the latest expiration date possible for future letters of credit issued under the facility.

Previous wording

For the first half of fiscal 2025, net cash provided by operating activities was $401.7 million compared to $473.3 million for the first half of fiscal 2024, and was primarily attributable to net earnings adjusted for non-cash items, partially offset by higher spending on merchandise inventories (as a result of increased tariff costs and timing of receipts) and a decrease in accrued expenses and other liabilities. Net cash provided by operating activities compared to the first half of fiscal 2024 decreased primarily due to higher spending on merchandise inventories, partially offset by an increase in income taxes payable.

Current wording

For the first thirty-nine weeks of fiscal 2025, net cash provided by operating activities was $718.0 million compared to $726.7 million for the first thirty-nine weeks of fiscal 2024, and was primarily attributable to net earnings adjusted for non-cash items, partially offset by higher spending on merchandise inventories (as a result of increased tariff costs and timing of receipts). Net cash provided by operating activities compared to the first thirty-nine weeks of fiscal 2024 decreased primarily due to higher spending on merchandise inventories, partially offset by an increase in income taxes payable.

Previous wording

For the first half of fiscal 2025, net cash used in investing activities was $111.5 million compared to $71.0 million for the first half of fiscal 2024, and was primarily attributable to purchases of property and equipment related to technology, store construction and supply chain enhancements.

Current wording

For the first thirty-nine weeks of fiscal 2025, net cash used in investing activities was $179.7 million compared to $154.0 million for the first thirty-nine weeks of fiscal 2024, and was primarily attributable to purchases of property and equipment related to technology, store construction and supply chain enhancements.

Previous wording

For the first half of fiscal 2025, net cash used in financing activities was $521.1 million compared to $398.2 million for the first half of fiscal 2024, primarily driven by repurchases of our common stock, payment of dividends and tax withholdings remittance related to stock-based awards. Net cash used in financing activities for the first half of fiscal 2025 increased compared to the first half of fiscal 2024, primarily due to an increase in repurchases of our common stock.

Current wording

For the first thirty-nine weeks of fiscal 2025, net cash used in financing activities was $870.1 million compared to $1.0 billion for the first thirty-nine weeks of fiscal 2024, primarily driven by repurchases of our common stock, payment of dividends and remittance of tax withholdings related to stock-based awards. Net cash used in financing activities for the first thirty-nine weeks of fiscal 2025 decreased compared to the first thirty-nine weeks of fiscal 2024, due to a decrease in repurchases of our common stock.

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates. During the second quarter of fiscal 2025, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2025.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates. During the third quarter of fiscal 2025, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2025.