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Text: Although we believe these statements reflect our best estimates and all available information, we cannot make any assurances that these statements will materialize, and actual results may differ significantly from our expectations.
The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call.
Additionally, we will refer to certain non-GAAP financial measures.
These measures should not be considered replacements for and should be read together with our GAAP results.
We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points.
These results reflect the resilience in our business model as we successfully navigated unprecedented challenges within the supply chain, material and labor shortage and capacity limitations from our incredible consumer demand.
This resilience, coupled with continued execution in our growth initiatives, fueled an annual comp of 22%, operating margin expansion of 350 basis points, and earnings per share growth of 64% to $14.85 per share.
Our three key differentiators, our in-house design, our digital-first channel strategy, and our values, continue to provide the framework for execution both in our core business and in our growth areas like B2B, marketplace, cross-brands, and our global business, which excitingly have all gained traction faster than predicted and demonstrate to us that we are well-positioned to continue to take share in this industry.
First, let's spend some time on our top-line performance in the fourth quarter.
Throughout fiscal 2021, we continued a deliberate reduction in our sitewide promotional cadence in all of our brands.
Instead, we shifted our focus on delivering aspirational and inspirational content, and our customers clearly responded.
This pricing power is entirely a function of our differentiated and sustainable product offering that our customers know and love.
And further, despite the highly promotional environment in the fourth quarter, we made a conscious decision to maintain this pricing integrity and not pursue incremental top line at the cost of our merchandise margins.
In fact, we delivered gross margin expansion of 290 basis points in the quarter.
Further, this pricing power has allowed us the flexibility to absorb supply chain costs and aggressively fund marketing efforts.
Our bottom-line performance in the fourth quarter speaks for itself.
We drove operating margin of 21% and a 37% increase in EPS, both of which demonstrate the durability of our earnings power through execution in our core and growth initiatives, which I'm excited to update you on now.
Our B2B business continues to outperform, building its book of business to $753 million in 2021.
B2B is an underserved and fractured industry as we continue to take share in this white space, servicing businesses that need high-quality, sustainable furnishings at good price points.
Furthermore, our in-house design capabilities offering the wide breadth of aesthetics across our brands, coupled with our industry-leading global sourcing and supply chain operations, allows us to take this service to the next level.
Our B2B business has tremendous potential to contribute to our results.
Our growth targets continue to climb as we unlock new opportunities.
And not only is our B2B business model accretive to our gross margin but even more accretive to op margin as a result of the fixed operating costs.
We continue to exceed our own expectations for this business.
And longer term, we believe this is one of our biggest opportunities.
Another contributor to our success has been our global strategy.
We're franchise first with strong retail and digital execution.
During 2021, global achieved record revenue up 23% over last year with strong earnings growth.
Core company-owned markets of Canada and U.K. achieved record results for the year and the quarter.
Franchise continues to be a growth vehicle with the critical markets of the Middle East, Mexico, and India providing a large diverse growth base.
With our systems investment in our new digital platform and large cost reductions in warehousing, transportation, and delivery, we expect to exceed our record results in 2022.
Marketing is another component that sets us apart and drove results in FY '21.
Customers who shop across our brands generate three to four times more revenue than the single brand customer.
And we've seen incredible results this past year due to our continued marketing efforts.
In fiscal '21, approximately 60% of our sales came from cross-brand customers, a record high in terms of percent to total.
And our cross-brand customer counts grew faster than those of the single-brand customer.
While new customer acquisition is always a priority and continues to grow, we believe we have even more upside by increasing our share of wallet with our existing customer base.
Core to this strategy are three things.
First, our cross-brand loyalty program, The Key.
We continue to see record levels of customer engagement and an all-time high membership.
Second, our recently launched cross-brand credit card.
This card reached its six-month anniversary, producing cardholder spend and cross-brand activity that has exceeded our expectations.
And third, we are focused on personalization efforts in our digital marketing.
We continue to leverage our in-house managed first-party data across our brands, which positions us for the cookieless future that is rapidly approaching.
Remember, our multifaceted loyalty program generates benefits across our portfolio and is a clear competitive advantage a few of our peers offer.
As a digital-first company, we are in constant pursuit of incremental improvement to our customers' shopping journey online.
We've improved several product finding and purchasing experiences on our website, from improved room styling, native registry applications, and the removal of friction in the checkout process.
Additionally, we relentlessly focus on continued optimization and automation in our DCs and logistics networks to improve our service time.
On the sustainability front, we take great pride in the progress we are making with our impact initiatives and ESG leadership across the home furnishings industry.
Notable accomplishments in this quarter included our second annual inclusion in Bloomberg's Gender-Equality Index, being recognized as No.
21 on Barron's 100 Most Sustainable Companies, and receiving an A rating from CDP for leadership in supplier engagement and our work with suppliers on tackling climate change.
These commitments are reflected in the high-quality sustainable products that we offer our customers and continue to distinguish our company and our brands.
Our values are both central in our actions and embedded in our products.
We always want to provide our customers with transparency.
And each day, we commit ourselves to maintaining the highest level of integrity and ethical standards.
We are deeply saddened by the war in Ukraine, and we stand with Ukrainians and all people who oppose war and its atrocities on family and the home.
Related to product and business with Russia, we have no operations in Russia.
And as the situation between Russia and Ukraine escalated, our team identified a handful of products of Russian origin, which we are no longer selling.
And now let's turn to the performance of our brands.
West Elm delivered an 18.3% comp in the fourth quarter with all categories driving strong growth.
Customers responded well to new products, including best-sellers in bedroom, dining, storage, and occasional categories.
Additionally, new categories such as bath, kids, and kitchen also contributed to incremental growth.
On the full year, West Elm delivered a comp of 33.1%, building to a 48.3% on a two-year basis and continuing to build velocity in its mission to become a $3 billion brand.
Pottery Barn delivered another high-performance quarter with a 16.2% comp, driven by strong core franchises in key categories.
Q4 results were enhanced by a strong seasonal decorating business and inspiring seasonal bedding and entertaining.
On the full year, Pottery Barn celebrated a record year with a comp of 23.9%, building to a 39.1% on a two-year basis.
Also, we're delighted to report that Pottery Barn has surpassed the halfway mark on its commitment to plant 3 million trees in three years to restore vulnerable forests.
Our partner, Arbor Foundation, follows the best practices and the latest science to ensure maximum impact and promote biodiversity.
And even better, based on the tremendous success of this program, our other brands have joined the effort, doubling our commitment to planting 6 million trees by 2023.
We couple this with commitments to responsibly harvest wood and a robust sustainability story.
Now I'd like to talk about Pottery Barn Kids and Teen.
As we indicated during our third quarter call, we were not entirely immune to the ripple effect from delays resulting from the supply chain disruption around the world.
In particular, the shutdown in related backlogs from Vietnam had a larger impact on our children's home furnishings business, which ran a negative 6.1% comp for the quarter.
Unfortunately, we expect to feel this impact at least through the second quarter this year.
Despite the supply chain pressure, strength in the business includes our baby business, which is delivering growth through our offering of GREENGUARD Gold furniture, along with additional volume from our in-store and online baby registry.
Also, we delivered record results in our seasonal trim business as customers enjoy the holidays.
Pottery Barn Kids and Teen delivered a full year comp of 11.6%, building to a 28.2% on a two-year basis.
Our Williams-Sonoma business drove a fourth quarter comp of 4.5% on top of a 26.2% comp last year, with growth driven by demand for entertaining at home and gift-giving.
We continue to focus our strategy on expanding our exclusive product and Williams-Sonoma branded product to drive growth.
We are pleased with improvements in the digital experience on the website that are driving conversion, and our store optimization strategy is working.
Our high-impact store remodels and our market consolidation efforts are driving improved operating margins.
On the full year, Williams-Sonoma delivered a comp of 10.5%, building to a 34.3% on a two-year basis.
One of our key components of growth is our Williams-Sonoma Home business.
Given the strength of the Williams-Sonoma brand name, our expertise in the furniture category, and the clear opportunity in the high-end home market, we believe that Williams-Sonoma Home is one of our biggest growth opportunities.
In summary, we're immensely proud of our accomplishments and record results this fiscal year.
I am confident that we will continue to raise the bar and extend this momentum in fiscal 2022.
So far, in the first quarter, we continue to see strong sales and margins.
We have a robust lineup of growth initiatives and operational improvements planned for this year.
And as we look further, we are confident in our long-term outlook, driving at least mid- to high single-digit comps with top-line growth to $10 billion by 2024 and operating margins relatively in line with fiscal 2021.
I'm endlessly grateful for their outstanding work, their creative energy, and their relentless focus.
I am privileged to work alongside this talented group of people.
We are pleased to report another quarter and fiscal year of outstanding financial results with revenues and profits at the highest levels we have seen.
The demand for our proprietary products remains strong.
Our growth strategies continue to thrive.
Our operating model, which is difficult to replicate, continues to set us apart from the competition.
And all of these, plus our proven ability to dynamically operate in a complex macro environment, continues to demonstrate that we are well-positioned to succeed long term in this industry.
Moving to our fourth quarter results in more detail.
Net revenues surpassed $2.5 billion with another quarter of double-digit comparable brand revenue growth at 10.8%.
These strong top-line results were across both channels, including retail at a 20% comp and e-commerce at a 7.2% comp on top of last year's 47.9% for a 55.1% two-year stack.
By brand, West Elm delivered an 18.3% comp on top of 25.2% last year.
Pottery Barn accelerated from the third quarter to a 16.2% comp.
Williams-Sonoma drove a 4.5% comp on top of last year's 26.2%.
And our emerging brands accelerated to a 30.3% comp.
In the children's home furnishings businesses, Pottery Barn Kids and Teen, comps were a negative 6.1%.
This is below their third quarter year-to-date trend of approximately 20% as these brands were the most impacted during the fourth quarter by the supply chain issues from the COVID-related closure of Vietnam.
Moving down the income statement.
Gross margin came in at a record 45%, a 290-basis-point expansion over last year.
The strength of our merchandise margins drove almost all or 270 basis points of this expansion.
Our strategic decision to preserve our pricing integrity by eliminating sitewide promotions was once again a clear success.
This pricing power enabled us to absorb increased freight and product costs while still delivering strong, profitable merchandise sales.
Occupancy costs at 7.7% of net revenues leveraged approximately 20 basis points, resulting from another quarter of higher sales and lower occupancy dollar growth.
Occupancy dollars increased 6.7% to approximately $193 million, which includes a full quarter of incremental costs from our new East Coast distribution center to further support our customer demand, partially offset by our ongoing retail optimization efforts from additional store closures and reduced rent.
In fiscal year '21, we closed an additional 37 stores and are on track to close approximately 25% of our total retail fleet.
SG&A also leveraged 20 basis points to a historical low of 24% despite absorbing higher year-over-year advertising costs from our reduced spend last year.
Leverage was driven by employment and general expenses, which includes lower incentive compensation during the quarter due to timing and the year-over-year benefit from our ongoing retail recovery, various operational efficiencies during the holiday season, and overall strong financial discipline throughout.
As a result, we delivered another quarter of record profitability with operating income growth of 28% to $525 million and our highest ever operating margin at 21%, expanding 310 basis points over last year and approximately 500 basis points higher than our last three quarters this year.
This resulted in diluted earnings per share of $5.42, up 37% from last year's record fourth quarter earnings per share of $3.95.
These fourth quarter results, combined with our outperformance we have seen throughout 2021, allowed us to deliver another year of substantial growth and outperformance.
On the top line, these full year highlights include an additional $1.5 billion in net revenues, growing to over $8.2 billion, including comparable brand revenue growth of 22% on top of last year's 17% or a 39% two-year stack; e-commerce growing to a 14.3% comp and a 58.8% two-year comp with our e-commerce mix at 66% of total revenues; retail growing at a 43.2% comp despite traffic levels at negative 16% to 2019; a second consecutive year of double-digit growth across all brands with significant acceleration across our two largest brands, with West Elm at a 33.1% comp, Pottery Barn at a 23.9% comp, Williams-Sonoma at a 10.5% comp on top of last year's 23.8%; our emerging brands, Rejuvenation and Mark and Graham combined, delivering another year of accelerating double-digit growth; our global business growing 23% to over $425 million; and our cross-brand initiatives outperforming with our business-to-business division growing 109% to over $750 million in demand and contributing approximately 500 basis points to our total company comp.
On the bottom line, this top-line strength and strong financial discipline throughout enabled us to grow 2021 operating income to $1.5 billion, over $0.5 billion and 52% higher than last year.
Operating margin at 17.7% on the year expanded 350 basis points over last year and was more than two times higher than our 2019 and prior operating margin levels.
This was driven by gross margins expanding to record levels or 500 basis points above last year to 44% despite increased costs associated with supply chain disruptions throughout the year.
This operating income strength resulted in earnings per share of $14.85, which was $5.81 or 64% above last year and drove our return on invested capital to an all-time high at 57.9%.
On the balance sheet, we ended the year with strong liquidity levels with a cash balance of $850 million and no debt or amounts outstanding on our line of credit.
The strength of our business generated operating cash flow of almost $1.4 billion during fiscal year 2021, which has allowed us to fund the operations of the business, to invest over $225 million in capital expenditures primarily in technology and supply chain, and to return nearly $1.1 billion to shareholders in the form of $188 million in dividends and 900 million in share repurchases.
These decisions reflect our confidence in the sustainability of our growth and our commitment to maximizing returns for our shareholders.
Moving down the balance sheet.
Merchandise inventories were $1.246 billion, increasing 24% over last year, which includes inventory in transit.
Inventory on hand increased 14.8% but was still negative 13% on a two-year basis.
Given the significant macro supply chain disruptions throughout the year and the ongoing strong customer demand, we are still below optimal levels.
As a result, we expect to see elevated back-order levels continue until the back half of 2022.
Now let me turn to our expectations for the future.
As Laura said, we remain very optimistic in the long-term outlook of the business.
Our business remains strong as we enter Q1 with momentum in our core businesses and our growth initiatives continuing.
As a result, for both fiscal year 2022 and beyond, we are reiterating our previously provided financial outlook of mid- to high single-digit comp growth with operating margins relatively in line with fiscal year 2021.
We estimate revenues will reach $10 billion by fiscal year 2024, with our brands accelerating or reaching our prior committed targets faster, including Pottery Barn expanding to $3.5 billion in revenues; West Elm adding $1 billion in revenues to over $3.3 billion; Williams-Sonoma will reach almost $1.6 billion in revenues, and our Pottery Barn Kids and Teen businesses will grow to $1.4 billion.
This expected top-line growth will also be fueled by growth across our strategic initiatives, such as our B2B business doubling to $1.5 billion in revenues, our marketplace business growing 20% annually to nearly $700 million, our emerging brands expanding to a combined revenue of over $600 million, and our global operations continuing to expand in size to $700 million.
And we are confident we can drive this top-line growth profitably due to leverage across the P&L from ongoing higher sales growth; additional accretion from our accelerating growth initiatives that have a higher operating margin profile; an accelerating shift online where the operating margin is higher; strong merchandise margins from the pricing power our proprietary and vertically integrated products provide; continued occupancy leverage from further store closures and reduced rents; various long-term supply chain efficiencies, such as automation and better in-stock inventory levels; and leverage from overall strong financial discipline throughout, keeping expense growth below sales growth.
Our capital-allocation plans for 2022 will continue to first prioritize investments into the business and then return excess cash to our shareholders.
We expect to invest approximately $350 million in the business, with over 80% of the spend prioritized on technology and supply chain initiatives primarily to support e-commerce, including the addition of a new automated distribution center in Arizona.
We also expect to return excess cash to our shareholders in the form of increased quarterly dividend payouts and elevated share repurchases.
For dividends, we announced earlier today another double-digit increase in our quarterly dividend, up 10% or $0.07 to $0.78 per share.
We also announced our Board has approved a new share repurchase authorization to $1.5 billion, which will replace the remaining amount outstanding under our prior authorization.
We continue to believe that our stock price remains undervalued given our projections for growth and profitability.
This new authorization will allow us the flexibility to opportunistically invest in our own stock and drive long-term financial returns.
As we begin our next fiscal year, our focus remains on executing against our opportunities to drive long-term elevated top and bottom-line growth.
We believe we are uniquely positioned to continue to take market share and profitably.
Long-term macro trends should continue to favor our business, including a strong housing market driving ongoing investment in the home, an accelerating shift to e-commerce, and the increasing importance to the consumer of sustainability and being a values-driven company.
And this, combined with our accelerating growth initiatives, our strong operating cash flow and liquidity and a proven track record of strong financial discipline give us the confidence to reiterate our accelerated long-term growth and profitability outlook and to drive strong financial returns for our shareholders.
It is their ongoing commitment that has enabled us to deliver another year of financial outperformance and to reward all of our stakeholders.

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q4 comparable brand revenue growth of 10.8%.
qtrly non-gaap earnings per share of $5.42.
qtrly net revenue $2.5 billion versus $2.29 billion.

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