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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 different 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 the 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 extremely proud to deliver yet another quarter of outperformance with comps of 16.9%, building to an accelerated two-year stack of 41.3% and operating margin expansion of 60 basis points.
These results are a function of both the advantages of our distinctive positioning in the market and our successful execution against our long-term growth strategy.
Furthermore, our performance demonstrates that we continue to take share in a fractured market and deliver high-quality, sustainable earnings.
As a result, we are raising our full year outlook to reflect revenue growth of 22% to 23% and operating margins of 16.9% to 17.1%.
Customers are clearly responding to our products and channel strategies, and we expect to drive an outstanding finish to the year and beyond.
On the macro front, the industry remains large and fragmented, with more than half of its sales generated from smaller brick-and-mortar retailers.
We are one of the strongest market players and have incredible opportunity to capture more of an almost $1 trillion market opportunity.
We are at a pivotal point of change, both in the way we live and work, and we will intensely focus on our unique ability to capitalize on this change and, in turn, capture market share.
The housing market continues to hold strong with purchases of larger first and second homes.
Additionally, hybrid work arrangements continue to gain traction as a permanent work model.
Both of these trends result in a stronger need and desire to outfit the home for working, entertaining, and cooking.
In addition, another large point of disruption is the shift of the consumers to make purchases online.
Certain factors continue to bolster the shift in behavior, including the lasting impact of the stay-at-home dynamics of the pandemic and the entrance of the millennial generation into their home formation years, a customer segment who naturally gravitates toward digital purchasing.
In an industry occupied by market players who have not yet made significant investment in their e-commerce capabilities and pure e-commerce players without the service element of our retail business, we believe we are uniquely positioned to benefit from this trend as a digital first, but not digital-only company.
Our incredible store shopping experience satisfies our cross-channel customers who shop both online and in-store.
Our customers continue to place importance on and in many instances, demands the prioritization of sustainability.
In fact, almost 70% of consumers today want to support brands that are purpose-driven and doing good in the world we share.
Our company is committed to being a value-led, sustainable company and is proud to be a leader in the home furnishing industry.
In short, the fragmented industry, the strong housing market, the shift of the consumer online, and the consumer demand for sustainability provide specific unique and sizable opportunities for our company to continue to grow.
And these macro trends are a perfect fit with our key differentiators.
Our in-house design capabilities, along with our depth ability to value engineer our products, allow us to offer exclusive, relevant, and high-quality products.
Our channel strategy provides a competitive edge in scaling the business into the future compared to both the retail and marketplace dominant players.
And of course, our values, which are deeply rooted in sustainability, diversity, equity, and inclusion, are embedded in our products and central in our actions.
These principles have been and will continue to be fundamental and nonnegotiable to the customers and communities we serve.
This, combined with our growth strategies, not only provide for sizable opportunities to grow our core businesses, but also to drive momentum in reaching new customers, geographies, and industries.
This expansion and diversification of our customer base present many exciting opportunities to deliver solutions for underserved spaces and places, from B2B which brings an exciting new customer profile, to our global business which drives expansion across new geographies, to our cross-brand and marketplace opportunities which expands the reach of our current bank and to the expansion of Williams-Sonoma Home, which attends to an underserved, high-end luxury market and has massive future potential for scaling.
We have, in fact, many opportunities to drive our business forward into the next chapter of growth.
Simply put, it's these macro shifts, combined with our key differentiators and our long-term growth prospects that result in us strongly believing in our ability to continue to take market share and deliver earnings well into the future.
Before we talk about Q3, let's take a minute to review the supply chain, which I know is top of mind for all.
It is no surprise that we have been intensely focused on the supply chain bottlenecks around the world.
Like all companies, we are not immune to the ripple effect from these short-term and long-term delays.
I want to share with you our status and the extraordinary accomplishments of the team.
Our upholstery lead times continue to improve and are industry leading as a result of our in-house domestic capabilities.
Our immediate and decisive responsiveness, our strong long-term vendor relationships and our scale have all minimized production and delivery delays relative to our competition.
And as a result, approximately 85% of our holiday receipts have already been received.
And finally, when we have delays, customer service is our priority, which has resulted in declines in escalations, cancellations, and calls into the care center.
All that said, I do want to highlight some important challenges we are facing as a result of this supply chain disruption.
First, as you know, we sourced a sizable amount of inventory out of Vietnam, which was recently shut down for three months.
This country has since reopened but is experiencing significant backlog across factories as they ramp up.
As a result, we are experiencing some inventory delays, particularly in our children's home furnishings businesses.
Second, given the ongoing strong demand we are seeing across our business and the impact of the Vietnam delays, we do not expect full recovery of our inventory levels until the middle of 2022.
Now let's turn to the results of the third quarter, which clearly demonstrates the strength of our business and our ability to execute with all brands outperforming again this quarter.
West Elm delivered a 22.5% comp, with all categories driving strong growth.
The upholstery business was very strong, and customers responded well to new products, including best sellers in bedroom, dining, and occasional categories.
Additionally, new categories such as Bass, Kids and Kitchens, also contributed to incremental growth.
Pottery Barn delivered another high-performance quarter, with a comp of 15.9%, driven by strong growth in all product categories, including our seasonal decorating business.
In addition, we saw strength across our core lifestyle furniture category, our design services, and our furniture advantage growth initiatives such as apartment and our curated marketplace assortments.
Pottery Barn Kids and Teens grew with a comp of 16.9%.
The demand for our GREENGUARD Gold-certified furniture remains strong, emphasizing the importance of both our proprietary design aesthetic and our commitment to sustainability in our customers' buying decisions.
Our baby business continues to accelerate as our customers expand their families and the response to our holiday and gifting offerings was strong with Halloween products driving record results.
Both our exclusive products and WS branded products continued to grow, and we saw strength in key entertaining items.
Operationally, an intensified focus in our key vendor partnerships has allowed us to increase inventory positions in high-demand categories, despite a supply chain-constrained environment.
And we believe the improvements made to our online and store experience yield momentum in the quarter.
Finally, last week, the brand launched a new recipe app and a reserve membership program, both of which provide a new way for our customers to engage with the brand while supporting our ongoing strategic initiative to develop and deploy content distribution.
Our Williams-Sonoma Home business is also accelerating as a result of our strategy to reposition the brand as a premium online furniture destination.
Pottery Barn, we're excited to share that our B2B growth initiative continues to produce record performance with our largest quarter ever, generating over $200 million of sales, nearly double that of last year.
Significant accomplishments of the business include an increase of 44% in new clients over last year, an acceleration of our contract grade lineup as businesses reopen and growth and diversification in our large project pipeline.
The business is also building across industries, capturing additional market share.
This growth initiative continues to outperform, and we see significant opportunity for this business to contribute long term.
In our cross-brand global business, we are focused on expansion, but through a disciplined capital-light brand-enhancing franchise model.
This quarter, we opened our first franchise store in India and rolled out e-commerce capabilities across that country to great success.
As we look forward, we see additional opportunities to lead in digital around the world.
Additionally, our initiatives to promote selling across our brands continue to yield results.
Cross-selling metrics, including total customers and percent of total of customers shopping across brands, are at record levels.
Not surprisingly, the spend of a cross-brand customer is a multiple of that, a single brand shopper, and increasing our share of spend with these customers will have a significant impact on incremental volume for the long term.
We are excited about the many initiatives we have in place to capture this opportunity.
Also in this quarter, we launched our new cross-brand credit card program, where customers can apply for credit, purchase, and earn rewards any of our brands.
This new initiative complements our existing loyalty program for all other tenders.
These two tiers of loyalty programs help us acquire and retain customers irrespective of their method of payment.
The advantage of our loyalty program is twofold.
First, as we previously shared, the multi-brand customers were two to three times more than the single brand customer.
We know we have an opportunity to increase our share of wallet with these customers.
And with our portfolio of complementary brands, this is a tremendous competitive advantage, few, if any, have in our industry.
Second, our loyalty program dramatically enhances the richness of our first-party data.
With almost 70% of our volume derived from e-commerce, we understand the importance of first-party data in the cookie less future that is rapidly approaching.
The loyalty program, along with hundreds of other attributes, in our in-house file is consolidated across our brands and channels, which allows us the ability to aggregate browsing behavior, transactions, demographics, channel preferences, and many other attributes.
This rich first-party data, along with our own in-house advertising expertise, allows us to be prepared and equipped as privacy rules evolve across the digital space.
And finally, I'd like to spend a minute on our impact initiatives.
We are proud to announce that in the third quarter, we raised minimum wages again to at least $15 an hour for all of our employees.
Additionally, we also announced new goals to both expand our purchase of next ethically handcrafted products to 50 million and to nearly double our investments in fair trade certified products to 10 million by 2025.
As the first home furnishings retailer to set significant ESG goals, we continue to lead the industry.
These actions not only positively impact people and communities that make source and distribute our products but also deliver value to our stakeholders, customers, vendors, shareholders, and our communities.
And our unwavering commitment to values is gaining further recognition.
For example, our Pottery Barn renewed program was included in Fast Company's 2021 Innovation By Design Awards.
We are rated top score about the Sustainability Furnishings Council for the fourth year running.
And our MSCI ESG rating was upgraded to AA, driven by our strong commitment to ethical production and our newly announced climate goals, which further distinguishes our company as a leader in sustainability.
As we enter the fourth quarter, we are seeing strong sales and margins continuing.
We are thrilled with our customers' response to our holiday and gifting assortment, and we are ready to drive an outstanding finish to the year.
Our teams are prepared to fulfill record orders leveraging our new technological capabilities and maximizing our digital-first omni advantage to meet the outsized demand we are seeing from our customers.
In summary, with our strong results to date, our winning positioning in the industry and our outperforming growth strategies, we are more confident than ever in the long-term strength of our business into fiscal 2022 and beyond.
We continue to be confident in our outlook of at least mid- to high single-digit comps, accelerating our revenues to 10 billion by 2024, with operating margins at least that of fiscal 2021.
Their talent, energy, and commitment underscore all of the success that we have had.
And with that, I'd like to wish you all a happy holiday season.
We are pleased to report another quarter of record revenues and profitability.
It is clear that our high-quality products and value proposition are resonating with our customers.
Our growth strategies are outperforming, and our operating model is positioned well to continue to deliver revenue growth and profitability into the future.
Our unique operating model has proven to be a competitive advantage and difficult to replicate.
95% of our products are proprietary or exclusive to our brands.
We have a vertically integrated digital first but not digital-only operating model that is nearly 70% e-commerce in an industry that primarily consists of brick-and-mortar or pure e-commerce players, and we are a sustainable and values-led company.
These advantages, along with the macro trends that favor our business, a strong housing market, the permanent adoption of hybrid work, a shift to online purchasing and the demand from customers for values and sustainability in their products are clearly driving our results and will fuel our growth and profitability for the long term.
Turning to our third quarter results in more detail.
Net revenues grew 16% to $2.048 billion, with comparable brand revenue growth of 16.9%, with comps accelerating to 41.3% on a two-year basis.
This strong performance was broad-based across all brands and both channels.
In fact, against tougher compares, our e-commerce business accelerated to over 67% of our total revenues from the second quarter and was our highest two-year comp ever at 64%.
By brand, West Elm delivered a 22.5% comp, taking year-to-date revenues for the brand to over $1.5 billion.
Pottery Barn, our largest brand, drove their fifth consecutive quarter of double-digit comps with a 15.9% comp.
Pottery Barn Kids and Teen grew at a comp of 16.9% and had their highest two-year comp ever.
Williams-Sonoma drove a 7.6% comp accelerating from the second quarter and on top of 30.4% last year.
And our emerging brands, Rejuvenation and Mark and Graham combined continue to drive significant growth at a 26.5% comp, and all brands grew nearly 40% or higher on a two-year basis.
Moving down the income statement.
Gross margin expanded 370 basis points to 43.7%.
Our selling margins drove 280 basis points of this expansion.
And relative to 2019, our selling margins are up 430 basis points, in line with our first half results, despite higher ocean freight costs incurred during the quarter.
These strong margin results reflect our pricing power from our proprietary design products and the advantage of our vertically integrated sourcing and production, which allows us to engineer our product for value and to best navigate through the various macro complexities.
We are pleased to deliver another quarter of strong top line sales and merchandise margin expansion.
Occupancy cost leverage was also a factor in our gross margin expansion, leveraging approximately 90 basis points, resulting from higher sales and low occupancy dollar growth.
Occupancy costs were approximately $183 million, up 5.1% year over year and relatively in line with our second quarter growth.
The year-over-year increase includes a one-time impact from rent true-ups and rent abatements last year, as well as the incremental impact from our new East Coast distribution center, which gives us additional capacity to support our strong customer demand.
We were pleased to see another quarter of occupancy leverage reflecting the strength of our top line and the ongoing success of our retail optimization efforts.
SG&A in the third quarter was in line with the prior quarters at 27.5% of net revenue.
Year over year, SG&A deleveraged 320 basis points, driven by higher advertising spend coming off of our substantially reduced costs in 2020 and our decision to incrementally invest in advertising.
As we have said all year, given our record levels of profitability, we have been strategically and aggressively investing in high ROI advertising to drive new customer acquisition, retention, and top-line growth, which clearly is working.
We continue to see record new customer counts and strong demand, which has benefited our business to date and will continue to drive growth well into the future.
Furthermore, we view it as a competitive advantage to be in a position to increase spend today while the competition may need to pull back to offset incremental supply chain costs.
And despite this expected deleverage, we still delivered SG&A rates near historically low pre-pandemic levels and another quarter of record profitability.
Operating income grew to a record $333 million, resulting in an operating margin of 16.3%, expanding 60 basis points over last year.
This resulted in diluted earnings per share of $3.32, up 30% from last year's record third quarter of $2.56 per diluted share.
Put these results in context, we have not seen our performance weighing all year despite any shifts in the consumer wallet as the world reopens and being up against accelerating tougher year-over-year comparison.
In fact, year to date, we are tracking to a 28% comp or 41% on a two-year basis, with 400 basis points of operating margin expansion at a 16.3% operating margin and over 85% growth in earnings.
Turning to the balance sheet.
We ended the quarter with strong liquidity levels and a cash balance of almost $660 million.
The strength of our business has generated operating cash flow of almost $790 million year to date, which is approximately $60 million over last year's elevated cash flow levels.
This cash flow strength has allowed us to fund the operations of the business to invest over $140 million in capital expenditures and to return almost $790 million to our shareholders in the form of over $135 million in dividends and over $650 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, which includes inventory and transit, were $1.272 billion, representing an increase of 13% over last year.
Inventory on hand and available for sale was up 3% year over year.
While that is an improvement from where we were in the second quarter, our inventory levels are still not aligned with demand and are below optimal levels.
Our back-order levels continue to be at record highs, driven by our strong demand and the supply chain disruptions that unfortunately continue to delay our order fulfillment, including the most recent delays out of Vietnam.
As Laura mentioned, our phenomenal team and their aggressive actions, combined with our scale, has enabled us to navigate through these challenges better than others.
And given our ongoing strong demand, we expect a return to more normalized inventory levels by mid-2022, with back-order levels remaining elevated into the first half of 2022.
Now let's turn to our expectations for the rest of the year and longer term.
We are raising our 2021 outlook to reflect revenue growth from high teens to low 20s to now 22% to 23%, and operating margins from 16% to 17% to now 16.9% to 17.1%.
This is our third consecutive raise this year.
Additionally, we are also reiterating our longer-term outlook of revenues accelerating to $10 billion by 2024, with operating margins at least in line with our raised fiscal year '21 levels, which implies at least a mid- to high single-digit comp with margins at least holding over the next three-plus years.
We, of course, will revisit our 2022 and longer-term outlook next quarter in more detail.
We are very confident in the fundamentals of the business and our strategies to sustain our growth into the future.
In addition to the macro trends, our key differentiators, and our successful growth initiatives, as previously mentioned, we have several other factors that give us confidence.
First, our results to date.
We saw comps accelerating even before the pandemic as a result of our growth initiatives to a tie the 10% comp in February 2020.
Our results during the pandemic continued to accelerate despite our retail stores being closed.
And our results every quarter this year have halted a two-year comp of approximately 40%, despite accelerating tougher year-over-year compares.
And we did this while pulling back on all sitewide promotions and with low levels of available inventory for sale.
Second, our proprietary products and vertically integrated sourcing and production, which provide us pricing power and the ability to optimize and engineer our products for value, drive strong merchandise margins in an environment with rising costs to competition.
Third, our operating model.
In addition to our pricing power, our operating model provides several opportunities to drive strong operating margins.
From leverage from higher sales, including the additional accretion from our growth initiatives that have a higher operating margin to an accelerating shift online, which is more profitable.
The continued occupancy leverage from the renegotiation of our lease agreements and further store closures, the various supply chain efficiencies, including automation and in-stock inventory levels, and the continued emphasis on overall strong financial discipline, holding costs below sales growth.
And finally, our liquidity.
We have maintained a very strong and disciplined balance sheet with ample cash and no debt, which provides dry powder for opportunistic investments and incremental shareholder returns.
All of this is what gives us the confidence in our short- and long-term outlook and our ability to deliver sustainable long-term growth and profitability with strong financial returns for our shareholders in 2022 and beyond.
Happy holidays are all on the call.

user
compname reports q3 non-gaap earnings per share of $3.32.
q3 non-gaap earnings per share $3.32.
sees fy revenue up 22 to 23 percent.
q3 revenues grow 16.0% with comparable brand revenue growth of 16.9%.
qtrly comparable brand revenue growth of 16.9%.
for long-term, planning for annual net revenue growth of mid-to-high single digits.

assistant