Item 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

			For the Thirteen Weeks Ended												For the Thirty-nine Weeks Ended
(In thousands, except per share amounts)			October 29, 2023						October 30, 2022						October 29, 2023						October 30, 2022
Net revenues			$	1,853,650					$	2,192,574					$	5,471,715					$	6,221,338
Cost of goods sold			1,031,290						1,282,048						3,216,729						3,553,455
Gross profit			822,360						910,526						2,254,986						2,667,883
Selling, general and administrative expenses			507,283						570,893						1,468,884						1,639,248
Operating income			315,077						339,633						786,102						1,028,635
Interest income, net			7,182						370						16,015						877
Earnings before income taxes			322,259						340,003						802,117						1,029,512
Income taxes			84,974						88,280						206,794						256,601
Net earnings			$	237,285					$	251,723					$	595,323					$	772,911
Basic earnings per share			$	3.70					$	3.77					$	9.20					$	11.27
Diluted earnings per share			$	3.66					$	3.72					$	9.12					$	11.08
Shares used in calculation of earnings per share:
Basic			64,142						66,704						64,718						68,578
Diluted			64,774						67,617						65,298						69,782

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

			For the Thirteen Weeks Ended												For the Thirty-nine Weeks Ended
(In thousands)			October 29, 2023						October 30, 2022						October 29, 2023						October 30, 2022
Net earnings			$	237,285					$	251,723					$	595,323					$	772,911
Other comprehensive income (loss):
Foreign currency translation adjustments			(4,028)						(5,158)						(4,062)						(8,057)
Change in fair value of derivative financial instruments, net of tax of $27, $378, $57, and $420			78						1,069						163						1,188
Reclassification adjustment for realized gains on derivative financial instruments, net of tax of $40, $45, $316, and $53			(114)						(128)						(896)						(151)
Comprehensive income			$	233,221					$	247,506					$	590,528					$	765,891

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

			As of
(In thousands, except per share amounts)			October 29, 2023						January 29, 2023						October 30, 2022
ASSETS
Current assets
Cash and cash equivalents			$	698,807					$	367,344					$	113,058
Accounts receivable, net			124,238						115,685						125,842
Merchandise inventories, net			1,396,864						1,456,123						1,687,895
Prepaid expenses			100,045						64,961						104,208
Other current assets			27,381						31,967						29,729
Total current assets			2,347,335						2,036,080						2,060,732
Property and equipment, net			1,026,819						1,065,381						1,009,088
Operating lease right-of-use assets			1,235,425						1,286,452						1,277,064
Deferred income taxes, net			76,272						81,389						54,247
Goodwill			77,279						77,307						85,245
Other long-term assets, net			120,639						116,407						107,631
Total assets			$	4,883,769					$	4,663,016					$	4,594,007
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable			$	675,505					$	508,321					$	720,856
Accrued expenses			203,958						247,594						275,381
Gift card and other deferred revenue			528,403						479,229						488,771
Income taxes payable			53,139						61,204						45,879
Operating lease liabilities			231,236						231,965						220,012
Other current liabilities			96,745						108,138						103,821
Total current liabilities			1,788,986						1,636,451						1,854,720
Long-term operating lease liabilities			1,163,631						1,211,693						1,208,074
Other long-term liabilities			117,918						113,821						118,279
Total liabilities			3,070,535						2,961,965						3,181,073
Commitments and contingencies – See Note F
Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued			—						—						—
Common stock: $0.01 par value; 253,125 shares authorized; 64,135, 66,226 and 66,556 shares issued and outstanding at October 29, 2023, January 29, 2023 and October 30, 2022, respectively			642						663						666
Additional paid-in capital			572,406						573,117						553,698
Retained earnings			1,260,216						1,141,819						877,157
Accumulated other comprehensive loss			(18,604)						(13,809)						(17,848)
Treasury stock, at cost: 6, 1 and 1 shares as of October 29, 2023, January 29, 2023 and October 30, 2022, respectively			(1,426)						(739)						(739)
Total stockholders’ equity			1,813,234						1,701,051						1,412,934
Total liabilities and stockholders’ equity			$	4,883,769					$	4,663,016					$	4,594,007

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

			Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock						Total Stockholders’ Equity
(In thousands)			Shares						Amount
Balance at January 29, 2023			66,226						$	663					$	573,117					$	1,141,819					$	(13,809)					$	(739)					$	1,701,051
Net earnings			—						—						—						156,531						—						—						156,531
Foreign currency translation adjustments			—						—						—						—						(2,205)						—						(2,205)
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						242						—						242
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(486)						—						(486)
Conversion/release of stock-based awards 1			498						5						(49,322)						—						—						(201)						(49,518)
Repurchases of common stock 2			(2,502)						(25)						(14,803)						(286,573)						—						(1,000)						(302,401)
Reissuance of treasury stock under stock-based compensation plans 1			—						—						(334)						(180)						—						514						—
Stock-based compensation expense			—						—						23,282						—						—						—						23,282
Dividends declared			—						—						—						(59,671)						—						—						(59,671)
Balance at April 30, 2023			64,222						$	643					$	531,940					$	951,926					$	(16,258)					$	(1,426)					$	1,466,825
Net earnings			—						—						—						201,507						—						—						201,507
Foreign currency translation adjustments			—						—						—						—						2,171						—						2,171
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						(157)						—						(157)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(296)						—						(296)
Conversion/release of stock-based awards 1			13						—						(432)						—						—						—						(432)
Repurchases of common stock 2			(90)						(1)						(548)						(9,547)						—						—						(10,096)
Stock-based compensation expense			—						—						20,547						—						—						—						20,547
Dividends declared			—						—						—						(59,114)						—						—						(59,114)
Balance at July 30, 2023			64,145						$	642					$	551,507					$	1,084,772					$	(14,540)					$	(1,426)					$	1,620,955
Net earnings			—						—						—						237,285						—						—						237,285
Foreign currency translation adjustments			—						—						—						—						(4,028)						—						(4,028)
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						78						—						78
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(114)						—						(114)
Conversion/release of stock-based awards1			11						—						(1,159)						—						—						—						(1,159)
Repurchases of common stock 2			(21)						—						(131)						(2,883)						—						—						(3,014)
Stock-based compensation expense			—						—						22,189						—						—						—						22,189
Dividends declared			—						—						—						(58,958)						—						—						(58,958)
Balance at October 29, 2023			64,135						$	642					$	572,406					$	1,260,216					$	(18,604)					$	(1,426)					$	1,813,234

1**Amounts are shown net of shares withheld for employee taxes.

2**Repurchases of common stock include accrued excise taxes of $2.5 million as of October 29, 2023, which is recorded in retained earnings.

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

			Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock						Total Stockholders’ Equity
(In thousands)			Shares						Amount
Balance at January 30, 2022			71,982						$	720					$	600,942					$	1,074,084					$	(10,828)					$	(711)					$	1,664,207
Net earnings			—						—						—						254,113						—						—						254,113
Foreign currency translation adjustments			—						—						—						—						(1,514)						—						(1,514)
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						93						—						93
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(18)						—						(18)
Conversion/release of stock-based awards 1			617						6						(78,142)						—						—						(372)						(78,508)
Repurchases of common stock			(3,380)						(33)						(18,590)						(482,452)						—						—						(501,075)
Reissuance of treasury stock under stock-based compensation plans 1			—						—						(344)						—						—						344						—
Stock-based compensation expense			—						—						28,339						—						—						—						28,339
Dividends declared			—						—						—						(55,893)						—						—						(55,893)
Balance at May 1, 2022			69,219						$	693					$	532,205					$	789,852					$	(12,267)					$	(739)					$	1,309,744
Net earnings			—						—						—						267,075						—						—						267,075
Foreign currency translation adjustments			—						—						—						—						(1,385)						—						(1,385)
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						26						—						26
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(5)						—						(5)
Conversion/release of stock-based awards 1			26						—						(767)						—												—						(767)
Repurchases of common stock			(2,188)						(22)						(12,519)						(252,808)						—						—						(265,349)
Stock-based compensation expense			—						—						22,976						—						—						—						22,976
Dividends declared			—						—						—						(54,036)						—						—						(54,036)
Balance at July 31, 2022			67,057						$	671					$	541,895					$	750,083					$	(13,631)					$	(739)					$	1,278,279
Net earnings			—						—						—						251,723						—						—						251,723
Foreign currency translation adjustments			—						—						—						—						(5,158)						—						(5,158)
Change in fair value of derivative financial instruments, net of tax			—						—						—						—						1,069						—						1,069
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax			—						—						—						—						(128)						—						(128)
Conversion/release of stock-based awards1			13						—						(1,156)						—						—						—						(1,156)
Repurchases of common stock			(514)						(5)						(3,010)						(71,516)						—						—						(74,531)
Stock-based compensation expense			—						—						15,969						—						—						—						15,969
Dividends declared			—						—						—						(53,133)						—						—						(53,133)
Balance at October 30, 2022			66,556						$	666					$	553,698					$	877,157					$	(17,848)					$	(739)					$	1,412,934

1**Amounts are shown net of shares withheld for employee taxes.

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			For the Thirty-nine Weeks Ended
(In thousands)			October 29, 2023						October 30, 2022
Cash flows from operating activities:
Net earnings			$	595,323					$	772,911
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization			166,027						157,410
Loss on disposal/impairment of assets			19,143						5,738
Non-cash lease expense			186,764						169,602
Deferred income taxes			(7,993)						(10,494)
Tax benefit related to stock-based awards			12,455						11,172
Stock-based compensation expense			66,435						67,797
Other			(2,411)						(2,170)
Changes in:
Accounts receivable			(8,928)						5,288
Merchandise inventories			56,770						(443,812)
Prepaid expenses and other assets			(35,857)						(39,737)
Accounts payable			164,958						98,103
Accrued expenses and other liabilities			(48,978)						(34,157)
Gift card and other deferred revenue			49,878						42,005
Operating lease liabilities			(200,168)						(177,855)
Income taxes payable			(8,005)						(33,276)
Net cash provided by operating activities			1,005,413						588,525
Cash flows from investing activities:
Purchases of property and equipment			(134,830)						(234,378)
Other			402						100
Net cash used in investing activities			(134,428)						(234,278)
Cash flows from financing activities:
Repurchases of common stock			(313,001)						(840,955)
Payment of dividends			(174,571)						(165,254)
Tax withholdings related to stock-based awards			(51,108)						(80,431)
Net cash used in financing activities			(538,680)						(1,086,640)
Effect of exchange rates on cash and cash equivalents			(842)						(4,887)
Net increase (decrease) in cash and cash equivalents			331,463						(737,280)
Cash and cash equivalents at beginning of period			367,344						850,338
Cash and cash equivalents at end of period			$	698,807					$	113,058

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION

These financial statements include Williams-Sonoma, Inc. and its wholly owned subsidiaries ("Company," “we,” “us” or “our”). The Condensed Consolidated Balance Sheets as of October 29, 2023 and October 30, 2022, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks then ended and the Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks then ended, have been prepared by us, and have not been audited. In our opinion, the financial statements include all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and thirty-nine weeks then ended. Intercompany transactions and accounts have been eliminated in our consolidation. The balance sheet as of January 29, 2023, presented herein, has been derived from our audited Consolidated Balance Sheet included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023.

The results of operations for the thirteen and thirty-nine weeks ended October 29, 2023 are not necessarily indicative of the operating results of the full year.

Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023.

Beginning in fiscal 2021 and continuing through fiscal 2022, global supply chain disruptions caused delays in inventory receipts and backorder delays, increased raw material costs, and higher shipping-related charges. These disruptions improved in the fourth quarter of fiscal 2022. However, the costs from these supply chain challenges impacted our Condensed Consolidated Statement of Earnings in the first half of fiscal 2023.

Reclassifications

Certain amounts reported in our Condensed Consolidated Balance Sheets as of January 29, 2023 and October 30, 2022 have been reclassified in order to conform to the current period presentation. These reclassifications impacted deferred lease incentives and other long-term liabilities. Other long-term liabilities include deferred lease incentives of $8.9 million, $10.0 million and $13.9 million as of October 29, 2023, January 29, 2023 and October 30, 2022, respectively. There was no change in total liabilities as a result of these reclassifications.

Additionally, certain amounts reported in our Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended October 30, 2022 have been reclassified in order to conform to the current period presentation. These reclassifications impacted amortization of deferred lease incentives and the line item for all other adjustments within operating activities. Other adjustments include amortization of deferred lease incentives of $1.7 million and $2.4 million for the thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively. There was no change in net cash provided by operating activities as a result of these reclassifications.

Recently Issued Accounting Pronouncements

In March 2020, January 2021 and December 2022, the FASB issued accounting standards update ("ASU") 2020-04, Reference Rate Reform (Topic 848), ASU-2021-01, Reference Rate Reform (Topic 848), Scope and ASU-2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, respectively. Together, the ASUs are intended to ease the potential accounting and financial reporting burden of reference rate reform, including the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance provides optional expedients and scope exceptions for transactions if certain criteria are met. These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. We may elect to apply the provisions of the new standard prospectively through December 31, 2024. Unlike other topics, the provisions of this update are only available until December 31, 2024, by which time the reference rate replacement activity is expected to be completed. We have transitioned our basis for establishing interest rates for certain borrowings under our Credit Facility from LIBOR to the Secured Overnight Financing Rate ("SOFR"). As we no longer have transactions that could qualify for these optional expedients and scope exceptions, the provisions of the new standard are no longer applicable.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s ("SEC") Disclosure Update and Simplification Initiative. The amendments in this update modify the disclosure or presentation requirements of a variety of Topics in the Accounting Standards Codification ("ASC") in response to the SEC’s Release No. 33-10532, Disclosure Update and Simplification Initiative, and align the ASC’s

requirements with the SEC’s regulations. For entities subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We do not expect the adoption of this ASU to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

NOTE B. BORROWING ARRANGEMENTS

Credit Facility

We have a credit facility (the "Credit Facility") which provides for a $500 million unsecured revolving line of credit (the “Revolver”). Our Revolver may be used to borrow revolving loans or request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders’ option, to increase the Revolver by up to $250 million to provide for a total of up to $750 million of unsecured revolving credit.

During the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022, we had no borrowings under our Revolver. Additionally, as of October 29, 2023, issued but undrawn standby letters of credit of $11.1 million were outstanding under our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs. Our Revolver matures on September 30, 2026, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized. We may elect to extend the maturity date, subject to lender approval.

The Credit Facility was amended in June 2023 to replace the LIBOR with the SOFR as the basis for establishing the interest rate applicable to certain borrowings under the agreement. The interest rate applicable to our Revolver is variable and may be elected by us as: (i) the SOFR plus 10 basis points and an applicable margin based on our leverage ratio, ranging from 0.91% to 1.775% or (ii) a base rate as defined in our Credit Facility, plus an applicable margin based on our leverage ratio, ranging from 0% to 0.775%.

Our Credit Facility contains certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for operating lease liabilities to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of October 29, 2023, we were in compliance with our financial covenants under our Credit Facility and, based on current projections, we expect to remain in compliance throughout the next 12 months.

Letter of Credit Facilities

We have three unsecured letter of credit reimbursement 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 our Credit Facility, plus an applicable margin based on our leverage ratio. As of October 29, 2023, the aggregate amount outstanding under our letter of credit facilities was $1.2 million, which represents a future commitment to fund inventory purchases to which we had not taken legal title. On August 18, 2023, we renewed two of the letter of credit facilities totaling $30 million on substantially similar terms. The two letter of credit facilities mature on August 18, 2024, and the latest expiration date possible for future letters of credit issued under these facilities is January 15, 2025. One of the letter of credit facilities totaling $5 million matures on September 30, 2026, which is also the latest expiration date possible for future letters of credit issued under the facility.

NOTE C. STOCK-BASED COMPENSATION

Equity Award Programs

Our Amended and Restated 2001 Long-Term Incentive Plan (the “Plan”) provides for grants of incentive stock options, nonqualified stock options, stock-settled stock appreciation rights, restricted stock awards, restricted stock units (including those that are performance-based), deferred stock awards (collectively, “stock awards”) and dividend equivalents up to an aggregate of 42.7 million shares. As of October 29, 2023, there were approximately 5.1 million shares available for future grant. Awards may be granted under our Plan to officers, employees and non-employee members of the Board of Directors of the Company (the “Board”) or any parent or subsidiary. Shares issued as a result of award exercises or releases are primarily funded with the issuance of new shares.

Stock Awards

Annual grants of stock awards are limited to one million shares on a per person basis. Stock awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain performance-based awards, which have variable payout conditions based on predetermined financial targets, generally vest three years from the date of grant. Certain stock awards and other agreements contain vesting acceleration clauses which cover events including, but not limited to, retirement, disability, death, merger or a similar corporate event. Stock awards granted to non-employee Board members generally vest in one year. Non-employee Board members automatically receive stock awards on the date of their initial election to the Board and annually thereafter on the date of the annual meeting of stockholders (so long as they continue to serve as a non-employee Board member). Non-employee directors may also elect, on terms prescribed by the Company, to receive all of their annual cash compensation to be earned in respect of the applicable fiscal year either in the form of (i) fully vested stock units or (ii) fully vested deferred stock units.

Stock-Based Compensation Expense

During the thirteen and thirty-nine weeks ended October 29, 2023, we recognized total stock-based compensation expense, as a component of selling, general and administrative ("SG&A") expenses of $22.2 million and $66.4 million, respectively. During the thirteen and thirty-nine weeks ended October 30, 2022, we recognized total stock-based compensation expense, as a component of SG&A expenses of $16.1 million and $67.8 million, respectively.

NOTE D. EARNINGS PER SHARE

Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding and common stock equivalents outstanding for the period. Common stock equivalents consist of shares subject to stock-based awards to the extent their inclusion would be dilutive.

The following is a reconciliation of net earnings and the number of shares used in the basic and diluted earnings per share computations:

(In thousands, except per share amounts)			Net Earnings						Weighted Average Shares						Earnings Per Share
Thirteen weeks ended October 29, 2023
Basic			$	237,285					64,142						$	3.70
Effect of dilutive stock-based awards									632
Diluted			$	237,285					64,774						$	3.66
Thirteen weeks ended October 30, 2022
Basic			$	251,723					66,704						$	3.77
Effect of dilutive stock-based awards									913
Diluted			$	251,723					67,617						$	3.72
Thirty-nine weeks ended October 29, 2023
Basic			$	595,323					64,718						$	9.20
Effect of dilutive stock-based awards									580
Diluted			$	595,323					65,298						$	9.12
Thirty-nine weeks ended October 30, 2022
Basic			$	772,911					68,578						$	11.27
Effect of dilutive stock-based awards									1,204
Diluted			$	772,911					69,782						$	11.08

The effect of anti-dilutive stock-based awards was not material for the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively.

NOTE E. SEGMENT REPORTING

We identify our operating segments according to how our business activities are managed and evaluated. Each of our brands are operating segments. Because they share similar economic and other qualitative characteristics, we have aggregated our operating segments into a single reportable segment.

The following table summarizes our net revenues by brand for the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022.

			For the Thirteen Weeks Ended 1												For the Thirty-nine Weeks Ended 1
(In thousands)			October 29, 2023						October 30, 2022						October 29, 2023						October 30, 2022
Pottery Barn			$	777,475					$	935,045					$	2,331,497					$	2,588,798
West Elm			466,360						599,802						1,402,859						1,744,013
Williams Sonoma			252,408						261,820						736,342						762,651
Pottery Barn Kids and Teen			276,715						299,112						748,923						810,243
Other 2			80,692						96,795						252,094						315,633
Total 3			$	1,853,650					$	2,192,574					$	5,471,715					$	6,221,338
1**Includes business-to-business net revenues within each brand.
2**Primarily consists of net revenues from Rejuvenation, our international franchise operations, Mark and Graham and GreenRow.
3**Includes net revenues related to our international operations (including our operations in Canada, our franchise businesses, and operations in Australia and the United Kingdom) of approximately $72.5 million and $94.7 million for the thirteen weeks ended October 29, 2023 and October 30, 2022, respectively, and approximately $225.3 million and $303.0 million for the thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively.

Long-lived assets by geographic location, which excludes deferred income taxes, goodwill, and intangible assets, are as follows:

			As of
(In thousands)			October 29, 2023						October 30, 2022
U.S.			$	2,285,829					$	2,287,912
International			85,256						95,368
Total			$	2,371,085					$	2,383,280

NOTE F. COMMITMENTS AND CONTINGENCIES

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These disputes, which are not currently material, are increasing in number as our business expands and our company grows. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. In view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the case is close to resolution, in which case no reserve is established until that time. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Condensed Consolidated Financial Statements taken as a whole.

NOTE G. STOCK REPURCHASE PROGRAM AND DIVIDENDS

Stock Repurchase Program

During the thirteen weeks ended October 29, 2023, we repurchased 21,434 shares of our common stock at an average cost of $140.01 per share for an aggregate cost of $3.0 million, excluding excise taxes on stock repurchases (net of issuances). During the thirty-nine weeks ended October 29, 2023, we repurchased 2,621,861 shares of our common stock at an average cost of $119.38 per share for an aggregate cost of $313.0 million, excluding excise taxes on stock repurchases (net of issuances) of $2.5 million. As of October 29, 2023, there was $687.0 million remaining under our current stock repurchase program.

During the thirteen weeks ended October 30, 2022, we repurchased 513,940 shares of our common stock at an average cost of $145.02 per share for an aggregate cost of $74.6 million. During the thirty-nine weeks ended October 30, 2022, we repurchased 6,081,708 shares of our common stock at an average cost of $138.28 per share for an aggregate cost of $841.0 million.

As of October 29, 2023 and October 30, 2022, we held treasury stock of $1.4 million and $0.7 million, respectively, that represents the cost of shares available for issuance intended to satisfy future stock-based award settlements in certain foreign jurisdictions.

Stock repurchases under our program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions.

Dividends

We declared cash dividends of $0.90 and $0.78 per common share during the thirteen weeks ended October 29, 2023 and October 30, 2022, respectively. We declared cash dividends of $2.70 and $2.34 per common share during the thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively. Our quarterly cash dividend may be limited or terminated at any time.

NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS

We have retail and e-commerce businesses in Canada, Australia and the United Kingdom, and operations throughout Asia and Europe, which expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a functional currency other than the U.S. dollar. To mitigate this risk, we may hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies. We do not enter into such contracts for speculative purposes. The assets or liabilities associated with the derivative financial instruments are measured at fair value and recorded in either other current assets or other current liabilities. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on whether the derivative financial instrument is designated as a hedge and qualifies for hedge accounting in accordance with ASC 815, Derivatives and Hedging.

Cash Flow Hedges

We enter into foreign currency forward contracts designated as cash flow hedges (to sell Canadian dollars and purchase U.S. dollars) for forecasted inventory purchases in U.S. dollars by our Canadian subsidiary. These hedges have terms of up to 12 months. All hedging relationships are formally documented, and the forward contracts are designed to mitigate foreign currency exchange risk on hedged transactions. We record the effective portion of changes in the fair value of our cash flow hedges in other comprehensive income (“OCI”) until the earlier of when the hedged forecasted inventory purchase occurs or the respective contract reaches maturity. Subsequently, as the inventory is sold to the customer, we reclassify amounts previously recorded in OCI to cost of goods sold.

Changes in the fair value of the forward contract related to interest charges (or forward points) are excluded from the assessment and measurement of hedge effectiveness and are recorded in cost of goods sold. Based on the rates in effect as of October 29, 2023, our reclassification of pre-tax gains or losses from OCI to cost of goods sold over the next 12 months is not expected to be material.

As of October 29, 2023, we had no foreign currency forward contracts outstanding. As of October 30, 2022, we had foreign currency forward contracts outstanding (in U.S. dollars) with a notional amount of $19.5 million.

Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively using regression analysis. Any measurable ineffectiveness of the hedge is recorded in SG&A expenses. No gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all hedges were deemed effective for assessment purposes for the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022.

The effect of derivative instruments in our Condensed Consolidated Financial Statements from gains or losses recognized in income was not material for the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022.

The fair values of our derivative financial instruments are presented in other current assets and/or other current liabilities in our Condensed Consolidated Balance Sheets. All fair values were measured using Level 2 inputs as defined by the fair value hierarchy described in Note I.

We record all derivative assets and liabilities on a gross basis. They do not meet the balance sheet netting criteria as discussed in ASC 210, Balance Sheet, because we do not have master netting agreements established with our derivative counterparties that would allow for net settlement.

NOTE I. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy established by ASC 820, Fair Value Measurement, which defines three levels of inputs that may be used to measure fair value, as follows:

• Level 1: inputs which include quoted prices in active markets for identical assets or liabilities;

• Level 2: inputs which include observable inputs other than Level 1 inputs, such as quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and

• Level 3: inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

The fair values of our cash and cash equivalents are based on Level 1 inputs, which include quoted prices in active markets for identical assets.

Foreign Currency Derivatives and Hedging Instruments

We use the income approach to value our derivatives using observable Level 2 market data at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk ratings. We use mid-market pricing as a practical expedient for fair value measurements. Key inputs for foreign currency derivatives are the spot rates, forward rates, interest rates and credit derivative market rates.

The counterparties associated with our foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration, therefore, we do not consider counterparty concentration and non-performance to be material risks at this time. Both we and our counterparties are expected to perform under the contractual terms of the instruments. None of the derivative contracts we entered into are subject to credit risk-related contingent features or collateral requirements.

Long-lived Assets

We review the carrying value of all long-lived assets for impairment, primarily at an individual store level, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure property and equipment at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. We measure right-of-use assets on a nonrecurring basis using Level 2 inputs that are corroborated by market data. Where Level 2 inputs are not readily available, we use Level 3 inputs. Fair value of these long-lived assets is based on the present value of estimated future cash flows using a discount rate commensurate with the risk.

The significant unobservable inputs used in the fair value measurement of our store assets are sales growth/decline, gross margin, employment costs, lease escalations, market rental rates, changes in local real estate markets in which we operate, inflation and the overall economics of the retail industry. Significant fluctuations in any of these inputs individually could significantly impact our measurement of fair value.

During the thirteen weeks ended October 29, 2023, we recognized impairment charges of $1.6 million, which consisted of (i) the write-down of leasehold improvements of four underperforming stores of $1.1 million and (ii) the write-down of operating lease right-of-use-assets of $0.5 million. During the thirty-nine weeks ended October 29, 2023, we recognized impairment charges of $13.0 million, which consisted of (i) the write-down of leasehold improvements of eight underperforming stores of $4.9 million, (ii) the write-down of operating lease right-of-use-assets of $4.4 million, and (iii) the write-off of property and equipment of $3.7 million resulting from the exit of Aperture, a division of our Outward, Inc. subsidiary.

During the thirteen weeks ended October 30, 2022, no impairment charges were recognized. During the thirty-nine weeks ended October 30, 2022, we recognized impairment charges of $5.2 million, which consisted of (i) the write-down of leasehold improvements of underperforming stores of $2.6 million and (ii) the write-down of operating lease right-of-use-assets of $2.6 million.

There were no transfers in and out of Level 3 categories during the thirteen and thirty-nine weeks ended October 29, 2023 and October 30, 2022.

NOTE J. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:

(In thousands)			Foreign Currency Translation						Cash Flow Hedges						Accumulated Other Comprehensive Income (Loss)
Balance at January 29, 2023			$	(14,458)					$	649					$	(13,809)
Foreign currency translation adjustments			(2,205)						—						(2,205)
Change in fair value of derivative financial instruments			—						242						242
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1			—						(486)						(486)
Other comprehensive income (loss)			(2,205)						(244)						(2,449)
Balance at April 30, 2023			$	(16,663)					$	405					$	(16,258)
Foreign currency translation adjustments			2,171						—						2,171
Change in fair value of derivative financial instruments			—						(157)						(157)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1			—						(296)						(296)
Other comprehensive income (loss)			2,171						(453)						1,718
Balance at July 30, 2023			$	(14,492)					$	(48)					$	(14,540)
Foreign currency translation adjustments			(4,028)						—						(4,028)
Change in fair value of derivative financial instruments			—						78						78
Reclassification adjustment for realized (gain) loss on derivative financial instruments1			—						(114)						(114)
Other comprehensive income (loss)			(4,028)						(36)						(4,064)
Balance at October 29, 2023			$	(18,520)					$	(84)					$	(18,604)
Balance at January 30, 2022			$	(10,886)					$	58					$	(10,828)
Foreign currency translation adjustments			(1,514)						—						(1,514)
Change in fair value of derivative financial instruments			—						93						93
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1			—						(18)						(18)
Other comprehensive income (loss)			(1,514)						75						(1,439)
Balance at May 1, 2022			$	(12,400)					$	133					$	(12,267)
Foreign currency translation adjustments			(1,385)						—						(1,385)
Change in fair value of derivative financial instruments			—						26						26
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1			—						(5)						(5)
Other comprehensive income (loss)			(1,385)						21						(1,364)
Balance at July 31, 2022			$	(13,785)					$	154					$	(13,631)
Foreign currency translation adjustments			(5,158)						—						(5,158)
Change in fair value of derivative financial instruments			—						1,069						1,069
Reclassification adjustment for realized (gain) loss on derivative financial instruments1			—						(128)						(128)
Other comprehensive income (loss)			(5,158)						941						(4,217)
Balance at October 30, 2022			$	(18,943)					$	1,095					$	(17,848)

1**Refer to Note H for additional disclosures about reclassifications out of accumulated other comprehensive income.

NOTE K. REVENUE

Merchandise Sales

Revenues from the sale of our merchandise through our e-commerce channel, at our retail stores as well as to our business-to-business customers and franchisees are, in each case, recognized at a point in time when control of merchandise is transferred to the customer. Merchandise can either be picked up in our stores, or delivered to the customer. For merchandise picked up in the store, control is transferred at the time of the sale to the customer. For merchandise delivered to the customer, control is transferred either when delivery has been completed, or when we have a present right to payment which, for certain merchandise, occurs upon conveyance of the merchandise to the carrier for delivery. We exclude from revenue any taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and are concurrent with revenue-generating activities. Our payment terms are primarily at the point of sale for merchandise sales and for most services. We have elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation.

Revenue from the sale of merchandise is reported net of sales returns. We estimate future returns based on historical return trends together with current product sales performance. As of October 29, 2023 and October 30, 2022, we recorded a liability for expected sales returns of approximately $47.1 million and $52.3 million, respectively, within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately $14.9 million and $15.8 million, respectively, within other current assets in our Condensed Consolidated Balance Sheets.

See Note E for the disclosure of our net revenues by operating segment.

Gift Card and Other Deferred Revenue

We defer revenue and record a liability when cash payments are received in advance of satisfying performance obligations, primarily associated with our merchandise sales, stored-value cards, customer loyalty programs, and incentives received from credit card issuers.

We issue stored-value cards that may be redeemed on future merchandise purchases. Our stored-value cards have no expiration dates. Revenue from stored-value cards is recognized at a point in time upon redemption of the card and as control of the merchandise is transferred to the customer. Breakage is recognized in a manner consistent with our historical redemption patterns over the estimated period of redemption of our cards of approximately four years, the majority of which is recognized within one year of the card issuance. Breakage revenue is not material to our Condensed Consolidated Financial Statements.

We have customer loyalty programs, which allow members to earn points for each qualifying purchase. Customers can earn points through spend on both our private label and co-branded credit cards, or can earn points as part of our non-credit card related loyalty program. Points earned through both loyalty programs enable members to receive certificates that may be redeemed on future merchandise purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer. The allocated consideration for the points or certificates earned by our loyalty program members is deferred based on the standalone selling price of the points and recorded within gift card and other deferred revenue within our Condensed Consolidated Balance Sheet. The measurement of standalone selling prices takes into consideration the discount the customer would receive in a separate transaction for the delivered item, as well as our estimate of certificates expected to be issued and redeemed, based on historical patterns. This measurement is applied to our portfolio of performance obligations for points or certificates earned, as all obligations have similar economic characteristics. We believe the impact to our Condensed Consolidated Financial Statements would not be materially different if this measurement was applied to each individual performance obligation. Revenue is recognized for these performance obligations at a point in time when certificates are redeemed by the customer. These obligations relate to contracts with terms less than one year, as our certificates generally expire within six months from issuance.

We enter into agreements with credit card issuers in connection with our private label and co-branded credit cards, whereby we receive cash incentives in exchange for promised services, such as licensing our brand names and marketing the credit card program to customers. These separate non-loyalty program related services promised under these agreements are interrelated and are thus considered a single performance obligation. Revenue is recognized over time as we transfer promised services throughout the contract term.

As of October 29, 2023 and October 30, 2022, we had recorded $528.4 million and $488.8 million, respectively, for gift card and other deferred revenue within current liabilities in our Condensed Consolidated Balance Sheets.