Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements related to: our ability to provide sustainable products at competitive prices; changes in U.S. (federal, state and local) and international tax laws and trade policies and regulations; the impact of current and potential future tariffs and our ability to mitigate such impacts; the complementary nature of our e-commerce and retail channels; the plans, strategies, initiatives and objectives of management for future operations; our ability to execute strategic priorities and growth initiatives, including those regarding digital leadership, product and technology innovation, cross-brand initiatives, retail transformation and operational excellence; the strength of our business and our brands; our marketing efforts; our ability to provide world-class customer service via supply chain improvements from reduced out-of-market and multiple shipments, fewer customer accommodations, lower returns and damages, and reduced replacements; our belief that our key differentiators, growth strategies and the efficiencies of our operating model will allow us to reduce costs and manage inventory levels in both the short- and long-term; competition from companies with concepts or products similar to ours; our beliefs about our competitive advantages and areas of potential future growth in the market; the seasonal variations in demand; our ability to recruit, retain and motivate skilled personnel; our ability to protect our intellectual property rights; our ability to comply with the laws, rules and regulations of the U.S. and multiple foreign jurisdictions in which we operate; the impact of general economic conditions, inflationary pressures, consumer disposable income, fuel prices, recession and fears of recession, unemployment, war and fears of war, outbreaks of disease, adverse weather, availability of consumer credit, consumer debt levels, conditions in the housing market, elevated interest rates, sales tax rates and rate increases, consumer confidence in future economic and political conditions, and consumer perceptions of personal well-being and security; the impact of periods of decreased home and home furnishing purchases; our ability to grow our business-to-business division and the challenges we may face executing such growth; our ability to anticipate consumer preferences and buying trends overall and as they apply to specific brands; dependence on timely introduction and customer acceptance of our merchandise; effective inventory management; timely and effective sourcing of merchandise from our foreign and domestic suppliers and delivery of merchandise through our supply chain to our stores and customers; factors, including but not limited to fuel costs, labor disputes, union organizing activity, geopolitical instability, acts of terrorism and war, that can affect the global supply chain, including our third-party providers; our belief in the adequacy of our facilities and the availability of suitable additional or substitute space; our ability to improve our systems and processes; changes to our information technology infrastructure; shortages of raw materials used to make our products; uncertainties in e-marketing, infrastructure and regulation; our belief in the reasonableness of the steps taken to protect the security and confidentiality of the information we collect; multi-channel and multi-brand complexities; delays in store openings; our brands, products and related initiatives, including our ability to introduce new products, product lines, brands, and brand extensions, and bring in new customers; our belief in the ultimate resolution of current legal proceedings; challenges associated with our increasing global presence; our global business and expansion efforts, including franchise, other third-party arrangements and company-owned operations; adherence by our suppliers to our global compliance program and quality control standards; the effects of fluctuations in foreign currency rates and the impact of our hedging against such risks; dependence on external funding sources for operating capital; our compliance with financial covenants; disruptions in the financial markets; our ability to control employment, occupancy, supply chain, product, transportation and other operating costs; the adequacy of our insurance coverage; our stock repurchase programs; payment of dividends; the impact of new accounting pronouncements; our belief that our cash on hand and available credit facilities will provide adequate liquidity for our business operations; our belief regarding the effects of potential losses under our indemnification obligations; the effects of changes in our inventory reserves; our ability to deliver organic, core-brand growth; growth from our emerging brands; our ability to drive long-term sustainable returns; our capital allocation strategy in fiscal 2025; our planned use of cash in fiscal 2025; projections of earnings, revenues, growth and other financial items; and other risks and uncertainties, as well as statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in this document and our Annual Report on Form 10-K for the fiscal year ended February 2, 2025, and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

OVERVIEW

Williams-Sonoma, Inc., (the “Company”, “we”, or “us”) is a specialty retailer of high-quality products for the home. We are the world’s largest digital-first, design-led and sustainable home retailer. Our brands – Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, Mark and Graham, and GreenRow – represent distinct merchandise strategies that are marketed through e-commerce, direct-mail catalogs and retail stores. These brands collectively support The Key Rewards, our loyalty and credit card program that offers members exclusive benefits. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico, South Korea and India, as well as e-commerce websites in certain locations.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended May 4, 2025 (“first quarter of fiscal 2025”), as compared to the thirteen weeks ended April 28, 2024 (“first quarter of fiscal 2024”), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. All explanations of changes in operational results are discussed in order of magnitude.

First Quarter of Fiscal 2025 Financial Results

Net revenues in the first quarter of fiscal 2025 increased $69.8 million or 4.2%, with company comparable brand revenue (“company comp”) growth of 3.4%. This increase was driven by strong non-furniture sales, an improvement in furniture sales and effective collaborations.

In the first quarter of fiscal 2025, Pottery Barn, our largest brand, saw comparable brand revenue (“brand comp”) growth of 2.0% driven by our seasonal assortments, innovative product lines contributing to furniture growth and effective collaborations. The Pottery Barn Kids and Teen brands saw brand comp growth of 3.8% in the first quarter of fiscal 2025 driven by strength in collaborations as well as new product introductions in our dorm and baby offerings.

West Elm saw brand comp growth of 0.2% in the first quarter of fiscal 2025, driven by strength in non-furniture categories, including kids, bath, lighting and textiles as well as new product introductions and collaborations.

The Williams Sonoma brand saw brand comp growth of 7.3% in the first quarter of fiscal 2025 with strength in the brand's kitchen business driven by cookware, housewares and entertaining categories as well as improvement in the brand's home business driven by textiles, bedding and certain furniture categories.

Finally, our emerging brands, Rejuvenation, Mark and Graham, and GreenRow, delivered double-digit brand comp growth on a combined basis.

For the first quarter of fiscal 2025, diluted earnings per share was $1.85, compared to $1.99 in the first quarter of fiscal 2024 (which included the benefit from the out-of-period freight adjustment of $0.29 per share).

As of May 4, 2025, we had $1.0 billion in cash and cash equivalents and generated operating cash flow of $118.9 million in the first quarter of fiscal 2025. In addition to our cash balance, we also ended the first quarter of fiscal 2025 with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business, invest $58.3 million in capital expenditures and return $164.6 million through stock repurchases and dividends to stockholders in the first quarter of fiscal 2025.

Out-of-Period Freight Adjustment in First Quarter of Fiscal 2024

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

Looking Ahead

As we look forward to the balance of the year, our focus will remain on our three key priorities of (i) returning to growth, (ii) elevating our world-class customer service and (iii) driving earnings. We believe these key priorities will set us apart from our competition and allow us to drive long-term growth and profitability. We believe we have a powerful portfolio of brands, serving a range of categories, aesthetics, and life stages and we have built a strong omni-channel platform and infrastructure, which will position us well for the next stage of growth. However, the current uncertain macroeconomic environment, including the evolving tariff and trade policy landscape, a weak housing market, elevated interest rates, layoffs, inflationary pressure, economic uncertainty and global geopolitical instability could negatively impact our business. For information on risks, please see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 2, 2025.

NET REVENUES

Net revenues primarily consist of sales of merchandise to our customers through our e-commerce websites, retail stores and direct-mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. Our revenues also include sales to our business-to-business customers and franchisees, incentives received from credit card issuers in connection with our private label and co-branded credit cards and breakage income related to our stored-value cards. Revenue from the sale of merchandise is reported net of sales returns.

First Quarter of Fiscal 2025 vs. First Quarter of Fiscal 2024

Net revenues in the first quarter of fiscal 2025 increased $69.8 million or 4.2%, with company comp growth of 3.4%. This increase was driven by strong non-furniture sales, an improvement in furniture sales and effective collaborations.

Comparable Brand Revenue

Comparable brand revenue includes comparable e-commerce sales, including through our direct-mail catalog, and store sales, as well as shipping fees, sales returns and other discounts associated with current period sales. Comparable stores are defined as permanent stores where gross square footage did not change by more than 20% in the previous 12 months, and which have been open for at least 12 consecutive months without closure for more than seven days within the same fiscal month. Outlet comparable store revenues are included in their respective brands. Business-to-business revenues are included in comparable brand revenue for each of our brands. Sales to our international franchisees are excluded from comparable brand revenue as their stores and e-commerce websites are not operated by us. Sales from certain operations are also excluded until such time that we believe those sales are meaningful to evaluating their performance. Additionally, comparable brand revenue for new and emerging concepts is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.

			For the Thirteen Weeks Ended 1
Comparable brand revenue growth (decline)			May 4, 2025			April 28, 2024
Pottery Barn			2.0		%	(10.8)		%
West Elm			0.2			(4.1)
Williams Sonoma			7.3			0.9
Pottery Barn Kids and Teen			3.8			2.8
Total 2			3.4		%	(4.9)		%
1 Comparable brand revenue includes business-to-business revenues within each brand.
2 Total comparable brand revenue growth (decline) includes the results of Rejuvenation, Mark and Graham, and GreenRow.

STORE DATA

			Store Count																														Average Leased Square Footage Per Store
			February 2, 2025						Openings						Closings						May 4, 2025						April 28, 2024						May 4, 2025						April 28, 2024
Pottery Barn			181						2						(3)						180						184						14,900						15,100
Williams Sonoma			154						—						—						154						156						6,900						6,900
West Elm			121						1						(3)						119						121						13,300						13,300
Pottery Barn Kids			45						—						(1)						44						45						7,800						7,900
Rejuvenation			11						—						—						11						11						8,100						8,100
Total			512						3						(7)						508						517						11,300						11,400
Store selling square footage at period-end																																	3,751,000						3,815,000
Store leased square footage at period-end																																	5,761,000						5,901,000

GROSS PROFIT

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

Our classification of expenses in cost of goods sold may not be comparable to other public companies, as we do not include non-occupancy-related costs associated with our distribution network in cost of goods sold. These costs, which include distribution network employment, third-party warehouse management and other distribution-related administrative expenses, are recorded in selling, general, and administrative expenses (“SG&A”).

			For the Thirteen Weeks Ended
(In thousands)			May 4, 2025						% Net Revenues						April 28, 2024						% Net Revenues
Gross profit 1			$	765,809					44.3		%				$	795,168					47.9		%

1**Includes occupancy expenses of $197.7 million and $196.2 million for the first quarter of fiscal 2025 and fiscal 2024, respectively.

First Quarter of Fiscal 2025 vs. First Quarter of Fiscal 2024

Gross profit decreased $29.4 million, or 3.7%, compared to the first quarter of fiscal 2024. Gross margin decreased to 44.3% from 47.9% in the first quarter of fiscal 2024. This decrease in gross margin of 360 basis points was driven by (i) the out-of-period freight adjustment in the first quarter of fiscal 2024 of 300 basis points and (ii) lower merchandise margins of 220 basis points due to higher input costs, including higher ocean freight and tariff mitigation costs, partially offset by (iii) supply chain efficiencies of 120 basis points, including reductions in returns, accommodations, replacements and damages and (iv) the leverage of occupancy costs of 40 basis points resulting from higher sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A consists of non-occupancy related costs associated with our retail stores and e-commerce websites, distribution and manufacturing facilities, customer care centers, supply chain operations (buying, receiving and inspection) and corporate administrative functions. These costs include employment, advertising, third party credit card processing, impairment and other general expenses.

			For the Thirteen Weeks Ended
(In thousands)			May 4, 2025						% Net Revenues						April 28, 2024						% Net Revenues
Selling, general and administrative expenses			$	475,096					27.5		%				$	478,056					28.8		%

First Quarter of Fiscal 2025 vs. First Quarter of Fiscal 2024

SG&A decreased $3.0 million, or 0.6%, compared to the first quarter of fiscal 2024. SG&A as a percentage of net revenues decreased to 27.5% from 28.8% in the first quarter of fiscal 2024. This leverage of 130 basis points was primarily driven by (i) lower advertising expenses of 60 basis points, (ii) employment leverage of 60 basis points resulting from higher sales and lower performance-based incentive compensation and (iii) general expenses leverage of 10 basis points.

INCOME TAXES

The effective tax rate was 23.0% for the first quarter of fiscal 2025, compared to 21.8% for the first quarter of fiscal 2024. The increase was primarily driven by (i) lower excess tax benefit from stock-based compensation in first quarter of fiscal 2025 and (ii) the tax effect of the change in earnings mix.

Since the Organization for Economic Co-operation and Development (“OECD”) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“Framework”) in 2021, a number of countries have begun to enact legislation to implement the OECD international tax framework, including the Pillar Two minimum tax regime.

Of the regions in which we operate, Singapore, Canada, United Kingdom, Australia, Netherlands, Italy, Portugal, Vietnam and Jersey have implemented Pillar Two frameworks. Our subsidiaries were not subject to Pillar Two minimum tax in the first quarter of fiscal 2025.

Pillar Two minimum tax will be treated as a period cost in future periods when it is applicable. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, and monitoring legislative developments by other countries, especially in the regions in which we operate.

LIQUIDITY AND CAPITAL RESOURCES

Material Cash Requirements

There were no material changes during the quarter to the Company’s material cash requirements, commitments and contingencies that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2025, which is incorporated herein by reference.

Stock Repurchase Programs and Dividends

See Note G to our Condensed Consolidated Financial Statements, Stock Repurchase Programs and Dividends, within Item 1 of this Quarterly Report on Form 10-Q for further information.

Liquidity Outlook

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

We believe our cash on hand, cash flows from operations and our available credit facilities will provide adequate liquidity for our business operations as well as dividends, capital expenditures, stock repurchases and other liquidity requirements associated with our business operations over the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that would impact our capital needs during or beyond the next 12 months.

Sources of Liquidity

As of May 4, 2025, we held $1.0 billion in cash and cash equivalents, the majority of which was held in money market funds and interest-bearing demand deposit accounts, and of which $96.1 million was held by our international subsidiaries. Consistent with our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.

In addition to our cash balances on hand, we have a credit facility (the “Credit Facility”) which provides for a $500 million unsecured revolving line of credit. Our Credit Facility may be used to borrow revolving loans or to 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 Credit Facility by up to $250 million to provide for a total of up to $750 million of unsecured revolving credit.

During the thirteen weeks ended May 4, 2025 and April 28, 2024, we had no borrowings under our Credit Facility. Additionally, as of May 4, 2025, issued but undrawn standby letters of credit of $11.9 million were outstanding under our Credit Facility. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.

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 May 4, 2025, we were in compliance with our financial covenants under our Credit Facility and, based on our current projections, we expect to remain in compliance throughout the next 12 months.

Letter of Credit Facilities

We have three unsecured letter of credit facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio. As of May 4, 2025, the aggregate amount outstanding under our letter of credit facilities was $0.7 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. Two of our letter of credit facilities mature on August 18, 2025, and the latest expiration date possible for future letters of credit issued under these facilities is January 15, 2026. 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.

Cash Flows from Operating Activities

For the first quarter of fiscal 2025, net cash provided by operating activities was $118.9 million compared to $226.8 million for the first quarter of fiscal 2024, and was primarily attributable to net earnings adjusted for non-cash items, partially offset by accounts payable (as a result of supplier payment timing) and accrued expenses and other liabilities. Net cash provided by operating activities compared to the first quarter of fiscal 2024 decreased primarily due to a decrease in net earnings adjusted for non-cash items, higher spending on merchandise inventories and a decrease in accrued expenses and other liabilities.

Cash Flows from Investing Activities

For the first quarter of fiscal 2025, net cash used in investing activities was $58.2 million compared to $39.5 million for the first quarter of fiscal 2024, and was primarily attributable to purchases of property and equipment related to technology, supply chain enhancements and store construction.

Cash Flows from Financing Activities

For the first quarter of fiscal 2025, net cash used in financing activities was $230.0 million compared to $193.7 million for the first quarter of fiscal 2024, primarily driven by repurchases of common stock, payment of dividends and tax withholdings remittance related to stock-based awards. Net cash used in financing activities for the first quarter of fiscal 2025 increased compared to the first quarter of fiscal 2024, primarily due to an increase in repurchases of our common stock.

Seasonality

Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our revenues and net earnings have been realized during our peak selling season, the period from October through January, and levels of net revenues and net earnings have typically been lower during the period from February through September. We believe this is the general pattern within our industry. In preparation for and during our peak selling season, we hire a substantial number of additional temporary associates, primarily in our retail stores, distribution facilities and customer care centers.

CRITICAL ACCOUNTING ESTIMATES

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