Williams-Sonoma Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

Key Takeaways

  • Our Q3 results featured a record 17% operating margin and EPS of $3.66, significantly exceeding expectations despite economic headwinds.
  • Comparable sales declined 14.6% year-over-year (-6.5% on a two-year stack), reflecting consumer hesitancy on high-ticket furniture but a 34.8% gain versus 2019.
  • Supply chain and customer-service initiatives drove lower costs and improved margins, with record on-time delivery and fewer returns, damages and accommodations.
  • Promotional activity was meaningfully reduced versus last year, as the company focuses on introducing new mid-tier and lower-price products to maintain price integrity.
  • Full-year revenue guidance was narrowed to down 10%–12%, while raising operating margin guidance to 16%–16.5%, implying higher EPS for fiscal 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
Williams-Sonoma Q3 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Welcome to the Williams Sonoma, Inc. Third Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in listen only mode. A question and answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations, please go ahead.

Speaker 1

Good morning, and thank you for joining our Q3 earnings call. I'm here this morning with Laura Alber, our President and Chief Executive Officer Jeff Howie, our Chief Financial Officer Yasser Anwar, our Chief Digital and Technology Officer and Felix Carballito, our President of the Williams Sonoma brand. Before we get started, I'd like to remind you that during this call, we will make forward looking statements with respect to future events and financial performance, included updated guidance for fiscal 'twenty three and our long term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize and actual results may differ significantly from our expectations.

Speaker 1

The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. A detailed reconciliation of non GAAP measures to the most directly comparable GAAP measure Appears in Exhibit 1 to the press release we issued earlier this morning. This call should also be considered in conjunction with our filings with the SEC.

Speaker 1

Finally, a replay of this call is available on our Investor Relations website. Now, I'd like to turn the call over to Laura.

Speaker 2

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. Before we get into our Q3 results, I would like to take a minute to thank the incredible team at Williams Sonoma, Inc. For another quarter of great results. Without their hard work, dedication and focus, none of the results we are reporting today would have been achievable.

Speaker 2

We are proud to deliver another quarter of strong earnings, significantly exceeding expectations despite a challenging economic backdrop for our industry. We beat profitability estimates with a record 3rd quarter operating margin of 17% with earnings per share of $3.66 Our comp sales, which reflect the larger macroeconomic backdrop, ran negative 14.6% in Q3 And our 2 year comp was negative 6.5% and our 4 year comp to 2019 was positive 34.8%. These results were achieved in an environment, but with ongoing consumer hesitancy on high ticket discretionary furniture And elevated levels of promotional activity. Despite this environment, we continue to drive results because of our unique proposition in the marketplace And our relentless focus on customer service. Our advantage is our portfolio of brands serving a wide range of categories, Aesthetics and life stages.

Speaker 2

While people are currently buying fewer large ticket furniture pieces than last year, Our portfolio of brands and product offerings has us positioned well for the shift into kitchen purchases, fashion textiles, Dorm, baby and seasonal holiday offerings. Our in house design capabilities and vertically integrated supply chain Are also key in producing proprietary products at the best quality value relationship in the market. We remain firmly committed to reducing promotions despite elevated levels of discounting in the industry. In fact, our Q3 promotional levels were meaningfully lower than last year. Instead, we are meeting our customers' needs for value by introducing a larger offering of new products at mid tier and lower price points.

Speaker 2

Not only is this strategy good for profits, but we have also reduced friction With our customers as we give them better value without confusing them with short term discounts. We strongly believe that this is the right way to run our business as it preserves the design value price equation that we offer and our customers appreciate. Moving on to customer service and the supply chain. We are seeing the year over year benefit of selling through inventories with lower supply chain costs. And we continue to increase selling margins by reducing out of market and multiple shipments.

Speaker 2

We have improved our customer service, returning to pre pandemic And best in class levels. Investments in the final mile delivery experience have resulted in fewer customer accommodations, Lower returns, lower damages and lower replacements. And customer metrics like on time delivery are at record highs And back order create rates have substantially improved. The total benefit from these supply chain and customer service improvements It's significant and you can see it in our results today. Regarding marketing, we increased our spend from Q2, but still leveraged in the quarter.

Speaker 2

We continue to ensure that our marketing investment gives us the ability to test new formats, to connect with new customers and to showcase our offering To our existing customer base and our highly engaged brand loyalists, we've seen increasing success with our marketing and product collaborations and we will continue to build upon them. Our ongoing investment in building our proprietary e commerce technology continues to improve our online experience. We're focused on offering customers inspiring content and dynamic tools to assist with their design projects, And AI is accelerating these efforts. We see many opportunities for our business from developments from AI. And as early adopters of integrating AI, we look forward to leading the retail industry in this area.

Speaker 2

And we will focus on quality, authenticity and responsiveness of this new technology. And as focused as we are on our e commerce capabilities, we are also continuing to focus on delivering a best in class retail business. Our stores are beautifully designed and curated with inspirational assortments and our continued retail optimization efforts Have refocused our fleet on the most profitable, inspiring and strategic locations. On the sustainability front, we are proud to report that in Q3, we were named the top scorer on the Sustainable Furnishings Council Wood Furniture Scorecard for the 6th consecutive year. Using sustainable wood has been a key focus of our strategy and a differentiator of our business.

Speaker 2

Now I'd like to spend a few minutes talking about our brands. Pottery Barn ran a negative 16.6 comp in Q3, but ran a positive 3% on a 2 year basis And a positive 43% on a 4 year basis. We have substantially reduced the promotional offerings in the brand and have successfully introduced New low and mid tier programs at great value. And while furniture demand has been most impacted, We are seeing strength in textiles and seasonal decorating. We're excited for the holiday season, given strong early reads on our innovative Proprietary collections.

Speaker 2

Earlier this week, we announced the launch of a new mobile shopping and design app for Pottery Barn Following the success of our Pottery Barn Kids and Pottery Barn Teen app, the Pottery Barn mobile app delivers a convenient customer shopping experience It makes it easy to create and manage a registry on the go. Now customers can explore and shop full rooms, Easily share their favorite products and connect with the design expert all through the convenience of their phone or tablet. The Pottery Barn children's business ran a negative 6.9% comp in Q3 and was negative 11.7% on a 2 year basis and positive 29% on a 4 year basis. Across these life stage brands, we are focused on delivering compelling innovation and elevating the customer experience. One key area of focus in the quarter has been the evolution of our back to school offering.

Speaker 2

Here we saw standout growth in our dorm business as customers gravitated to higher design and quality. We offer a compelling, Complete solution that is easy to shop on our Pottery Barn PNAP and given the size of the door market, we believe this represents A significant opportunity for us for years to come. We also continue to focus on another key LifeSage offering, which is Baby, The entry point to the children's home furnishings brand. Here we are winning with our innovative nursery seating and a curated selection of high quality baby gear. In our stores and across our mobile app, customers can register with Pottery Barn Kids and receive help from our nursery experts.

Speaker 2

Also, we're really encouraged by the strength of our innovative product introductions and fresh product collaboration. With strong response to our recent Super Mario and Love Shack Fancy launches. And as we look to the quarter ahead, We believe we have a compelling pipeline of collaborations that our customer will love. Moving on to West Elm. West Elm is the brand that has been most impacted by the customer pullback in furniture.

Speaker 2

In Q3, West Elm ran a negative 22.4% And was negative 18.2 percent on a 2 year basis and ran a positive 26.1 percent on a 4 year basis. West Elm has the highest percentage of its assortment in furniture, the most underdeveloped in other categories and a customer base has been most impacted by the current macro environment. Despite current challenging dynamics, West Elm saw very strong reception to their new fall products, which marked a real evolution in the brand's modern design voice. Sales from this year's fall assortment are up to last year with positive customer response to fresh furniture forms, mixed materials And new textures and innovations in textiles. Early holiday reads have also been positive in seasonal trim and tabletop, as well as hosting and entertaining categories.

Speaker 2

Given these positive reads, we see sizable opportunity in West Elm As it rebalances more into textiles, decorative accessories, entertainment and seasonal offerings. We continue to be very optimistic about the long term growth trajectory of West Elm with its industry leading design and value. The Williams Sonoma brand, which includes Williams Sonoma Home Ran a negative 1.9 percent comp in Q3. On a 2 year basis, the brand ran negative 3.4% and was positive 34.6% on a 4 year basis. The Williams Sonoma Kitchen business ran a positive comp for the 2nd consecutive quarter this year, primarily driven by retail.

Speaker 2

Earlier this quarter, we launched a successful collaboration in Cookware with Stanley Tucci, We designed an exclusive collection with GreenPan for Williams Sonoma. Collaborations like Tucci's have been an excellent vehicle for growth And new customer acquisition. Kitchen continues to see strength in high end electrics, particularly in coffee and espresso. And the Williams Sonja Home Business, while still negative, is beginning to see improved trends with a refreshed more editorial point of view that showcases updated textiles and decorative accessories. Looking to Q4, Williams Sonoma becomes a bigger part of our business And early reads on holiday are positive, indicating a strong season of entertaining and gifting ahead.

Speaker 2

We have an impressive pipeline of new launches with engaging content and corresponding events for our customers to experience both in store and online. Now I'd like to update you on our other initiatives. We are pleased to report business to business delivered a positive quarter, running positive 1.5% in Q3, Driven by 30% growth in the contract business. Exciting wins in the quarter included a brand standard program for Pottery Barn with Pendry Hotels For custom outdoor furniture and a new partnership with the premier developer partner, Jamestown, for 2 new properties, including a senior living tower And a new residential development. We're also excited by the success of specific B2B product developments like the expansion of our restaurant furniture program That has been key to gaining momentum in the food and beverage space with clients like Dave and Buster's, along with clients in the sports and entertainment space.

Speaker 2

The future remains bright for this business. Now, I'd like to talk about our global business. Our global strategy has not changed and we continue to focus on a franchise first model. This business has of has been affected by the uncertain macro environment, particularly in the Middle East. We are excited to see our brands exceed expectations in other markets like India.

Speaker 2

We opened our 3rd West Elm retail location in Pune and expanded our Pottery Barn brands into the world famous GEO World Plaza now open in Mumbai. The Mexico market is also showing strength, driven by improved In stocks and furniture and strong back to school and seasonal assortments. And we continue to see momentum in our Canada business, fueled by our commitment to enhancing the customer experience, both online and in retail. We have also grown the brand and service offerings available to Canadian customers by launching Rejuvenation and Mark and Graham online And relaunching Gift Registry in Canada. Lastly, I'd like to update you on our emerging brands.

Speaker 2

Rejuvenation delivered a positive quarter, Driven by our remodel and refresh categories as well as new growth initiatives. Customers continue to update their homes, specifically in the spaces of kitchen and bath. We are continuing to grow the brand in new markets by opening a new store in the San Diego market And another new store opening this weekend in North Carolina. We continue to be excited by the opportunity we have for growth from the Rejuvenation brand. We are also pleased with our results in Mark and Graham, our gifting and personalization brand.

Speaker 2

We are optimistic for Q4 as we head Into the key gift giving holiday season, customers will benefit from the brand's inspiring content and curated monogram gift guides Organized by both recipient and price point. And at Greenrow, we continue to gain momentum in this new brand, Which utilizes sustainable materials and manufacturing practices to create colorful, heirloom quality products. While it's early, we remain optimistic about the potential of this brand and its aesthetic. These successful and exciting emerging brands demonstrate our ability to develop new businesses that expand our portfolio of brands and address white space in our product offerings, all with minimal investment and low cost of entry, leveraging our knowledge and infrastructure. In summary, our outperformance this quarter drove a record Q3 operating margin of 17%.

Speaker 2

Although customers are shifting their spending temporarily away from high ticket furniture purchases, we have a powerful portfolio of brands serving a range of categories, aesthetics and life stages to meet the demands of customers. And despite our sales running down this year, Our execution and the strength of our operating model produced strong earnings again this quarter, driven by our full price selling, Supply chain efficiencies and best in class customer service. Our early seasonal reads are strong and we are optimistic about the holiday season. As we put this all together, we are raising our guidance for the year. We now expect full year revenues to come in at a range of down 10% to down 12%, And we are raising our outlook on operating margin to a range of 16% to 16.5%.

Speaker 2

It is important to note that the reduction in our revenues outlook It's more than offset by our raised operating margin outlook. And with that, I will turn the call over to Jeff to walk you through the numbers in detail.

Speaker 3

Thank you, Laura, and good morning, everyone. As Laura said, we're proud that once again, we've delivered earnings Substantially exceeding expectations. Our Q3 results reinforce the theme we've consistently communicated Over the past several quarters, first, our steadfast commitment to maintain price integrity and not run sitewide promotions. 2nd, how our earlier supply chain cost pressures will become tailwinds in the second half and beyond And third, our ability to control costs and manage inventory levels. Our strong profitability this quarter, Despite softer top line revenues, demonstrates the durability of our operating margin.

Speaker 3

Now let's dive into our Q3 results, followed by an update on our fiscal year guidance. In addition to year over year results, I'll reference 2019 as it's helpful to compare our performance with pre pandemic levels. Net revenues came in at $1,854,000,000 While below our expectations, Our revenues reflect the larger home furnishings backdrop and our commitment to maintain price integrity even if it means foregoing some revenues in the short term. Our revenue growth in Q3 came in at negative 14.6 percent comp. Our 2 year stack was negative 6.5 percent and our 4 year stack against 2019 grew 34.8%.

Speaker 3

Our Q3 demand comp at negative 11.8% was materially unchanged from our Q2 trend. Our 2 year demand stack was negative 13.8 percent and our full year demand stack was a positive 33.2%. Our revenue comps this quarter reflect a normalized spread between demand and net comps. Our improvement across returns and appeasements Offsets the majority of last year's outsized back order fill. From a cadence perspective, Our demand trends continue to be inconsistent and choppy, especially after Labor Day.

Speaker 3

Moving down the income statement. Gross margin at 44.4% exceeded our expectations. The 290 basis point improvement over last year reflects the supply chain tailwinds we've been guiding for several quarters. Merchandise margins increased materially over last year, driven by lower ocean freight costs flowing into our income statement And our focus on full price selling and price integrity. In fact, merchandise margins We're substantially higher than Q3 2019.

Speaker 3

Selling margin also improved materially over last year, driven by supply chain efficiencies. Through our improved execution and investment in supply chain, We substantially improved our customer experience. Key metrics, including out of market shipping, Multiple deliveries per order, returns, accommodations, damages and replacements Are all performing at pre pandemic levels, if not better. I'd like to congratulate and thank Our supply chain organization for delivering these results. Altogether, our selling margins were 4.50 basis points Higher than last year, reflecting the full impact to our profitability of the supply chain tailwinds.

Speaker 3

Occupancy costs of $200,000,000 were 1% lower than last year and decreased 2% quarter over quarter. Coming in at 10.8 percent of net revenues, occupancy deleveraged 160 basis points to last year, driven by the softer top line. Our Q3 gross margin at 44.4 percent is 840 basis points Higher than 20 19's 36%. Our SG and A expenses of $507,000,000 We're down 11% to last year, once again reflecting our ability to control costs. Our 27.4 percent rate deleveraged 140 basis points to last year, driven by general expenses, Offsetting variable expense savings.

Speaker 3

Employment expense decreased double digits versus last year, But deleveraged, primarily driven by favorability in last year's stock based compensation. We continue to manage variable employment costs in accordance with top line trends. Our advertising expense slightly leveraged in Q3, Despite increased funding quarter over quarter as we continue to test into higher levels of advertising spend, Our rate leverage reflects the competitive advantage of our agile performance driven marketing organization. Our in house capabilities, 1st party data and multi brand platform continue to drive efficient advertising spend. General expenses drove the majority of the deleverage on the quarter, resulting from timing of asset disposals and legal settlements.

Speaker 3

Overall, our year to date SG and A through 39 weeks is down 12% to last year and flat on a rate basis, And it's 100 basis points lower than 20 nineteen's SG and A rate of 28.4%. Regarding the bottom line, our results speak for themselves. Q3 operating income came in at 315,000,000 And operating margin at 17%, a record operating margin for our 3rd quarter. 17% is 150 basis points above last year and 9.40 basis points above 20 19's 7.6 percent. Our diluted earnings per share of $3.66 We're slightly below last year's Q3 earnings per share of $3.72 but significantly above 20 19 Earnings per share of $1.02 On the balance sheet, we ended the quarter with a cash balance of $699,000,000 with no debt outstanding.

Speaker 3

This was after we invested $42,000,000 in capital expenditures supporting our long term growth, And we returned over $61,000,000 to our shareholders through quarterly dividends and share repurchases. Merchandise inventories at $1,400,000,000 were down 17.2% to last year. Three important points I'd like to emphasize once again. First, we are well positioned to maintain our price integrity As we proactively manage our inventory levels in line with our demand trends. 2nd, going into the holiday season, Our in stock levels are near historical high and our regional inventory balance and composition is well positioned.

Speaker 3

3rd, Our Q3 ending inventory levels are up only 11% versus same period in 2019, And that's with revenue comps up 34.8% over the same time frame. This discipline Highlights how we've improved both our inventory efficiency and turnover. Summing up our Q3 results, We are proud to have delivered earnings substantially exceeding expectations. I would like to thank all our associates for delivering these outstanding results. Now let's turn to our outlook.

Speaker 3

Based on our Q3 results, We are updating our full year outlook. Our new guidance reflects both the ongoing top line uncertainty And to strengthen our operating margin, we now expect full year 'twenty three net revenues to be in a range of down 10% comp to down 12% comp. And we are raising our operating margin outlook to a range of 16% to 16.5%. It's important to note that our lower sales outlook is more than offset by our increased operating margin Producing higher implied EPS guidance. On the top line, our updated guidance is based upon the facts and trends we know today from our Q3 results.

Speaker 3

Specifically, a conservative view of our 1, 2 and 4 year trends in Q3 Connects with the implicit Q4 guide and our updated full year 'twenty three net revenue guidance. Given the macroeconomic environment, We believe this outlook is prudent. On the bottom line, our supply chain tailwinds will continue to bolster our profitability, Producing full year operating margin within our updated range of 16% to 16.5% With implied Q4 operating margins in line with historical builds from Q3, we continue to expect our full year income tax rate to be approximately 26%. Our 2023 capital expenditures are now anticipated to be $225,000,000 due to timing of project spend. As we have communicated quarterly, we are committed to returning excess cash to our shareholders Through dividends and opportunistic stock repurchases, we will continue to pay our quarterly dividend of $0.90 per share, And we have almost $700,000,000 remaining under our current $1,000,000,000 share repurchase authorization to repurchase our stock opportunistically.

Speaker 3

As we look forward to 2024, we will balance the macroeconomic uncertainty with our long term growth potential and will provide guidance in March. As we look further into the future beyond 2024, we are reiterating our long term guidance of mid to high single digit top line growth with operating margins exceeding 15%. We're confident We will continue to outperform our peers and deliver shareholder growth for these reasons: our ability to gain market share The fragmented home furnishings industry, the strength of our in house proprietary design, The competitive advantage of our digital first, but not digital only channel strategy, the ongoing strength of our growth initiatives And the resiliency of our fortress balance sheet. With that, I'll open the call for questions.

Operator

And return to the queue for any additional questions you may have. Our first question will come from the line of Chuck Grom with Gordon Haskett. Please go ahead.

Speaker 4

Hey, thanks. Good morning, everybody. The compression in your top line in the 3rd quarter and the implied slowdown in the 4th quarter really isn't all that surprising Given the backdrop today, but at what point do you run the risk of losing market share or mind share by not engaging? And then as a follow-up, gross margin control was Actually more impressive, can you talk about the drivers there and the sustainability into 2024, particularly on the supply chain front?

Speaker 3

Good morning, Chuck. Why don't we start with the last one and I'll talk about gross margin and then I'll turn it over to Laura to talk about our promotional posture. Gross margin exceeded expectations this quarter, really driven by the tailwinds I've been guiding for the past several quarters. There were 3 main drivers in order of magnitude. First, our lower ocean freight from rate normalization flowing into our income statement.

Speaker 3

2nd, supply chain efficiencies, including lower out of market shipping, fewer multiple deliveries per order and decreased returns, accommodations, damages and replacements. And 3rd, reduced promotional activity as we focused on full price selling and maintained our price integrity. Overall, the majority of the improvement came from ocean freight and supply chain efficiencies. We've made significant improvements in our customer service And you can see it in our results. And I want to once again thank our supply chain organization for really knocking the cover off the ball.

Speaker 3

Going to your question about how these will continue, here's what you need to remember. Our Q3 margins represent the start of the tailwinds we will see from supply chain efficiencies. And while we don't guide specific lines, we anticipate similar tailwinds in Q4 and even into 2024.

Speaker 2

Hi, Chuck. So I don't think we should think about gross margin as a trade per share. The 2 are not necessarily as correlated as one might think. In fact, it's not clear that people who are running more promotions are going to gain more share, And for our target customer, we are confident that we are gaining share and that the high quality regular price customer It's the one that we best serve given what we do as brands. And trust me, we are very focused on returning to growth.

Speaker 2

In fact, we're very confident about our strategies and our ability to execute. It's the environment that is really the question mark For us as we look at the balance of the year in the short term. And so we continue to test different things to see What makes sense, whether it's pricing, up, down, more marketing, less marketing, and trust me, as we see Things that do not just benefit the short term, we are definitely focused on pushing them and building upon them for the long term.

Speaker 4

Okay, great. Thanks for that. And then, can we just talk a little bit about like for like SKU pricing today relative to 20 Tina, I know there's been a lot of improvements, but if you find engines that are actually like for like, where do we stand today relative to back then? Thanks.

Speaker 2

That's a good question, Chuck. I didn't expect that until 2019. Well, it was a long time ago. It's hard to remember. We took some price increases during the pandemic as you know and a lot of them have stuck and some we've backed off and We've also gotten a lot of vendor price reductions, which is a great thing to see.

Speaker 2

And we've used some of those to reduce Prices to our consumers so that we are very competitive with our value quality relationship. The thing to remember also is that It's not just about reducing prices on existing products. We bring in a fair amount of exclusive exciting newness and we've been building into both our mid tier and low price points And those things are full margins. And so it's a very good way to continue to build value into the business. But visavis2019, I actually don't have that number on how we exactly stand with the entire assortment versus 2019 in pricing.

Speaker 4

Okay. I'll circle up for Jeremy. Thanks guys. That's great. Thanks for coming.

Operator

Your next I wanted to ask on promotions, Loya, your comment that you were less promotional than a year ago. I know you've pulled back from the site wide promotions a while back. So where I guess, where are you lowering promotions? Is it clearance? Is it other items, like rewards, etcetera, would be helpful to understand that trend?

Operator

Thanks.

Speaker 2

Yes. Thank you for the question. We've in fact pulled back promotions both sequentially this year and versus last year. And we've pulled back in We took away all up down pricing that was site wide. The site wide promotions have been gone.

Speaker 2

We also did remove email overlay, all those hidden promo tactics that other people use, coupon matches, double points, we don't offer any of those. But the level of clearance and promotions during our sale periods, which we call warehouse sales, is also lower.

Operator

Our next question will come from the line of Peter Benedict with Baird. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking the question. I guess, just maybe can you expand a little more on retail optimization, where you stand in that process? What's So to come, Jeff, you mentioned the occupancy cost down slightly year over year in Q3. Is flat to down something that's sustainable in that line as In the 4Q and then in the 24?

Speaker 5

That's my first question.

Speaker 3

Good morning, Peter. We continue to operate a world class retail business And our stores serve as billboards for the brand and operate as profit centers. They're beautifully designed and curated with aspirational assortments, And we believe we will continue to serve as a competitive advantage. We continue on our journey of retail optimization. Since 2019, we've closed about 15% of our And over the next 3 to 5 years, about 50% of our leases come due and we'll continue to guide that we anticipate about 20% of those We'll close over time.

Speaker 3

Now there's multiple aspects to our retail optimization strategy. First, obviously, we'll close Any of the least performing stores from a profitability standpoint or brand denigrating, that's the low hanging fruit. The second point, which is really the exciting one, is The repositioning of our retail fleet. And this is where we're taking a look at some of our older stores that in our older Malls that the customer is not shopping as frequently and we're moving in more vibrant lifestyle centers. And here we're seeing not only better customer engagement, better top line, but better economics as well.

Speaker 3

And we'll continue to look to reposition our fleet to right locations as leases come due. And of course, it all comes down to negotiations. It's part of the real estate business as we all know. We're probably and from an ending standpoint, we're probably in ending 6, I'd say, ending 5 or 6. And on our journey here, there's more work to do.

Speaker 3

We have like I said, we have a lot of leases coming due. But the key point here is we continue to improve our retail profitability. And I'll give you one example of where this is continuing to resonate. And I know I used it in the last call, but it continues to be an Outstanding example of where the strategy of retail positioning and retail optimization really works and that's our party's born store in Westport, Connecticut, which we moved from downtown Westport, not the best location for us to a location on the Post Road That is more vibrant, more customer friendly. And I said in Q3 that the results were 30% better than the prior store.

Speaker 3

I mean in Q2 that the results were 30% better than the prior store. They're now up 45% to the prior store. So this strategy continues, to gain traction. The key thing for us is that our world class stores, Coupled with our best in class e commerce tool demonstrates our digital first but not digital only channel strategy as a key differentiator in the home furnishings industry.

Speaker 5

Good. Nice to see my recent visit to the Westport store showing up in the numbers there, I guess.

Speaker 3

Thank you for your business, Peter.

Speaker 5

Yes. Not exactly. So next question just would be around the cash balance, obviously, continues to rise. You've slowed the buyback Here of late. Just curious, is this just prudent caution given all the macro pressures, The risks that are out there, is there or is there something more strategic, that's maybe at play here in terms of building the cash balance?

Speaker 5

Thank you.

Speaker 3

Yes, Peter, as you know, we don't commit to a consistent cadence of share repurchases. We do remain committed to driving long term shareholder And we'll opportunistically buy back stock and drive shareholder returns. In Q3, we had extremely strong performance in our Stock price relative to the broader market, we exceeded all 3 major indexes, a collection of hardlines retail and softlines retail. So We have performed, so it's not what we consider opportunistic.

Speaker 5

Okay, fair enough. Thanks so much and good luck.

Operator

Your next question comes from the line of Max Ratlincol with TD Cowen. Please go ahead.

Speaker 6

Great. Thanks a lot and congrats on the nice quarter. So first, Laura, how are the brands performing against your own internal expectations? And which brands do you view to have the bigger opportunities to take market share From some of your struggling or closing peers?

Speaker 2

It's a great question. We are disappointed in the top line performance, as you know, In most of our brands this year except for our emerging brands, we've seen slower than expected furniture performance. That said, we've seen really strong seasonal performance and these life stage businesses and certain categories are better than expected. So it's a big change for us that we've really focused on and made the shift into quickly with our marketing and our inventory purchases. But as I think about the long term and we think about where we sit visavis the market, market as you know is very large and very fractured.

Speaker 2

And so there's huge opportunity for us to gain share with all of our brands. I think that the names of our brands Are stronger than the volumes that they produce. When you think about the Williams Sonoma name, the brand Williams Sonoma, you think about how small it is And the consolidation of the industry and with Bed Bath and Beyond closing its retail footprint And others going out of business and not seeing anyone deliver on exclusive proprietary products for high end kitchen. You can see what a tremendous opportunity we have. And with that also, we have Williams Sonoma Home, which sits in that higher end space where there's not many, Particularly in the, aesthetic that we're serving.

Speaker 2

I actually have Felix sitting right next to me and I We invited him today because we're upon the very large holiday season that we're looking forward to. And as you know, William's summer really spikes during the holiday season. And so, Felix, you want to make a few comments about how you see your brand gaining market share in the future?

Speaker 7

Sure. I don't want to give away too much of our winning Formula, but it includes curating the best products out there, right, inspiring customers how to use it, Offering it in their channel of choice, whether it be online or in store. I think some houseware brands For products that don't inspire and some inspire, but don't have 150 plus stores and a great website to purchase from. As Jeff said, our beautiful stores are well trained and passionate store associates, our inspiring catalog and our multi Dimensional website, our competitive advantages, I don't think anyone really has. And as we head into the Q4, this is the time that We celebrate the most.

Speaker 7

We have Thanksgiving, Hanukkah, Christmas, New Year's Eve. These are reasons for people to come visit our stores. And I think we've pulled together the best assortment of gifts and holiday decor that we ever Have had. So we're excited and we want to continue to gain market share and all indicators are that in the kitchen business, it appears we are.

Speaker 2

And then as you look at our other brands, both the big ones, both West Elm and Pottery Barn, we have shown this year that there There's areas within each brand that are very underdeveloped and where there's sizable opportunity from accessible furniture for Pottery Barn and dorm To, in West Elm, filling out the modern accessory textile piece, which we haven't addressed and also More modern seasonal assortments. That is a big opportunity and one that has never been built. So we see us being able to pick up share In those two brands and specific categories. And of course, the temporary furniture pullback is just that. This too shall reverse.

Speaker 2

And the great news is that we won't have built our business or held it up with promotions like others are at this time. That is getting out of our base And it's going to continue to allow us to focus on delivering proprietary products and not just thinking about Markdowns all the time, but thinking about how to build better collaborations and more relevant product lines that the customer loves. The last thing I'll just say is we've talked about B2B, it's across all brands. It's a big driver of market share for us because nobody is doing what we're doing. It's a very, very large industry and we're still scratching the surface and we are still As, Josie who runs it likes to say, we are still doing more gathering than hunting.

Speaker 2

And, we have a lot more that we can do As we continue to build this muscle. So we're excited about the growth algorithms for the future. And we do recognize that it's been softer than This year, particularly in furniture, but we're completely focused on that growth posture looking out into the future.

Speaker 6

That's great. Super helpful. And Jeff, I have to ask you a margin question. But when we think about the updated margin guidance, Is there anything in it that makes you think that you can at least hold it, as we think ahead, especially once you start to I'll leverage fixed expenses on top line growth.

Speaker 3

As I said in the answer to Chuck's question On gross margin, we anticipate that the results we saw in Q4, the tailwinds I've been talking about will continue I'm sorry, the results we saw in Q3, The tailwinds I've been talking about will continue into Q4. These are pretty strong tailwinds. I talked about the impact of ocean freight, our supply chain efficiencies and our full price selling. While we're talking about guidance, I also want to just point out That while we don't guide specific lines, last year's Q4, our SG and A materially benefited From some large favorable items we recorded that we don't anticipate reoccurring this year. But here's the key takeaway, it's all contemplated in our guidance, Which we've raised our full year outlook for implied ETFs.

Speaker 6

Great. Thanks a lot.

Operator

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Speaker 8

Hi. This is Zach on for Simeon. Thanks for taking our questions. On your view for top line, do you think this year will be the bottom? Your updated guidance implies an underlying deceleration in the 4th quarter across Stacks, so do you think that the trends could inflect in 2024?

Speaker 8

Thanks.

Speaker 3

Good morning. We'll talk more about next year after we get through the really important holiday season. Right now, that's where our focus is. And as Laura just touched on, our primary objective in 2024 will be to drive both growth and margin and we'll balance the macroeconomic uncertainty With our long term growth potential, but we'll talk more about that in March.

Operator

Our next question will come from the line of Anthony Chukumba with Loop Capital Markets. Please go ahead.

Speaker 9

Good morning. And let me add my congratulations As well on the strong profitability. So you talked about introducing a larger offering of new products at mid tier and lower price points. And then you talked specifically about Pottery Barn, introducing them those products. I guess just two questions related.

Speaker 9

Are there any other brands that have where you've introduced those mid and lower tier products? And then, how do the merchandise the selling margins On those products compared to some of your higher price point offerings? Thank you.

Speaker 2

Thanks, Anthony. The margin profile is the same as the rest of our products. So it's not that they're lower at all. In fact, they're great margins. And we've done the same thing, also in West Elm.

Speaker 2

And you're going to see us in West Elm, which I'm really excited about, continue to have more and more news sequentially. So for fall, you might have heard in my prepared remarks that we had some just superb winners, in the furniture assortments. And in some cases, they were also at the higher price point. So we're building upon those. Many of them are sold out right now.

Speaker 2

And we're thrilled, But we are also chasing those products and we'll be getting back in stock in Q1 in those. And that gives us confidence about where we want to take the brand aesthetically, Not just from a price point, but where we think the modern customer wants to be now and where that evolution is going. And so as we go into Q1 and Q2, I'm just Really excited about the product line that you're going to see in West Elm. And based on the wins that we have currently, I think it's going to be a big change And the next, really big step in the evolution, the next chapter, if you will, for West Elm's winning strategy.

Speaker 9

Got it. Thank you.

Speaker 2

Welcome.

Operator

Your next question comes from the line of Jason Haas with Bank of America.

Speaker 10

So I wanted to also ask about, how you're thinking about the trade off between Comps and margins, I'm curious if you think that you could have driven gross profit dollars higher this year, if you had used more promotions? Do you think that that would have actually driven the gross profit dollars higher? My question is, obviously, if you did say a lot you could but didn't, The reason would be because you don't want to destroy the pricing power over the long term. You don't want to harm the brand image. So I'm curious if You feel like that's the dynamic where you're basically sacrificing in the short term, to hopefully have better results once, the industry turns in your favor?

Speaker 2

Yes. Jeff and I are fighting over your question. I would say it's both short term and long term. It's not clear that reducing prices drives more. If you have less people buying furniture, you just reduce the price 20%, you got to have 20% more people buy it Just to be even, right?

Speaker 2

So you may think you're doing something, it's what retailers do. They mark stuff down when they want more sales and it's not necessarily the case. In fact, we've done a lot of testing up and down to see where that sensitivity is. So that's one. Secondly, for sure, It's not good for the long term.

Speaker 2

And you can see that the race to the bottom with promotions, if you look at the history of retailers who've done that, it's a bad idea. And we are not a low price provider. We are quality, high service, high design retailer. And so pricing is not usually why you come to us. You want the price to be great for the value and the design.

Speaker 2

But our quality is so much higher, and we're not willing to sacrifice it in the short term or long term to sustain a promotional strategy.

Speaker 10

Thank you. That makes sense. And then as a follow-up, I was curious to ask about, the West Elm performance in particular. It's good to see Pottery Barn and Williams Sonoma performing well, both on a year over year basis and then also versus 2019. That used to not be the case where previously it seemed West Elm was the stronger performer.

Speaker 10

I'm curious to know how much you think of that external given West Elm We tend to serve a younger, maybe less affluent customer than those other brands versus how much of it is internal. You've talked about some of them. Can you talk about what changes are being made at West Elm, and when we should expect to see some improvement from those?

Speaker 2

Sure. There's no doubt that the metrics, the makeup of the West Elm business makes it more vulnerable to the Right. You mentioned it. The younger customer, the less affluent customer, The higher furniture, the less developed seasonal business or less developed decorative and textile business, those are all Factors in the West Elm underperformance. That said, we do not think about not being able to do anything about anything.

Speaker 2

We are focused on what we can do Being served this set of circumstances. So we have been working very diligently to give the customer other options Other than just furniture and to make sure our stores have those things ready to go versus having them only online, it's a big change for us to push That business into the stores to drive repeat traffic, not just when you come to buy furniture. So we've talked about not just the Development of those things, but I want to make sure you understand too the way we're using the channel strategies to push, things That are lower ticket and that are more for easy updates for the home versus the whole home. Also, we've been pushing collaborations and have had some Really great success lately with Colin King and Joe Faltazura. Those things sold out.

Speaker 2

We've got some really Exciting ones in the pipeline and we have more confidence now to buy into those. And collaborations are very exciting for brands because they bring in new customer groups. And so That's a nice incremental change for us as well. And then in terms of the product design and without Going into it too competitively, you always want to lead, right? You always want to lead With design and we are making, as I just said previously, some pretty significant improvements in what we're bringing in, In terms of newness quantity and also the relevancy in my opinion.

Speaker 2

And so that's Very exciting and it's in the hopper, it's on order. We're filling in where we're out of stock currently on some winners And we're excited to see that come to fruition next year. So it's not to me that That's what all of our brands do with their designs. It's not that there's a problem. It's more that you want to stay on top and you want to lead.

Speaker 2

And This new leadership at West Elm and the focus on product and focus on design is really exciting.

Speaker 10

Great to hear. Thank you.

Operator

Your next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Speaker 5

Hi, good morning. Thank you for taking my questions. So first, I'd like to would like to add my congratulations on your continued profitability beat. So the question I want to ask, and I know it's a bit of a follow-up here, but just with respect to Just the overall promotional environment. So I'll ask Meeve a couple of questions within this question.

Speaker 5

I mean, one, as you're monitoring the environment and the actions of your competitors, If you look at the promotions that have accelerated, do you believe this is more temporary, either Backdrop driven, clearance driven or is this the kind of the return to levels we saw pre pandemic? And then the second question I have and you look, you've done a great job holding the line on your pricing and we clearly see that in the margins. I guess, the question I'm going to ask is, is your communicating with your customers then, is there been a shift in marketing Or shifts otherwise that you're saying to your customers, look, we have great brands, these are high quality and you should not expect promotions from us.

Speaker 2

And there's still plenty of things on sale because we clear products. So you can find if you're a promotional shopper, you can find Sales prices on our websites for sure. So let's not pretend we don't have any. It's just the quantity of those is so much lower than it's been. It's so much lower than our competitors.

Speaker 2

I don't like to name people by names, but we have scrubbed everybody's websites and look at them. And they're littered with, I mean, in some cases, 80% redlines, 100% redlines of some really good names out there. And I don't know what they're doing, but I can tell you what the customer sees. And I don't know when they're going to go back to regular price or if this is the new strategy. But this is what's going on in the marketplace.

Speaker 2

And It's very important to us that the customer can count on the price because if you buy a piece of furniture, it's likely not delivered for 4 to 5 weeks. That price changes and it hasn't even been delivered. You're never going to you're going to always wait until you get the sale and you just create It's up and down curve of customers waiting for sale. It's not a good cycle. And what I said before about the newness selling, When you bring out an incredible product, and this is today, even with this depressed furniture environment, I'm talking about furniture, it sells out.

Speaker 2

Because when you have product that good, customers want to buy it. But the key thing is, is the first time you price it, that price value relationship needs to be Great. So that is where we're focused. What is the first price? Is that a great value?

Speaker 2

Is it the best value in the marketplace? And now we're looking at the competition and assuming they're going to be 20 off, assuming they're going to be 30 off. So we're not just saying is it the best versus the Regular price, we're saying is it the best versus their sale price. And that's the key driver here on creating value for the consumer and having them trust us. And when they trust us, they furnish their whole house with us.

Speaker 5

That's very helpful. If I could ask a follow-up unrelated, but with regard to again gross margins, but now we're seeing the benefit of It is moderating shipping costs and recognizing that there's a lot of accounting noise and how these costs are capitalized. But I guess, Jeff, maybe this is more for you, but I mean, how long will this Dynamic proven tailwind for gross margins for Williams Sonoma.

Speaker 3

Look, we've certainly said in the call that it will continue into Q4. And previously, I've said it will continue to be a tailwind into 2024. But we're starting to hinge on 2024 guidance, which we'll address in March. But meanwhile, we're really laser focused On delivering our Q4 results with the all important holiday season ahead of us.

Speaker 5

I appreciate it. Thank you.

Operator

I will now turn the call back over to Laura Alber for any closing remarks.

Speaker 2

Well, thank you all. We really appreciate your time. And I want to wish you all a wonderful Thanksgiving and a great beginning to the exciting and beautiful holiday season with your family and friends. We look forward to talking to you again after the New Year and take care.

Operator

That will conclude the call. We thank you all for joining and you may now disconnect.

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