10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2022.         

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-14077

_________________________

WILLIAMS-SONOMA, INC.

(Exact name of registrant as specified in its charter)

_________________________

Delaware

(State or other jurisdiction of

incorporation or organization)

3250 Van Ness Avenue, San Francisco, CA

(Address of principal executive offices)

94-2203880

(I.R.S. Employer

Identification No.)

94109

(Zip Code)

Registrant’s telephone number, including area code: (415) 421-7900

(Former name, former address and former fiscal year, if changed since last report)

_________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, par value $.01 per share	WSM	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 27, 2022, 66,567,436 shares of the registrant’s Common Stock were outstanding.

Table of Contents

WILLIAMS-SONOMA, INC.

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED OCTOBER 30, 2022

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION
		PAGE
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	22

Table of Contents

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 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Net revenues	$	2,192,574	$	2,047,539	$	6,221,338	$	5,744,907
Cost of goods sold	1,282,048		1,152,054		3,553,455		3,238,181
Gross profit	910,526		895,485		2,667,883		2,506,726
Selling, general and administrative expenses	570,893		565,218		1,639,248		1,578,182
Operating income	339,633		330,267		1,028,635		928,544
Interest (income) expense, net	(370)		121		(877)		1,954
Earnings before income taxes	340,003		330,146		1,029,512		926,590
Income taxes	88,280		80,622		256,601		203,194
Net earnings	$	251,723	$	249,524	$	772,911	$	723,396
Basic earnings per share	$	3.77	$	3.37	$	11.27	$	9.66
Diluted earnings per share	$	3.72	$	3.29	$	11.08	$	9.40
Shares used in calculation of earnings per share:
Basic	66,704		74,010		68,578		74,865
Diluted	67,617		75,943		69,782		76,975

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 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Net earnings	$	251,723	$	249,524	$	772,911	$	723,396
Other comprehensive income (loss):
Foreign currency translation adjustments	(5,158)		792		(8,057)		970
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $378, $(19), $420, and $(235)	1,069		(54)		1,188		(654)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $45, $(131), $53, and $(312)	(128)		369		(151)		859
Comprehensive income	$	247,506	$	250,631	$	765,891	$	724,571

See Notes to Condensed Consolidated Financial Statements.

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WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	As of
(In thousands, except per share amounts)	October 30, 2022		January 30, 2022		October 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	113,058	$	850,338	$	656,898
Accounts receivable, net	125,842		131,683		139,511
Merchandise inventories, net	1,687,895		1,246,372		1,272,028
Prepaid expenses	104,208		69,252		85,433
Other current assets	29,729		26,249		22,852
Total current assets	2,060,732		2,323,894		2,176,722
Property and equipment, net	1,009,088		920,773		892,226
Operating lease right-of-use assets	1,277,064		1,132,764		1,159,315
Deferred income taxes, net	54,247		56,585		61,768
Goodwill	85,245		85,354		85,392
Other long-term assets, net	107,631		106,250		101,901
Total assets	$	4,594,007	$	4,625,620	$	4,477,324
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	720,856	$	612,512	$	638,371
Accrued expenses	275,381		319,924		273,722
Gift card and other deferred revenue	488,771		447,770		431,446
Income taxes payable	45,879		79,554		38,320
Operating lease liabilities	220,012		217,409		218,348
Other current liabilities	103,821		94,517		91,418
Total current liabilities	1,854,720		1,771,686		1,691,625
Deferred lease incentives	13,918		16,360		17,268
Long-term operating lease liabilities	1,208,074		1,066,839		1,095,290
Other long-term liabilities	104,361		106,528		129,771
Total liabilities	3,181,073		2,961,413		2,933,954
Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued	—		—		—
Common stock: $0.01 par value; 253,125 shares authorized; 66,556, 71,982 and 73,326 shares issued and outstanding at October 30, 2022, January 30, 2022 and October 31, 2021, respectively	666		720		734
Additional paid-in capital	553,698		600,942		585,449
Retained earnings	877,157		1,074,084		963,840
Accumulated other comprehensive loss	(17,848)		(10,828)		(5,942)
Treasury stock, at cost: 1, 4 and 4 shares as of October 30, 2022, January 30, 2022 and October 31, 2021, respectively	(739)		(711)		(711)
Total stockholders’ equity	1,412,934		1,664,207		1,543,370
Total liabilities and stockholders’ equity	$	4,594,007	$	4,625,620	$	4,477,324

See Notes to Condensed Consolidated Financial Statements.

2

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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

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

See Notes to Condensed Consolidated Financial Statements.

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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 31, 2021	76,340	$	764	$	638,375	$	1,019,762	$	(7,117)	$	(599)	$	1,651,185
Net earnings	—	—		—		227,802		—		—		227,802
Foreign currency translation adjustments	—	—		—		—		3,700		—		3,700
Change in fair value of derivative financial instruments, net of tax	—	—		—		—		(665)		—		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		153		—		153
Conversion/release of stock-based awards 1	686	7		(97,958)		—		—		(500)		(98,451)
Repurchases of common stock	(1,791)	(18)		(9,239)		(306,272)		—		—		(315,529)
Reissuance of treasury stock under stock-based compensation plans 1	—	—		(344)		(44)		—		388		—
Stock-based compensation expense	—	—		25,471		—		—		—		25,471
Dividends declared	—	—		—		(46,370)		—		—		(46,370)
Balance at May 2, 2021	75,235	$	753	$	556,305	$	894,878	$	(3,929)	$	(711)	$	1,447,296
Net earnings	—	—		—		246,070		—		—		246,070
Foreign currency translation adjustments	—	—		—		—		(3,522)		—		(3,522)
Change in fair value of derivative financial instruments, net of tax	—	—		—		—		65		—		65
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		337		—		337
Conversion/release of stock-based awards 1	25	—		(1,709)		—		—		—		(1,709)
Repurchases of common stock	(834)	(8)		(4,358)		(131,493)		—		—		(135,859)
Stock-based compensation expense	—	—		19,496		—		—		—		19,496
Dividends declared	—	—		—		(45,455)		—		—		(45,455)
Balance at August 1, 2021	74,426	$	745	$	569,734	$	964,000	$	(7,049)	$	(711)	$	1,526,719
Net earnings	—	—		—		249,524		—		—		249,524
Foreign currency translation adjustments	—	—		—		—		792		—		792
Change in fair value of derivative financial instruments, net of tax	—	—		—		—		(54)		—		(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		369		—		369
Conversion/release of stock-based awards1	20	—		(2,322)		—		—		—		(2,322)
Repurchases of common stock	(1,120)	(11)		(5,921)		(195,379)		—		—		(201,311)
Stock-based compensation expense	—	—		23,958		—		—		—		23,958
Dividends declared	—	—		—		(54,305)		—		—		(54,305)
Balance at October 31, 2021	73,326	$	734	$	585,449	$	963,840	$	(5,942)	$	(711)	$	1,543,370

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

See Notes to Condensed Consolidated Financial Statements.

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WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Thirty-nine Weeks Ended
(In thousands)	October 30, 2022		October 31, 2021
Cash flows from operating activities:
Net earnings	$	772,911	$	723,396
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	157,410		145,897
Loss on disposal/impairment of assets	5,738		887
Amortization of deferred lease incentives	(2,442)		(3,345)
Non-cash lease expense	169,602		159,757
Deferred income taxes	(10,494)		(11,440)
Tax benefit related to stock-based awards	11,172		10,838
Stock-based compensation expense	67,797		70,566
Other	272		4
Changes in:
Accounts receivable	5,288		4,941
Merchandise inventories	(443,812)		(264,094)
Prepaid expenses and other assets	(39,737)		(10,078)
Accounts payable	98,103		74,181
Accrued expenses and other liabilities	(34,157)		24,400
Gift card and other deferred revenue	42,005		58,189
Operating lease liabilities	(177,855)		(164,569)
Income taxes payable	(33,276)		(31,191)
Net cash provided by operating activities	588,525		788,339
Cash flows from investing activities:
Purchases of property and equipment	(234,378)		(141,010)
Other	100		97
Net cash used in investing activities	(234,278)		(140,913)
Cash flows from financing activities:
Repurchases of common stock	(840,955)		(652,699)
Payment of dividends	(165,254)		(135,201)
Tax withholdings related to stock-based awards	(80,431)		(102,482)
Repayment of long-term debt	—		(300,000)
Debt issuance costs	—		(777)
Net cash used in financing activities	(1,086,640)		(1,191,159)
Effect of exchange rates on cash and cash equivalents	(4,887)		294
Net decrease in cash and cash equivalents	(737,280)		(543,439)
Cash and cash equivalents at beginning of period	850,338		1,200,337
Cash and cash equivalents at end of period	$	113,058	$	656,898

See Notes to Condensed Consolidated Financial Statements.

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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 (“we,” “us” or “our”). The Condensed Consolidated Balance Sheets as of October 30, 2022 and October 31, 2021, 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 30, 2022, 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 30, 2022.

The results of operations for the thirteen and thirty-nine weeks ended October 30, 2022 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 30, 2022.

During fiscal 2021 and continuing through the first thirty-nine weeks of fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures and increased port congestion, caused delays in inventory receipts and backorder delays, increased raw material costs, and higher shipping-related charges. We expect these supply chain challenges to continue through the first half of fiscal 2023, which could negatively impact our business.

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU is intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected 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, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe the adoption would have a material impact on our financial condition, results of operations or cash flows.

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 $750 million of unsecured revolving credit.

During the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, we had no borrowings under our Revolver. Additionally, as of October 30, 2022, 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 interest rate applicable to our Revolver is variable and may be elected by us as: (i) the LIBOR (or future alternative rate) plus 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%.

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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 30, 2022, 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 aggregating to $35.0 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 30, 2022, the aggregate amount outstanding under our letter of credit facilities was $3.4 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 19, 2022, we renewed all three of our letter of credit facilities on substantially similar terms. Two of the letter of credit facilities totaling $30.0 million mature on August 19, 2023, and the latest expiration date possible for future letters of credit issued under these facilities is January 16, 2024. One of the letter of credit facilities totaling $5.0 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 30, 2022, there were approximately 6.8 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 (or the last two quarters thereof in the case of fiscal 2021) 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 30, 2022, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $16.1 million and $67.8 million, respectively. During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $24.3 million and $70.6 million, respectively.

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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 30, 2022
Basic	$	251,723	66,704	$	3.77
Effect of dilutive stock-based awards			913
Diluted	$	251,723	67,617	$	3.72
Thirteen weeks ended October 31, 2021
Basic	$	249,524	74,010	$	3.37
Effect of dilutive stock-based awards			1,933
Diluted	$	249,524	75,943	$	3.29
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
Thirty-nine weeks ended October 31, 2021
Basic	$	723,396	74,865	$	9.66
Effect of dilutive stock-based awards			2,110
Diluted	$	723,396	76,975	$	9.40

The effect of anti-dilutive stock-based awards was not material for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, 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 30, 2022 and October 31, 2021.

	For the Thirteen Weeks Ended 1				For the Thirty-nine Weeks Ended 1
(In thousands)	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Pottery Barn	$	935,045	$	788,732	$	2,588,798	$	2,200,110
West Elm	599,802		579,668		1,744,013		1,636,621
Williams Sonoma	261,820		272,361		762,651		793,423
Pottery Barn Kids and Teen	299,112		316,417		810,243		826,421
Other 2	96,795		90,361		315,633		288,332
Total 3	$	2,192,574	$	2,047,539	$	6,221,338	$	5,744,907
1Includes business-to-business net revenues within each brand.
2Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.
3Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $94.7 million and $93.1 million for the thirteen weeks ended October 30, 2022 and October 31, 2021, respectively, and approximately $303.0 million and $309.1 million for the thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.

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Long-lived assets by geographic location are as follows:

	As of
(In thousands)	October 30, 2022 1		October 31, 2021 1
U.S.	$	2,425,600	$	2,154,392
International	107,675		146,210
Total	$	2,533,275	$	2,300,602

1Includes total goodwill, deferred tax assets and intangibles of $150.0 million and $157.2 million as of October 30, 2022 and October 31, 2021, respectively, of which $137.7 million and $145.7 million, respectively, is related to the U.S.

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 30, 2022, we repurchased 513,940 shares of our common stock at an average cost of $145.02 per share for a total 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 a total cost of $841.0 million. As of October 30, 2022, there was $729.0 million remaining under our current stock repurchase program. During the thirteen weeks ended October 31, 2021, we repurchased 1,119,748 shares of our common stock at an average cost of $179.78 per share for a total cost of $201.3 million. During the thirty-nine weeks ended October 31, 2021, we repurchased 3,744,767 shares of our common stock at an average cost of $174.30 per share for a total cost of $652.7 million.

Stock repurchased by the Company is typically cancelled after purchasing. However, we hold some shares in treasury to satisfy future stock-based award settlements in certain foreign jurisdictions. We held treasury stock of $0.7 million as of October 30, 2022 and October 31, 2021.

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 $0.78 and $0.71 per common share during the thirteen weeks ended October 30, 2022 and October 31, 2021, respectively. We declared cash dividends of $2.34 and $1.89 per common share during the thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively. Our quarterly cash dividend may be limited or terminated at any time.

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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 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 30, 2022, 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.

We had foreign currency forward contracts outstanding (in U.S. dollars) with notional amounts of $19.5 million as of October 30, 2022 and October 31, 2021.

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 selling, general and administrative 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 30, 2022 and October 31, 2021.

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 30, 2022 and October 31, 2021.

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.

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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 30, 2022, no impairment charges were recognized. During the thirty-nine weeks ended October 30, 2022, we recognized impairment charges of $2.6 million related to the impairment of property and equipment and $2.6 million related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from underperforming stores in Australia. During the thirteen and thirty-nine weeks ended October 31, 2021, no impairment charges were recognized.

There were no transfers in and out of Level 3 categories during the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021.

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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 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)
Balance at January 31, 2021	$	(6,398)	$	(719)	$	(7,117)
Foreign currency translation adjustments	3,700		—		3,700
Change in fair value of derivative financial instruments	—		(665)		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		153		153
Other comprehensive income (loss)	3,700		(512)		3,188
Balance at May 2, 2021	$	(2,698)	$	(1,231)	$	(3,929)
Foreign currency translation adjustments	(3,522)		—		(3,522)
Change in fair value of derivative financial instruments	—		65		65
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		337		337
Other comprehensive income (loss)	(3,522)		402		(3,120)
Balance at August 1, 2021	$	(6,220)	$	(829)	$	(7,049)
Foreign currency translation adjustments	792		—		792
Change in fair value of derivative financial instruments	—		(54)		(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1	—		369		369
Other comprehensive income (loss)	792		315		1,107
Balance at October 31, 2021	$	(5,428)	$	(514)	$	(5,942)

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

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NOTE K. REVENUE

Merchandise Sales

The majority of our revenues are generated from sales of merchandise to our customers through our e-commerce websites, at our retail stores and through our direct mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. The remainder of our revenues are primarily generated from sales to our franchisees and wholesale transactions, incentives received from credit card issuers in connection with our private label and co-branded credit cards and revenue from estimated unredeemed stored-value cards (“breakage”).

Revenues from sales of merchandise are 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 30, 2022 and October 31, 2021, we recorded a liability for expected sales returns of approximately $52.3 million and $41.0 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 $15.8 million and $12.1 million, respectively, within other current assets in our Condensed Consolidated Balance Sheet.

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 30, 2022 and October 31, 2021, we had recorded $492.0 million and $435.2 million, respectively, for gift card and other deferred revenue in our Condensed Consolidated Balance Sheets, substantially all of which is expected to be recognized into revenue within the next 12 months.

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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: supply chain challenges; backorder levels and inventory constraints; the continuing impact of the COVID-19 pandemic on our business, results of operations and financial condition; our revenue growth; expanding our sales and operating margin; the impact of inflation and measures to control inflation on consumer spending; our strategic initiatives; our beliefs regarding customer behavior and industry trends; our merchandise strategies; our growth strategies for our brands; our beliefs regarding the resolution of current lawsuits, claims and proceedings; our stock repurchase program; our expectations regarding our cash flow hedges and foreign currency risks; our planned use of cash, including our commitment to continue or increase quarterly dividend payments; our future compliance with the financial covenants contained in our credit facility; our belief that our cash on-hand, in addition to our available credit facility, will provide adequate liquidity for our business operations over the next 12 months; our beliefs regarding our exposure to foreign currency exchange rate fluctuations; and our beliefs regarding seasonal patterns associated with our business, 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 year ended January 30, 2022, 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. ("Company", "we", or "us") is a specialty retailer of high-quality sustainable products for the home. Our products in our portfolio of eight brands – Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, at our retail stores and through our direct-mail catalogs. These brands are also part of The Key Rewards, our loyalty and credit card program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia and the United Kingdom, offer international shipping to customers worldwide, 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. We are also proud to be a leader in our industry with our Environmental, Social and Governance efforts.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended October 30, 2022 (“third quarter of fiscal 2022”), as compared to the thirteen weeks ended October 31, 2021 (“third quarter of fiscal 2021”) and the thirty-nine weeks ended October 30, 2022 (“first thirty-nine weeks of fiscal 2022”), as compared to the thirty-nine weeks ended October 31, 2021 (“first thirty-nine weeks of fiscal 2021”), 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.

Third Quarter of Fiscal 2022 Financial Results

Net revenues in the third quarter of fiscal 2022 increased by $145.0 million or 7.1%, compared to the third quarter of fiscal 2021, with comparable brand revenue growth of 8.1%. This was driven by performance in both retail and e-commerce, primarily due to an increase in furniture sales, and strong backorder fulfillment. On a two-year basis, comparable brand revenues increased 25.0%.

Pottery Barn, our largest brand, delivered 19.6% comparable brand revenue growth during the quarter, and 35.5% comparable brand revenue growth on a two-year basis, driven by our high-quality proprietary furniture business. In West Elm, comparable brand revenue growth was 4.2%, on top of 22.5% growth last year, resulting in a 26.7% comparable brand revenue growth on a two-year basis. Growth was driven by improved in-stock positions. The Williams Sonoma brand and Pottery Barn Kids and Teen brands saw comparable brand revenue declines during the quarter of 1.5% and 4.8%, respectively, as these brands continue recovery in their in-stock inventory position.

For the third quarter of fiscal 2022, diluted earnings per share was $3.72, compared to $3.29 in the third quarter of fiscal 2021 (which included a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.).

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As of October 30, 2022, we had $113.1 million in cash and generated operating cash flow of $588.5 million in the first thirty-nine weeks of fiscal 2022. In addition to our cash balance, we also ended the quarter with no outstanding borrowings under our revolving line of credit. Our liquidity position allowed us to fund the operations of the business by investing $234.4 million in capital expenditures in the first thirty-nine weeks of fiscal 2022, and to provide stockholder returns of $1.0 billion in the first thirty-nine weeks of fiscal 2022 through stock repurchases and dividends.

Looking Ahead

Looking forward to the balance of the year, we believe our operating model, which includes our key differentiators – our in-house design, our digital-first channel strategy, and our values, will set us apart from our competition and allow us to drive long-term growth and profitability. However, the current macroeconomic environment is uncertain and we continue to experience delays and increased costs across our global supply chain, including higher product costs, elevated backorders, higher freight and incremental distribution center costs for additional space to support our overall growth and our ongoing mix shift to furniture. It is hard to predict with certainty when these supply chain challenges will be fully resolved and we currently expect these supply chain challenges to negatively impact our inventory levels through the first half of 2023. Despite these challenges, we believe the demand for our proprietary and sustainably-sourced products, our growth strategies and the efficiencies of our operating model leave us well-positioned to mitigate these costs in both the short- and long-term. For more 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 January 30, 2022.

NET REVENUES

Net revenues primarily consist of sales of merchandise to our customers through our e-commerce websites, at our retail stores and through our direct mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. Our revenues also include sales to our franchisees and wholesale customers, 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.

Third Quarter of Fiscal 2022 vs. Third Quarter of Fiscal 2021

Net revenues in the third quarter of fiscal 2022 increased by $145.0 million or 7.1%, compared to the third quarter of fiscal 2021, with comparable brand revenue growth of 8.1%. This was driven by performance in both retail and e-commerce, primarily due to an increase in furniture sales, and strong backorder fulfillment. On a two-year basis, comparable brand revenues increased 25.0%.

First Thirty-nine Weeks of Fiscal 2022 vs. First Thirty-nine Weeks of Fiscal 2021

Net revenues for the first thirty-nine weeks of fiscal 2022 increased by $476.4 million, or 8.3%, compared to the first thirty-nine weeks of fiscal 2021, with comparable brand revenue growth of 9.6%. This was driven by strength in both retail and e-commerce, primarily due to an increase in furniture sales, and strong backorder fulfillment. On a two-year basis, comparable brand revenues increased 37.3%.

Comparable Brand Revenue

Comparable brand revenue includes comparable store sales and e-commerce sales, including through our direct mail catalogs, 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 consecutive days within the same fiscal month. Comparable stores that were temporarily closed due to COVID-19 were not excluded from the comparable brand revenue calculation. Outlet comparable store net 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 growth for newer concepts is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.

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	For the Thirteen Weeks Ended 1				For the Thirty-nine Weeks Ended 1
Comparable brand revenue growth (decline)	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Pottery Barn	19.6	%	15.9	%	18.7	%	27.5	%
West Elm	4.2		22.5		7.3		39.5
Williams Sonoma	(1.5)		7.6		(1.1)		15.1
Pottery Barn Kids and Teen	(4.8)		16.9		(1.0)		20.2
Total 2	8.1	%	16.9	%	9.6	%	27.7	%
1 Comparable brand revenue includes business-to-business revenues within each brand.
2 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.

STORE DATA

	Store Count					Average Leased Square Footage Per Store
	July 31, 2022	Openings	Closings	October 30, 2022	October 31, 2021	October 30, 2022	October 31, 2021
Pottery Barn	189	2	(2)	189	195	14,800	14,500
Williams Sonoma	175	—	—	175	194	6,800	6,800
West Elm	121	2	(1)	122	121	13,200	13,100
Pottery Barn Kids	52	—	—	52	57	7,700	7,800
Rejuvenation	9	—	—	9	10	9,400	8,700
Total	546	4	(3)	547	577	11,100	10,900
Store selling square footage at period-end						3,879,000	3,978,000
Store leased square footage at period-end						6,088,000	6,263,000

COST OF GOODS SOLD

	For the Thirteen Weeks Ended								For the Thirty-nine Weeks Ended
(In thousands)	October 30, 2022		% Net Revenues		October 31, 2021		% Net Revenues		October 30, 2022		% Net Revenues		October 31, 2021		% Net Revenues
Cost of goods sold 1	$	1,282,048	58.5	%	$	1,152,054	56.3	%	$	3,553,455	57.1	%	$	3,238,181	56.4	%

1Includes total occupancy expenses of $202.3 million and $183.1 million for the third quarter of fiscal 2022 and the third quarter of fiscal 2021, respectively, and $581.7 million and $534.8 million for the first thirty-nine weeks of fiscal 2022 and the first thirty-nine weeks of fiscal 2021, respectively.

Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage. Occupancy expenses consist of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation. Shipping costs consist 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.

Third Quarter of Fiscal 2022 vs. Third Quarter of Fiscal 2021

Cost of goods sold increased $130.0 million, or 11.3%, in the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021. Cost of goods sold as a percentage of net revenues increased to 58.5% in the third quarter of fiscal 2022 from 56.3% in the third quarter of fiscal 2021. This increase was primarily driven by higher shipping costs attributable to increased furniture mix, higher backorder fulfillment and incremental freight costs, including out-of-market and redundant shipping costs as a result of making multiple deliveries to the same customer. Our merchandise margins were flat in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

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First Thirty-nine Weeks of Fiscal 2022 vs. First Thirty-nine Weeks of Fiscal 2021

Cost of goods sold increased by $315.3 million, or 9.7%, for the first thirty-nine weeks of fiscal 2022, compared to the first thirty-nine weeks of fiscal 2021. Cost of goods sold as a percentage of net revenues increased to 57.1% for the first thirty-nine weeks of fiscal 2022 from 56.4% for the first thirty-nine weeks of fiscal 2021. This increase was primarily driven by higher shipping costs attributable to increased furniture mix, higher backorder fulfillment and incremental freight costs, partially offset by merchandise margin expansion.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

	For the Thirteen Weeks Ended								For the Thirty-nine Weeks Ended
(In thousands)	October 30, 2022		% Net Revenues		October 31, 2021		% Net Revenues		October 30, 2022		% Net Revenues		October 31, 2021		% Net Revenues
Selling, general and administrative expenses	$	570,893	26.0	%	$	565,218	27.6	%	$	1,639,248	26.3	%	$	1,578,182	27.5	%

Selling, general and administrative expenses consist of non-occupancy related costs associated with our retail stores, 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 and other general expenses.

Third Quarter of Fiscal 2022 vs. Third Quarter of Fiscal 2021

Selling, general and administrative expenses increased $5.7 million, or 1.0%, in the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021. Selling, general and administrative expenses as a percentage of net revenues decreased to 26.0% in the third quarter of fiscal 2022 from 27.6% in the third quarter of fiscal 2021. This decrease in rate was primarily driven by the leverage of employment costs and advertising expenses from higher sales and overall cost discipline. In the third quarter of fiscal 2022, we recorded a benefit of $7.2 million as a result of the forfeiture of certain stock-based awards.

First Thirty-nine Weeks of Fiscal 2022 vs. First Thirty-nine Weeks of Fiscal 2021

Selling, general and administrative expenses increased by $61.1 million, or 3.9%, for the first thirty-nine weeks of fiscal 2022, compared to the first thirty-nine weeks of fiscal 2021. Selling, general and administrative expenses as a percentage of net revenues decreased to 26.3% for the first thirty-nine weeks of fiscal 2022 from 27.5% for the first thirty-nine weeks of fiscal 2021. This decrease in rate was primarily driven by the leverage of employment costs and advertising expenses from higher sales and overall cost discipline.

INCOME TAXES

The effective tax rate was 24.9% for the first thirty-nine weeks of fiscal 2022 compared to 21.9% for the first thirty-nine weeks of fiscal 2021. The increase in the effective tax rate is primarily due to less excess tax benefit from stock-based compensation in fiscal 2022 compared to fiscal 2021, the tax effect of earnings mix change between the two fiscal years, the statutes of limitation related to uncertain tax positions expiring in fiscal 2021 and the change in permanent reinvestment assertion on Canadian earnings in 2022.

Since the Tax Cuts and Jobs Act of 2017, we have elected not to provide for income taxes with respect to the earnings of Canada after fiscal 2017. In the second quarter of fiscal 2022, we assessed the overall cash needs and financial position of our foreign subsidiaries, and management decided to no longer assert its intent to indefinitely reinvest undistributed earnings in Canada. As a result of this change in assertion, we recorded $2.4 million of tax expense mainly related to Canadian withholding taxes.

The Inflation Reduction Act, enacted on August 16, 2022, includes a new 15% minimum tax on “adjusted financial statement income” beginning with the Company’s fiscal year 2023, and a new 1% excise tax on stock repurchases after December 31, 2022. While these tax law changes have no immediate effect in the third quarter of fiscal 2022, and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes available.

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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 January 30, 2022, which is incorporated herein by reference.

Stock Repurchase Program and Dividends

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

Liquidity Outlook

For the remainder of fiscal 2022, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, advertising and marketing initiatives, the payment of income taxes, property and equipment purchases, rental payments on our leases, dividend payments and stock repurchases.

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 capital expenditures, dividends, 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 will impact our capital needs during or beyond the next 12 months.

Sources of Liquidity

As of October 30, 2022, we held $113.1 million in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts, and of which $78.3 million was held by our international subsidiaries. As is consistent within 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 (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 $750 million of unsecured revolving credit.

During the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, we had no borrowings under our Revolver. Additionally, as of October 30, 2022, 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 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 30, 2022, 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 aggregating to $35.0 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 30, 2022, the aggregate amount outstanding under our letter of credit facilities was $3.4 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 19, 2022, we renewed all three of our letter of credit facilities on substantially similar terms. Two of the letter of credit facilities totaling $30.0 million mature on August 19, 2023, and the latest expiration date possible for future letters of credit issued under these facilities is January 16, 2024. One of the letter of credit facilities totaling $5.0 million matures on September 30, 2026, which is also the latest expiration date possible for future letters of credit issued under the facility.

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Cash Flows from Operating Activities

For the first thirty-nine weeks of fiscal 2022, net cash provided by operating activities was $588.5 million compared to $788.3 million for the first thirty-nine weeks of fiscal 2021. For the first thirty-nine weeks of fiscal 2022, net cash provided by operating activities was primarily attributable to net earnings adjusted for non-cash items, partially offset by higher spending on merchandise inventories (as a result of our efforts to improve our in-stock position). Net cash provided by operating activities for the first thirty-nine weeks of fiscal 2022 decreased compared to the first thirty-nine weeks of fiscal 2021, primarily due to higher spending on merchandise inventories, partially offset by an increase in net earnings adjusted for non-cash items.

Cash Flows from Investing Activities

For the first thirty-nine weeks of fiscal 2022, net cash used in investing activities was $234.3 million compared to $140.9 million for the first thirty-nine weeks of fiscal 2021, and was primarily attributable to purchases of property and equipment related to technology and supply chain enhancements.

Cash Flows from Financing Activities

For the first thirty-nine weeks of fiscal 2022, net cash used in financing activities was $1.1 billion compared to $1.2 billion for the first thirty-nine weeks of fiscal 2021, primarily driven by repurchases of common stock. Net cash used in financing activities for the first thirty-nine weeks of fiscal 2022 decreased compared to the first thirty-nine weeks of fiscal 2021, primarily due to the repayment of debt in the first quarter of fiscal 2021 that did not recur in fiscal 2022, partially offset by an increase in repurchases of 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 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 associated with the retail industry. In preparation for and during our holiday selling season, we hire a substantial number of additional temporary employees, 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 third quarter of fiscal 2022, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2022.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, which include significant deterioration of the U.S. and foreign markets, changes in U.S. interest rates, foreign currency exchange rate fluctuations, and the effects of economic uncertainty which may affect the prices we pay our vendors in the foreign countries in which we do business. We do not engage in financial transactions for trading or speculative purposes.

Interest Rate Risk

Our Revolver has a variable interest rate which, when drawn upon, subjects us to risks associated with changes in that interest rate. During the third quarter of fiscal 2022, we had no borrowings under our Revolver.

In addition, we have fixed and variable income investments consisting of short-term investments classified as cash and cash equivalents, which are also affected by changes in market interest rates. As of October 30, 2022, our investments, made primarily in interest-bearing demand deposit accounts, are stated at cost and approximate their fair values.

Foreign Currency Risks

We purchase the majority of our inventory from vendors outside of the U.S. in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to our international purchase transactions was not significant to us during the third quarter of fiscal 2022 or the third quarter of fiscal 2021. Since we pay for the majority of our international purchases in U.S. dollars, however, a decline in the U.S. dollar relative to other foreign currencies would subject us to risks associated with increased purchasing costs from our vendors in their effort to offset any lost profits associated with any currency devaluation. We cannot predict with certainty the effect these increased costs may have on our financial statements or results of operations.

In addition, our businesses in Canada, Australia and the United Kingdom, and our operations throughout Asia and Europe, 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. While the impact of foreign currency exchange rate fluctuations was not material to us in the third quarter of fiscal 2022 or fiscal 2021, we have continued to see volatility in the exchange rates in the countries in which we do business. As we continue to expand globally, the foreign currency exchange risk related to our foreign operations may increase. To mitigate this risk, we hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies (see Note H to our Condensed Consolidated Financial Statements).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of October 30, 2022, an evaluation was performed by management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely discussions regarding required disclosures, and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the third quarter of fiscal 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information required by this Item is contained in Note F to our Condensed Consolidated Financial Statements within Part I of this Form 10-Q.

ITEM 1A. RISK FACTORS

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 30, 2022 for a description of the risks and uncertainties associated with our business. There were no material changes to such risk factors in the current quarterly reporting period.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information as of October 30, 2022 with respect to shares of common stock we repurchased during the third quarter of fiscal 2022. For additional information, please see Note G to our Condensed Consolidated Financial Statements within Part I of this Form 10-Q.

Fiscal Period	Total Number of Shares Purchased 1	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program 1	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
August 1, 2022 - August 28, 2022	345,800	$	156.03	345,800	$	749,620,000
August 29, 2022 - September 25, 2022	13,340	$	156.21	13,340	$	747,536,000
September 26, 2022 - October 30, 2022	154,800	$	119.45	154,800	$	729,044,000
Total	513,940	$	145.02	513,940	$	729,044,000

1 Excludes shares withheld for employee taxes upon vesting of stock-based awards.

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. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Exhibit Description
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Earnings, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted under Exhibit 101).

* Filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WILLIAMS-SONOMA, INC.
By:	/s/ Jeffrey E. Howie
	Jeffrey E. Howie
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

By:	/s/ Jeremy Brooks
	Jeremy Brooks
	Senior Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

Date: December 2, 2022

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Laura Alber, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Williams-Sonoma, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 2, 2022

By:	/s/ Laura Alber
	Laura Alber
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey E. Howie, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Williams-Sonoma, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 2, 2022

By:	/s/ Jeffrey E. Howie
	Jeffrey E. Howie
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended October 30, 2022 of Williams-Sonoma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Laura Alber, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

By:	/s/ Laura Alber
	Laura Alber
	Chief Executive Officer

Date: December 2, 2022

EX-32.2

Exhibit 32.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended October 30, 2022 of Williams-Sonoma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey E. Howie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

By:	/s/ Jeffrey E. Howie
	Jeffrey E. Howie
	Chief Financial Officer

Date: December 2, 2022

XML

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	Oct. 30, 2022	Nov. 27, 2022
Cover [Abstract]
Document Type	10-Q
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Document Period End Date	Oct. 30, 2022
Document Transition Report	false
Entity File Number	001-14077
Entity Registrant Name	WILLIAMS-SONOMA, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	94-2203880
Entity Address, Address Line One	3250 Van Ness Avenue
Entity Address, City or Town	San Francisco
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94109
City Area Code	415
Local Phone Number	421-7900
Title of 12(b) Security	Common Stock, par value $.01 per share
Trading Symbol	WSM
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		66,567,436
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Income Statement [Abstract]
Net revenues	$ 2,192,574	$ 2,047,539	$ 6,221,338	$ 5,744,907
Cost of goods sold	1,282,048	1,152,054	3,553,455	3,238,181
Gross profit	910,526	895,485	2,667,883	2,506,726
Selling, general and administrative expenses	570,893	565,218	1,639,248	1,578,182
Operating income	339,633	330,267	1,028,635	928,544
Interest (income) expense, net	(370)	121	(877)	1,954
Earnings before income taxes	340,003	330,146	1,029,512	926,590
Income taxes	88,280	80,622	256,601	203,194
Net earnings	$ 251,723	$ 249,524	$ 772,911	$ 723,396
Basic earnings per share (in USD per share)	$ 3.77	$ 3.37	$ 11.27	$ 9.66
Diluted earnings per share (in USD per share)	$ 3.72	$ 3.29	$ 11.08	$ 9.40
Shares used in calculation of earnings per share:
Basic (in shares)	66,704	74,010	68,578	74,865
Diluted (in shares)	67,617	75,943	69,782	76,975

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Statement of Comprehensive Income [Abstract]
Net earnings	$ 251,723	$ 249,524	$ 772,911	$ 723,396
Other comprehensive income (loss):
Foreign currency translation adjustments	(5,158)	792	(8,057)	970
Change in fair value of derivative financial instruments, net of tax	1,069	(54)	1,188	(654)
Reclassification adjustment for realized (gain) loss on derivative financial instruments	(128)	369	(151)	859
Comprehensive income	$ 247,506	$ 250,631	$ 765,891	$ 724,571

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Statement of Comprehensive Income [Abstract]
Change in fair value of derivative financial instruments, tax	$ 378	$ (19)	$ 420	$ (235)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, tax	$ 45	$ (131)	$ 53	$ (312)

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 30, 2022	Jan. 30, 2022	Oct. 31, 2021
Current assets
Cash and cash equivalents	$ 113,058	$ 850,338	$ 656,898
Accounts receivable, net	125,842	131,683	139,511
Merchandise inventories, net	1,687,895	1,246,372	1,272,028
Prepaid expenses	104,208	69,252	85,433
Other current assets	29,729	26,249	22,852
Total current assets	2,060,732	2,323,894	2,176,722
Property and equipment, net	1,009,088	920,773	892,226
Operating lease right-of-use assets	1,277,064	1,132,764	1,159,315
Deferred income taxes, net	54,247	56,585	61,768
Goodwill	85,245	85,354	85,392
Other long-term assets, net	107,631	106,250	101,901
Total assets	4,594,007	4,625,620	4,477,324
Current liabilities
Accounts payable	720,856	612,512	638,371
Accrued expenses	275,381	319,924	273,722
Gift card and other deferred revenue	488,771	447,770	431,446
Income taxes payable	45,879	79,554	38,320
Operating lease liabilities	220,012	217,409	218,348
Other current liabilities	103,821	94,517	91,418
Total current liabilities	1,854,720	1,771,686	1,691,625
Deferred lease incentives	13,918	16,360	17,268
Long-term operating lease liabilities	1,208,074	1,066,839	1,095,290
Other long-term liabilities	104,361	106,528	129,771
Total liabilities	3,181,073	2,961,413	2,933,954
Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued	0	0	0
Common stock: $0.01 par value; 253,125 shares authorized; 66,556, 71,982 and 73,326 shares issued and outstanding at October 30, 2022, January 30, 2022 and October 31, 2021, respectively	666	720	734
Additional paid-in capital	553,698	600,942	585,449
Retained earnings	877,157	1,074,084	963,840
Accumulated other comprehensive loss	(17,848)	(10,828)	(5,942)
Treasury stock, at cost: 1, 4 and 4 shares as of October 30, 2022, January 30, 2022 and October 31, 2021, respectively	(739)	(711)	(711)
Total stockholders’ equity	1,412,934	1,664,207	1,543,370
Total liabilities and stockholders’ equity	$ 4,594,007	$ 4,625,620	$ 4,477,324

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Oct. 30, 2022	Jan. 30, 2022	Oct. 31, 2021
Stockholders’ equity
Preferred stock, par value (in USD per share)	$ 0.01	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	7,500,000	7,500,000	7,500,000
Preferred stock, shares issued (in shares)	0	0	0
Common stock, par value (in USD per share)	$ 0.01	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	253,125,000	253,125,000	253,125,000
Common stock, shares issued (in shares)	66,556,000	71,982,000	73,326,000
Common stock, shares outstanding (in shares)	66,556,000	71,982,000	73,326,000
Treasury stock (in shares)	1,000	4,000	4,000

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands		Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Beginning Balance (in shares) at Jan. 31, 2021			76,340,000
Beginning Balance at Jan. 31, 2021		$ 1,651,185	$ 764	$ 638,375	$ 1,019,762	$ (7,117)	$ (599)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings		227,802			227,802
Foreign currency translation adjustments		3,700				3,700
Change in fair value of derivative financial instruments, net of tax		(665)				(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		153				153
Conversion/release of stock-based awards (in shares)			686,000
Conversion/release of stock-based awards		(98,451)	$ 7	(97,958)			(500)
Repurchases of common stock (in shares)			(1,791,000)
Repurchases of common stock		(315,529)	$ (18)	(9,239)	(306,272)
Reissuance of treasury stock under stock-based compensation plans		0		(344)	(44)		388
Stock-based compensation expense		25,471		25,471
Dividends declared		(46,370)			(46,370)
Ending Balance (in shares) at May. 02, 2021			75,235,000
Ending Balance at May. 02, 2021		1,447,296	$ 753	556,305	894,878	(3,929)	(711)
Beginning Balance (in shares) at Jan. 31, 2021			76,340,000
Beginning Balance at Jan. 31, 2021		1,651,185	$ 764	638,375	1,019,762	(7,117)	(599)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings		723,396
Foreign currency translation adjustments		970
Change in fair value of derivative financial instruments, net of tax		(654)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		859
Ending Balance (in shares) at Oct. 31, 2021			73,326,000
Ending Balance at Oct. 31, 2021		1,543,370	$ 734	585,449	963,840	(5,942)	(711)
Beginning Balance (in shares) at May. 02, 2021			75,235,000
Beginning Balance at May. 02, 2021		1,447,296	$ 753	556,305	894,878	(3,929)	(711)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings		246,070			246,070
Foreign currency translation adjustments		(3,522)				(3,522)
Change in fair value of derivative financial instruments, net of tax		65				65
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		337				337
Conversion/release of stock-based awards (in shares)			25,000
Conversion/release of stock-based awards		(1,709)		(1,709)
Repurchases of common stock (in shares)			(834,000)
Repurchases of common stock		(135,859)	$ (8)	(4,358)	(131,493)
Stock-based compensation expense		19,496		19,496
Dividends declared		(45,455)			(45,455)
Ending Balance (in shares) at Aug. 01, 2021			74,426,000
Ending Balance at Aug. 01, 2021		1,526,719	$ 745	569,734	964,000	(7,049)	(711)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings		249,524			249,524
Foreign currency translation adjustments		792				792
Change in fair value of derivative financial instruments, net of tax		(54)				(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		369				369
Conversion/release of stock-based awards (in shares)	[1]		20,000
Conversion/release of stock-based awards	[1]	(2,322)		(2,322)
Repurchases of common stock (in shares)			(1,120,000)
Repurchases of common stock		(201,311)	$ (11)	(5,921)	(195,379)
Stock-based compensation expense		23,958		23,958
Dividends declared		(54,305)			(54,305)
Ending Balance (in shares) at Oct. 31, 2021			73,326,000
Ending Balance at Oct. 31, 2021		1,543,370	$ 734	585,449	963,840	(5,942)	(711)
Beginning Balance (in shares) at Jan. 30, 2022			71,982,000
Beginning Balance at Jan. 30, 2022		1,664,207	$ 720	600,942	1,074,084	(10,828)	(711)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
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 (in shares)	[1]		617,000
Conversion/release of stock-based awards	[1]	(78,508)	$ 6	(78,142)			(372)
Repurchases of common stock (in shares)			(3,380,000)
Repurchases of common stock		(501,075)	$ (33)	(18,590)	(482,452)
Reissuance of treasury stock under stock-based compensation plans	[1]	0		(344)			344
Stock-based compensation expense		28,339		28,339
Dividends declared		(55,893)			(55,893)
Ending Balance (in shares) at May. 01, 2022			69,219,000
Ending Balance at May. 01, 2022		1,309,744	$ 693	532,205	789,852	(12,267)	(739)
Beginning Balance (in shares) at Jan. 30, 2022			71,982,000
Beginning Balance at Jan. 30, 2022		1,664,207	$ 720	600,942	1,074,084	(10,828)	(711)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings		772,911
Foreign currency translation adjustments		(8,057)
Change in fair value of derivative financial instruments, net of tax		1,188
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		(151)
Ending Balance (in shares) at Oct. 30, 2022			66,556,000
Ending Balance at Oct. 30, 2022		1,412,934	$ 666	553,698	877,157	(17,848)	(739)
Beginning Balance (in shares) at May. 01, 2022			69,219,000
Beginning Balance at May. 01, 2022		1,309,744	$ 693	532,205	789,852	(12,267)	(739)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
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 (in shares)	[1]		26,000
Conversion/release of stock-based awards	[1]	(767)		(767)
Repurchases of common stock (in shares)			(2,188,000)
Repurchases of common stock		(265,349)	$ (22)	(12,519)	(252,808)
Stock-based compensation expense		22,976		22,976
Dividends declared		(54,036)			(54,036)
Ending Balance (in shares) at Jul. 31, 2022			67,057,000
Ending Balance at Jul. 31, 2022		1,278,279	$ 671	541,895	750,083	(13,631)	(739)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
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 awards (in shares)	[1]		13,000
Conversion/release of stock-based awards	[1]	(1,156)		(1,156)
Repurchases of common stock (in shares)			(514,000)
Repurchases of common stock		(74,531)	$ (5)	(3,010)	(71,516)
Stock-based compensation expense		15,969		15,969
Dividends declared		(53,133)			(53,133)
Ending Balance (in shares) at Oct. 30, 2022			66,556,000
Ending Balance at Oct. 30, 2022		$ 1,412,934	$ 666	$ 553,698	$ 877,157	$ (17,848)	$ (739)

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021
Cash flows from operating activities:
Net earnings	$ 772,911	$ 723,396
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	157,410	145,897
Loss on disposal/impairment of assets	5,738	887
Amortization of deferred lease incentives	(2,442)	(3,345)
Non-cash lease expense	169,602	159,757
Deferred income taxes	(10,494)	(11,440)
Tax benefit related to stock-based awards	11,172	10,838
Stock-based compensation expense	67,797	70,566
Other	272	4
Changes in:
Accounts receivable	5,288	4,941
Merchandise inventories	(443,812)	(264,094)
Prepaid expenses and other assets	(39,737)	(10,078)
Accounts payable	98,103	74,181
Accrued expenses and other liabilities	(34,157)	24,400
Gift card and other deferred revenue	42,005	58,189
Operating lease liabilities	(177,855)	(164,569)
Income taxes payable	(33,276)	(31,191)
Net cash provided by operating activities	588,525	788,339
Cash flows from investing activities:
Purchases of property and equipment	(234,378)	(141,010)
Other	100	97
Net cash used in investing activities	(234,278)	(140,913)
Cash flows from financing activities:
Repurchases of common stock	(840,955)	(652,699)
Payment of dividends	(165,254)	(135,201)
Tax withholdings related to stock-based awards	(80,431)	(102,482)
Repayment of long-term debt	0	(300,000)
Debt issuance costs	0	(777)
Net cash used in financing activities	(1,086,640)	(1,191,159)
Effect of exchange rates on cash and cash equivalents	(4,887)	294
Net decrease in cash and cash equivalents	(737,280)	(543,439)
Cash and cash equivalents at beginning of period	850,338	1,200,337
Cash and cash equivalents at end of period	$ 113,058	$ 656,898

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FINANCIAL STATEMENTS - BASIS OF PRESENTATION

9 Months Ended

Oct. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

FINANCIAL STATEMENTS - BASIS OF PRESENTATION

FINANCIAL STATEMENTS - BASIS OF PRESENTATION

These financial statements include Williams-Sonoma, Inc. and its wholly owned subsidiaries (“we,” “us” or “our”). The Condensed Consolidated Balance Sheets as of October 30, 2022 and October 31, 2021, 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 30, 2022, 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 30, 2022.

The results of operations for the thirteen and thirty-nine weeks ended October 30, 2022 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 30, 2022.

During fiscal 2021 and continuing through the first thirty-nine weeks of fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures and increased port congestion, caused delays in inventory receipts and backorder delays, increased raw material costs, and higher shipping-related charges. We expect these supply chain challenges to continue through the first half of fiscal 2023, which could negatively impact our business.

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU is intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected 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, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe the adoption would have a material impact on our financial condition, results of operations or cash flows.

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BORROWING ARRANGEMENTS

9 Months Ended

Oct. 30, 2022

Debt Disclosure [Abstract]

BORROWING ARRANGEMENTS

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 $750 million of unsecured revolving credit.

During the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, we had no borrowings under our Revolver. Additionally, as of October 30, 2022, 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 interest rate applicable to our Revolver is variable and may be elected by us as: (i) the LIBOR (or future alternative rate) plus 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 30, 2022, 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 aggregating to $35.0 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 30, 2022, the aggregate amount outstanding under our letter of credit facilities was $3.4 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 19, 2022, we renewed all three of our letter of credit facilities on substantially similar terms. Two of the letter of credit facilities totaling $30.0 million mature on August 19, 2023, and the latest expiration date possible for future letters of credit issued under these facilities is January 16, 2024. One of the letter of credit facilities totaling $5.0 million matures on September 30, 2026, which is also the latest expiration date possible for future letters of credit issued under the facility.

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STOCK-BASED COMPENSATION

9 Months Ended

Oct. 30, 2022

Share-Based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

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 30, 2022, there were approximately 6.8 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 (or the last two quarters thereof in the case of fiscal 2021) 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 30, 2022, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $16.1 million and $67.8 million, respectively. During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $24.3 million and $70.6 million, respectively.

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EARNINGS PER SHARE

9 Months Ended

Oct. 30, 2022

Earnings Per Share [Abstract]

EARNINGS PER SHARE

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 30, 2022
Basic	$	251,723	66,704	$	3.77
Effect of dilutive stock-based awards			913
Diluted	$	251,723	67,617	$	3.72
Thirteen weeks ended October 31, 2021
Basic	$	249,524	74,010	$	3.37
Effect of dilutive stock-based awards			1,933
Diluted	$	249,524	75,943	$	3.29
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
Thirty-nine weeks ended October 31, 2021
Basic	$	723,396	74,865	$	9.66
Effect of dilutive stock-based awards			2,110
Diluted	$	723,396	76,975	$	9.40

The effect of anti-dilutive stock-based awards was not material for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.

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SEGMENT REPORTING

9 Months Ended

Oct. 30, 2022

Segment Reporting [Abstract]

SEGMENT REPORTING

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 30, 2022 and October 31, 2021.

	For the Thirteen Weeks Ended 1				For the Thirty-nine Weeks Ended 1
(In thousands)	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Pottery Barn	$	935,045	$	788,732	$	2,588,798	$	2,200,110
West Elm	599,802		579,668		1,744,013		1,636,621
Williams Sonoma	261,820		272,361		762,651		793,423
Pottery Barn Kids and Teen	299,112		316,417		810,243		826,421
Other 2	96,795		90,361		315,633		288,332
Total 3	$	2,192,574	$	2,047,539	$	6,221,338	$	5,744,907
1Includes business-to-business net revenues within each brand.
2Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.
3Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $94.7 million and $93.1 million for the thirteen weeks ended October 30, 2022 and October 31, 2021, respectively, and approximately $303.0 million and $309.1 million for the thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.

Long-lived assets by geographic location are as follows:

	As of
(In thousands)	October 30, 2022 1		October 31, 2021 1
U.S.	$	2,425,600	$	2,154,392
International	107,675		146,210
Total	$	2,533,275	$	2,300,602

1Includes total goodwill, deferred tax assets and intangibles of $150.0 million and $157.2 million as of October 30, 2022 and October 31, 2021, respectively, of which $137.7 million and $145.7 million, respectively, is related to the U.S.

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COMMITMENTS AND CONTINGENCIES	9 Months Ended
	Oct. 30, 2022
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES	COMMITMENTS AND CONTINGENCIESWe 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.

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STOCK REPURCHASE PROGRAM AND DIVIDENDS

9 Months Ended

Oct. 30, 2022

Equity [Abstract]

STOCK REPURCHASE PROGRAM AND DIVIDENDS

STOCK REPURCHASE PROGRAM AND DIVIDENDS

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 a total 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 a total cost of $841.0 million. As of October 30, 2022, there was $729.0 million remaining under our current stock repurchase program. During the thirteen weeks ended October 31, 2021, we repurchased 1,119,748 shares of our common stock at an average cost of $179.78 per share for a total cost of $201.3 million. During the thirty-nine weeks ended October 31, 2021, we repurchased 3,744,767 shares of our common stock at an average cost of $174.30 per share for a total cost of $652.7 million.

Stock repurchased by the Company is typically cancelled after purchasing. However, we hold some shares in treasury to satisfy future stock-based award settlements in certain foreign jurisdictions. We held treasury stock of $0.7 million as of October 30, 2022 and October 31, 2021.

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 $0.78 and $0.71 per common share during the thirteen weeks ended October 30, 2022 and October 31, 2021, respectively. We declared cash dividends of $2.34 and $1.89 per common share during the thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively. Our quarterly cash dividend may be limited or terminated at any time.

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DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Oct. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

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 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 30, 2022, 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.

We had foreign currency forward contracts outstanding (in U.S. dollars) with notional amounts of $19.5 million as of October 30, 2022 and October 31, 2021.

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 selling, general and administrative 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 30, 2022 and October 31, 2021.

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 30, 2022 and October 31, 2021.

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.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Oct. 30, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

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 30, 2022, no impairment charges were recognized. During the thirty-nine weeks ended October 30, 2022, we recognized impairment charges of $2.6 million related to the impairment of property and equipment and $2.6 million related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from underperforming stores in Australia. During the thirteen and thirty-nine weeks ended October 31, 2021, no impairment charges were recognized.

There were no transfers in and out of Level 3 categories during the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

9 Months Ended

Oct. 30, 2022

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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 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)
Balance at January 31, 2021	$	(6,398)	$	(719)	$	(7,117)
Foreign currency translation adjustments	3,700		—		3,700
Change in fair value of derivative financial instruments	—		(665)		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		153		153
Other comprehensive income (loss)	3,700		(512)		3,188
Balance at May 2, 2021	$	(2,698)	$	(1,231)	$	(3,929)
Foreign currency translation adjustments	(3,522)		—		(3,522)
Change in fair value of derivative financial instruments	—		65		65
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		337		337
Other comprehensive income (loss)	(3,522)		402		(3,120)
Balance at August 1, 2021	$	(6,220)	$	(829)	$	(7,049)
Foreign currency translation adjustments	792		—		792
Change in fair value of derivative financial instruments	—		(54)		(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1	—		369		369
Other comprehensive income (loss)	792		315		1,107
Balance at October 31, 2021	$	(5,428)	$	(514)	$	(5,942)

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

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REVENUE

9 Months Ended

Oct. 30, 2022

Revenue from Contract with Customer [Abstract]

REVENUE

REVENUE

Merchandise Sales

The majority of our revenues are generated from sales of merchandise to our customers through our e-commerce websites, at our retail stores and through our direct mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. The remainder of our revenues are primarily generated from sales to our franchisees and wholesale transactions, incentives received from credit card issuers in connection with our private label and co-branded credit cards and revenue from estimated unredeemed stored-value cards (“breakage”).

Revenues from sales of merchandise are 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 30, 2022 and October 31, 2021, we recorded a liability for expected sales returns of approximately $52.3 million and $41.0 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 $15.8 million and $12.1 million, respectively, within other current assets in our Condensed Consolidated Balance Sheet.

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 30, 2022 and October 31, 2021, we had recorded $492.0 million and $435.2 million, respectively, for gift card and other deferred revenue in our Condensed Consolidated Balance Sheets, substantially all of which is expected to be recognized into revenue within the next 12 months.

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FINANCIAL STATEMENTS - BASIS OF PRESENTATION (Policies)

9 Months Ended

Oct. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

New Accounting Pronouncements

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU is intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected 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, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe the adoption would have a material impact on our financial condition, results of operations or cash flows.

Cash Flow Hedges

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.

Fair Value Measurements

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 30, 2022, no impairment charges were recognized. During the thirty-nine weeks ended October 30, 2022, we recognized impairment charges of $2.6 million related to the impairment of property and equipment and $2.6 million related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from underperforming stores in Australia. During the thirteen and thirty-nine weeks ended October 31, 2021, no impairment charges were recognized.

Revenue

Merchandise Sales

The majority of our revenues are generated from sales of merchandise to our customers through our e-commerce websites, at our retail stores and through our direct mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. The remainder of our revenues are primarily generated from sales to our franchisees and wholesale transactions, incentives received from credit card issuers in connection with our private label and co-branded credit cards and revenue from estimated unredeemed stored-value cards (“breakage”).

Revenues from sales of merchandise are 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.

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.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Oct. 30, 2022

Earnings Per Share [Abstract]

Reconciliation of Net Earnings and Number of Shares Used In Basic and Diluted Earnings per Share Computations

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 30, 2022
Basic	$	251,723	66,704	$	3.77
Effect of dilutive stock-based awards			913
Diluted	$	251,723	67,617	$	3.72
Thirteen weeks ended October 31, 2021
Basic	$	249,524	74,010	$	3.37
Effect of dilutive stock-based awards			1,933
Diluted	$	249,524	75,943	$	3.29
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
Thirty-nine weeks ended October 31, 2021
Basic	$	723,396	74,865	$	9.66
Effect of dilutive stock-based awards			2,110
Diluted	$	723,396	76,975	$	9.40

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SEGMENT REPORTING (Tables)

9 Months Ended

Oct. 30, 2022

Segment Reporting [Abstract]

Segment Information

The following table summarizes our net revenues by brand for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021.

	For the Thirteen Weeks Ended 1				For the Thirty-nine Weeks Ended 1
(In thousands)	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Pottery Barn	$	935,045	$	788,732	$	2,588,798	$	2,200,110
West Elm	599,802		579,668		1,744,013		1,636,621
Williams Sonoma	261,820		272,361		762,651		793,423
Pottery Barn Kids and Teen	299,112		316,417		810,243		826,421
Other 2	96,795		90,361		315,633		288,332
Total 3	$	2,192,574	$	2,047,539	$	6,221,338	$	5,744,907
1Includes business-to-business net revenues within each brand.
2Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.
3Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $94.7 million and $93.1 million for the thirteen weeks ended October 30, 2022 and October 31, 2021, respectively, and approximately $303.0 million and $309.1 million for the thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.

Summary of Long-lived Assets by Geographic Areas

Long-lived assets by geographic location are as follows:

	As of
(In thousands)	October 30, 2022 1		October 31, 2021 1
U.S.	$	2,425,600	$	2,154,392
International	107,675		146,210
Total	$	2,533,275	$	2,300,602

1Includes total goodwill, deferred tax assets and intangibles of $150.0 million and $157.2 million as of October 30, 2022 and October 31, 2021, respectively, of which $137.7 million and $145.7 million, respectively, is related to the U.S.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

9 Months Ended

Oct. 30, 2022

Equity [Abstract]

Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax

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 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)
Balance at January 31, 2021	$	(6,398)	$	(719)	$	(7,117)
Foreign currency translation adjustments	3,700		—		3,700
Change in fair value of derivative financial instruments	—		(665)		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		153		153
Other comprehensive income (loss)	3,700		(512)		3,188
Balance at May 2, 2021	$	(2,698)	$	(1,231)	$	(3,929)
Foreign currency translation adjustments	(3,522)		—		(3,522)
Change in fair value of derivative financial instruments	—		65		65
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		337		337
Other comprehensive income (loss)	(3,522)		402		(3,120)
Balance at August 1, 2021	$	(6,220)	$	(829)	$	(7,049)
Foreign currency translation adjustments	792		—		792
Change in fair value of derivative financial instruments	—		(54)		(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1	—		369		369
Other comprehensive income (loss)	792		315		1,107
Balance at October 31, 2021	$	(5,428)	$	(514)	$	(5,942)

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

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BORROWING ARRANGEMENTS (Details)	3 Months Ended		9 Months Ended
	Oct. 30, 2022 USD ($) facility	Oct. 31, 2021 USD ($)	Oct. 30, 2022 USD ($) facility	Oct. 31, 2021 USD ($)	Aug. 19, 2022 USD ($) facility
Debt Instrument [Line Items]
Outstanding letter of credit facilities	$ 3,400,000		$ 3,400,000
Standby Letters of Credit
Debt Instrument [Line Items]
Amount issued but undrawn under credit facility	$ 11,100,000		$ 11,100,000
Letter of Credit Facility Renewed and Extended
Debt Instrument [Line Items]
Number of facilities | facility	3		3
Maximum borrowing capacity of letter of credit after renewal	$ 35,000,000		$ 35,000,000
Letter Of Credit Facility Maturing August 2023
Debt Instrument [Line Items]
Number of facilities | facility					2
Maximum borrowing capacity of letter of credit after renewal					$ 30,000,000
Letter Of Credit Facility Maturing September 2026
Debt Instrument [Line Items]
Number of facilities | facility					1
Maximum borrowing capacity of letter of credit after renewal					$ 5,000,000
Unsecured Revolving Line of Credit
Debt Instrument [Line Items]
Current borrowing capacity	500,000,000		500,000,000
Additional borrowing capacity	250,000,000		250,000,000
Maximum borrowing capacity including additional borrowing capacity	750,000,000		750,000,000
Borrowings under revolving line of credit	$ 0	$ 0	$ 0	$ 0
Unsecured Revolving Line of Credit | Margin Based on Leverage Ratio | Minimum
Debt Instrument [Line Items]
Leverage ratio			0.91%
Unsecured Revolving Line of Credit | Margin Based on Leverage Ratio | Maximum
Debt Instrument [Line Items]
Leverage ratio			1.775%
Unsecured Revolving Line of Credit | Base Rate | Minimum
Debt Instrument [Line Items]
Leverage ratio			0.00%
Unsecured Revolving Line of Credit | Base Rate | Maximum
Debt Instrument [Line Items]
Leverage ratio			0.775%

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STOCK-BASED COMPENSATION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of awards granted to employees, years			4 years
Stock-based compensation expense			$ 67,797	$ 70,566
Selling, General and Administrative Expenses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 16,100	$ 24,300	$ 67,800	$ 70,600
Minimum | Non-Employee
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of awards granted to employees, years			1 year
Equity Award Programs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate number of shares under the plan (in shares)	42,700,000		42,700,000
Shares available for future grant (in shares)	6,800,000		6,800,000
Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards annual grant limit (in shares)			1,000,000,000,000
Performance Based Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of awards granted to employees, years			3 years

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EARNINGS PER SHARE - Reconciliation of Net Earnings and Number of Shares Used in Basic and Diluted Earnings Per Share Computations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Net Earnings
Basic	$ 251,723	$ 249,524	$ 772,911	$ 723,396
Diluted	$ 251,723	$ 249,524	$ 772,911	$ 723,396
Weighted Average Shares
Basic (in shares)	66,704	74,010	68,578	74,865
Effect of dilutive stock-based awards (in shares)	913	1,933	1,204	2,110
Diluted (in shares)	67,617	75,943	69,782	76,975
Earnings Per Share, Basic
Basic (in USD per share)	$ 3.77	$ 3.37	$ 11.27	$ 9.66
Earnings Per Share, Diluted
Diluted (in USD per share)	$ 3.72	$ 3.29	$ 11.08	$ 9.40

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SEGMENT REPORTING - Net Revenues by Segment (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022 USD ($)	Oct. 31, 2021 USD ($)	Oct. 30, 2022 USD ($) segment	Oct. 31, 2021 USD ($)
Segment Reporting Information [Line Items]
Total	$ 2,192,574	$ 2,047,539	$ 6,221,338	$ 5,744,907
Number of segments | segment			1
International
Segment Reporting Information [Line Items]
Total	94,700	93,100	$ 303,000	309,100
Pottery Barn
Segment Reporting Information [Line Items]
Total	935,045	788,732	2,588,798	2,200,110
West Elm
Segment Reporting Information [Line Items]
Total	599,802	579,668	1,744,013	1,636,621
Williams Sonoma
Segment Reporting Information [Line Items]
Total	261,820	272,361	762,651	793,423
Pottery Barn Kids and Teen
Segment Reporting Information [Line Items]
Total	299,112	316,417	810,243	826,421
Other
Segment Reporting Information [Line Items]
Total	$ 96,795	$ 90,361	$ 315,633	$ 288,332

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SEGMENT REPORTING - Summary of Long-lived Assets by Geographic Areas (Details) - USD ($) $ in Thousands	Oct. 30, 2022	Oct. 31, 2021
Segment Reporting Information [Line Items]
Long-lived assets	$ 2,533,275	$ 2,300,602
Goodwill, deferred tax assets and intangibles	150,000	157,200
U.S.
Segment Reporting Information [Line Items]
Long-lived assets	2,425,600	2,154,392
Goodwill, deferred tax assets and intangibles	137,700	145,700
International
Segment Reporting Information [Line Items]
Long-lived assets	$ 107,675	$ 146,210

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STOCK REPURCHASE PROGRAM AND DIVIDENDS (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021	Jan. 30, 2022
Equity [Abstract]
Common stock repurchased (in shares)	513,940	1,119,748	6,081,708	3,744,767
Common stock repurchased, average cost per share (in USD per share)	$ 145.02	$ 179.78	$ 138.28	$ 174.30
Common stock repurchased, total cost	$ 74,600	$ 201,300	$ 840,955	$ 652,699
Stock repurchase program, remaining authorized repurchase amount	729,000		729,000
Treasury stock	$ 739	$ 711	$ 739	$ 711	$ 711
Cash dividends declared per common share (in USD per share)	$ 0.78	$ 0.71	$ 2.34	$ 1.89

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DERIVATIVE FINANCIAL INSTRUMENTS - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Gain (loss) on cash flow hedging instruments	$ 0	$ 0	$ 0	$ 0

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DERIVATIVE FINANCIAL INSTRUMENTS - Foreign Currency Forward Contracts Outstanding with Notional Values (Details) - USD ($) $ in Millions	Oct. 30, 2022	Oct. 31, 2021
Foreign Exchange Contract | Derivatives designated as hedging instruments | Cash Flow Hedging
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount	$ 19.5	$ 19.5

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FAIR VALUE MEASUREMENTS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021	Oct. 30, 2022	Oct. 31, 2021
Fair Value Disclosures [Abstract]
Impairment of property and equipment	$ 0	$ 0	$ 2,600,000	$ 0
Impairment of operating lease right-of-use assets		0	2,600,000	0
Transfers in and out of level 3	$ 0	$ 0	$ 0	$ 0

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Oct. 30, 2022	Jul. 31, 2022	May 01, 2022	Oct. 31, 2021	Aug. 01, 2021	May 02, 2021	Oct. 30, 2022	Oct. 31, 2021
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	$ 1,278,279	$ 1,309,744	$ 1,664,207	$ 1,526,719	$ 1,447,296	$ 1,651,185	$ 1,664,207	$ 1,651,185
Foreign currency translation adjustments	(5,158)	(1,385)	(1,514)	792	(3,522)	3,700	(8,057)	970
Change in fair value of derivative financial instruments	1,069	26	93	(54)	65	(665)	1,188	(654)
Reclassification adjustment for realized (gain) loss on derivative financial instruments	(128)	(5)	(18)	369	337	153	(151)	859
Other comprehensive income (loss)	(4,217)	(1,364)	(1,439)	1,107	(3,120)	3,188
Ending Balance	1,412,934	1,278,279	1,309,744	1,543,370	1,526,719	1,447,296	1,412,934	1,543,370
Accumulated Other Comprehensive Income (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	(13,631)	(12,267)	(10,828)	(7,049)	(3,929)	(7,117)	(10,828)	(7,117)
Foreign currency translation adjustments	(5,158)	(1,385)	(1,514)	792	(3,522)	3,700
Change in fair value of derivative financial instruments	1,069	26	93	(54)	65	(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments	(128)	(5)	(18)	369	337	153
Ending Balance	(17,848)	(13,631)	(12,267)	(5,942)	(7,049)	(3,929)	(17,848)	(5,942)
Foreign Currency Translation
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	(13,785)	(12,400)	(10,886)	(6,220)	(2,698)	(6,398)	(10,886)	(6,398)
Foreign currency translation adjustments	(5,158)	(1,385)	(1,514)	792	(3,522)	3,700
Other comprehensive income (loss)	(5,158)	(1,385)	(1,514)	792	(3,522)	3,700
Ending Balance	(18,943)	(13,785)	(12,400)	(5,428)	(6,220)	(2,698)	(18,943)	(5,428)
Cash Flow Hedges
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	154	133	58	(829)	(1,231)	(719)	58	(719)
Change in fair value of derivative financial instruments	1,069	26	93	(54)	65	(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments	(128)	(5)	(18)	369	337	153
Other comprehensive income (loss)	941	21	75	315	402	(512)
Ending Balance	$ 1,095	$ 154	$ 133	$ (514)	$ (829)	$ (1,231)	$ 1,095	$ (514)

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REVENUE (Details) - USD ($) $ in Millions	9 Months Ended
	Oct. 30, 2022	Oct. 31, 2021
Disaggregation of Revenue [Line Items]
Customer loyalty program, expiration period	6 months
Other Current Liabilities
Disaggregation of Revenue [Line Items]
Expected sales return liability	$ 52.3	$ 41.0
Other Current Assets
Disaggregation of Revenue [Line Items]
Reduction in cost of goods sold for expected net realizable value of merchandise inventory to be returned	$ 15.8	12.1
Stored-Value Cards
Disaggregation of Revenue [Line Items]
Stored value card redemption period	4 years
Stored-Value Cards, Merchandise Sales and Credit Card Incentives
Disaggregation of Revenue [Line Items]
Deferred revenue	$ 492.0	$ 435.2