☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
August 4, 2019.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 94-2203880
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes Large accelerated filer Non-accelerated filer (Do not check if a smaller reporting company)
AUGUST 4, 2019
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PART II. OTHER INFORMATION | |||||||
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Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
In thousands, except per share amounts | July 29, 2018 | July 30, 2017 | July 29, 2018 | July 30, 2017 | ||||||||||||
E-commerce net revenues | $ | 686,942 | $ | 630,793 | $ | 1,333,122 | $ | 1,211,303 | ||||||||
Retail net revenues | 588,232 | 570,813 | 1,145,052 | 1,101,810 | ||||||||||||
Net revenues | 1,275,174 | 1,201,606 | 2,478,174 | 2,313,113 | ||||||||||||
Cost of goods sold | 811,232 | 778,895 | 1,582,068 | 1,494,642 | ||||||||||||
Gross profit | 463,942 | 422,711 | 896,106 | 818,471 | ||||||||||||
Selling, general and administrative expenses | 389,776 | 341,127 | 755,390 | 674,413 | ||||||||||||
Operating income | 74,166 | 81,584 | 140,716 | 144,058 | ||||||||||||
Interest (income) expense, net | 1,584 | 483 | 2,785 | 380 | ||||||||||||
Earnings before income taxes | 72,582 | 81,101 | 137,931 | 143,678 | ||||||||||||
Income taxes | 20,869 | 28,184 | 41,050 | 51,206 | ||||||||||||
Net earnings | $ | 51,713 | $ | 52,917 | $ | 96,881 | $ | 92,472 | ||||||||
Basic earnings per share | $ | 0.63 | $ | 0.61 | $ | 1.17 | $ | 1.07 | ||||||||
Diluted earnings per share | $ | 0.62 | $ | 0.61 | $ | 1.16 | $ | 1.06 | ||||||||
Shares used in calculation of earnings per share: | ||||||||||||||||
Basic | 82,342 | 86,429 | 82,867 | 86,696 | ||||||||||||
Diluted | 83,167 | 86,848 | 83,519 | 87,238 |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
In thousands, except per share amounts | August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | ||||||||||||
Net revenues | $ | 1,370,814 | $ | 1,275,174 | $ | 2,611,946 | $ | 2,478,174 | ||||||||
Cost of goods sold | 886,953 | 811,232 | 1,683,754 | 1,582,068 | ||||||||||||
Gross profit | 483,861 | 463,942 | 928,192 | 896,106 | ||||||||||||
Selling, general and administrative expenses | 397,696 | 389,776 | 767,895 | 755,390 | ||||||||||||
Operating income | 86,165 | 74,166 | 160,297 | 140,716 | ||||||||||||
Interest (income) expense, net | 2,669 | 1,584 | 4,922 | 2,785 | ||||||||||||
Earnings before income taxes | 83,496 | 72,582 | 155,375 | 137,931 | ||||||||||||
Income taxes | 20,848 | 20,869 | 40,071 | 41,050 | ||||||||||||
Net earnings | $ | 62,648 | $ | 51,713 | $ | 115,304 | $ | 96,881 | ||||||||
Basic earnings per share | $ | 0.80 | $ | 0.63 | $ | 1.47 | $ | 1.17 | ||||||||
Diluted earnings per share | $ | 0.79 | $ | 0.62 | $ | 1.45 | $ | 1.16 | ||||||||
Shares used in calculation of earnings per share: | ||||||||||||||||
Basic | 78,488 | 82,342 | 78,586 | 82,867 | ||||||||||||
Diluted | 79,470 | 83,167 | 79,633 | 83,519 |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
In thousands | July 29, 2018 | July 30, 2017 | July 29, 2018 | July 30, 2017 | ||||||||||||
Net earnings | $ | 51,713 | $ | 52,917 | $ | 96,881 | $ | 92,472 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | (2,993 | ) | 3,390 | (4,138 | ) | 1,824 | ||||||||||
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $333, $(422), $401 and $(185) | 6 | (1,166 | ) | 1,129 | (511 | ) | ||||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $(21), $(2), $(24) and $3 | — | 7 | 49 | (9 | ) | |||||||||||
Comprehensive income | $ | 48,726 | $ | 55,148 | $ | 93,921 | $ | 93,776 |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
In thousands | August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | ||||||||||||
Net earnings | $ | 62,648 | $ | 51,713 | $ | 115,304 | $ | 96,881 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | (1,251 | ) | (2,993 | ) | (4,260 | ) | (4,138 | ) | ||||||||
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(8), $333, $66 and $401 | (132 | ) | 6 | 72 | 1,129 | |||||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $10, $(21), $34 and $(24) | (160 | ) | — | (227 | ) | 49 | ||||||||||
Comprehensive income | $ | 61,105 | $ | 48,726 | $ | 110,889 | $ | 93,921 |
1
In thousands, except per share amounts | July 29, 2018 | January 28, 2018 | July 30, 2017 | |||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 174,580 | $ | 390,136 | $ | 103,109 | ||||||
Accounts receivable, net | 106,322 | 90,119 | 78,735 | |||||||||
Merchandise inventories, net | 1,099,888 | 1,061,593 | 1,072,976 | |||||||||
Prepaid catalog expenses | — | 20,517 | 20,881 | |||||||||
Prepaid expenses | 74,811 | 62,204 | 76,611 | |||||||||
Other current assets | 21,891 | 11,876 | 12,066 | |||||||||
Total current assets | 1,477,492 | 1,636,445 | 1,364,378 | |||||||||
Property and equipment, net | 919,689 | 932,283 | 929,331 | |||||||||
Deferred income taxes, net | 60,960 | 67,306 | 130,212 | |||||||||
Goodwill | 85,673 | 18,838 | 18,773 | |||||||||
Other long-term assets, net | 64,163 | 130,877 | 37,166 | |||||||||
Total assets | $ | 2,607,977 | $ | 2,785,749 | $ | 2,479,860 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 466,903 | $ | 457,144 | $ | 427,474 | ||||||
Accrued expenses | 112,381 | 134,207 | 97,965 | |||||||||
Gift card and other deferred revenue | 263,546 | 300,607 | 294,694 | |||||||||
Borrowings under revolving line of credit | — | — | 115,000 | |||||||||
Income taxes payable | 35,529 | 56,783 | 35,582 | |||||||||
Other current liabilities | 69,589 | 59,082 | 49,355 | |||||||||
Total current liabilities | 947,948 | 1,007,823 | 1,020,070 | |||||||||
Deferred rent and lease incentives | 207,190 | 202,134 | 196,982 | |||||||||
Long-term debt | 299,521 | 299,422 | — | |||||||||
Other long-term obligations | 72,330 | 72,804 | 74,284 | |||||||||
Total liabilities | 1,526,989 | 1,582,183 | 1,291,336 | |||||||||
Commitments and contingencies – See Note F | ||||||||||||
Stockholders’ equity | ||||||||||||
Preferred stock: $.01 par value; 7,500 shares authorized; none issued | — | — | — | |||||||||
Common stock: $.01 par value; 253,125 shares authorized; 80,988, 83,726 and 85,754 shares issued and outstanding at July 29, 2018, January 28, 2018 and July 30, 2017, respectively | 810 | 837 | 858 | |||||||||
Additionalpaid-in capital | 561,810 | 562,814 | 556,702 | |||||||||
Retained earnings | 528,368 | 647,422 | 640,368 | |||||||||
Accumulated other comprehensive loss | (9,742 | ) | (6,782 | ) | (8,599 | ) | ||||||
Treasury stock, at cost: 2, 11 and 12 shares as of July 29, 2018, January 28, 2018 and July 30, 2017, respectively | (258 | ) | (725 | ) | (805 | ) | ||||||
Total stockholders’ equity | 1,080,988 | 1,203,566 | 1,188,524 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,607,977 | $ | 2,785,749 | $ | 2,479,860 |
In thousands, except per share amounts | August 4, 2019 | February 3, 2019 | July 29, 2018 | |||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 120,467 | $ | 338,954 | $ | 174,580 | ||||||
Accounts receivable, net | 111,114 | 107,102 | 106,322 | |||||||||
Merchandise inventories, net | 1,187,728 | 1,124,992 | 1,099,888 | |||||||||
Prepaid expenses | 117,017 | 101,356 | 74,811 | |||||||||
Other current assets | 21,693 | 21,939 | 21,891 | |||||||||
Total current assets | 1,558,019 | 1,694,343 | 1,477,492 | |||||||||
Property and equipment, net | 913,059 | 929,635 | 919,689 | |||||||||
Operating lease right-of-use assets | 1,208,528 | — | — | |||||||||
Deferred income taxes, net | 38,803 | 44,055 | 60,960 | |||||||||
Goodwill | 85,348 | 85,382 | 85,673 | |||||||||
Other long-term assets, net | 65,924 | 59,429 | 64,163 | |||||||||
Total assets | $ | 3,869,681 | $ | 2,812,844 | $ | 2,607,977 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 404,337 | $ | 526,702 | $ | 466,903 | ||||||
Accrued expenses | 127,137 | 163,559 | �� | 112,381 | ||||||||
Gift card and other deferred revenue | 283,108 | 290,445 | 263,546 | |||||||||
Borrowings under revolving line of credit | 60,000 | — | — | |||||||||
Income taxes payable | 13,065 | 21,461 | 35,529 | |||||||||
Operating lease liabilities | 222,978 | — | — | |||||||||
Other current liabilities | 76,254 | 72,645 | 69,589 | |||||||||
Total current liabilities | 1,186,879 | 1,074,812 | 947,948 | |||||||||
Deferred rent and lease incentives | 28,618 | 201,374 | 207,190 | |||||||||
Long-term debt | 299,719 | 299,620 | 299,521 | |||||||||
Long-term operating lease liabilities | 1,148,031 | — | — | |||||||||
Other long-term liabilities | 84,831 | 81,324 | 72,330 | |||||||||
Total liabilities | 2,748,078 | 1,657,130 | 1,526,989 | |||||||||
Commitments and contingencies – See Note F | ||||||||||||
Stockholders’ equity | ||||||||||||
Preferred stock: $ .01 | — | — | — | |||||||||
Common stock: $ .01 par value; 253,125 shares authorized; 78,203, 78,813 and 80,988 shares issued and outstanding at August 4, 2019, February 3, 2019 and July 29, 2018, respectively | 783 | 789 | 810 | |||||||||
Additional paid-in capital | 584,828 | 581,900 | 561,810 | |||||||||
Retained earnings | 552,454 | 584,333 | 528,368 | |||||||||
Accumulated other comprehensive loss | (15,488 | ) | (11,073 | ) | (9,742 | ) | ||||||
Treasury stock, at cost: 14, 2 and 2 shares as of August 4, 2019, February 3, 2019 and July 29, 2018, respectively | (974 | ) | (235 | ) | (258 | ) | ||||||
Total stockholders’ equity | 1,121,603 | 1,155,714 | 1,080,988 | |||||||||
Total liabilities and stockholders’ equity | $ | 3,869,681 | $ | 2,812,844 | $ | 2,607,977 |
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STOCKHOLDERS’ EQUITY
Twenty-six Weeks Ended | ||||||||
In thousands | July 29, 2018 | July 30, 2017 | ||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 96,881 | $ | 92,472 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 93,809 | 90,048 | ||||||
Loss on disposal/impairment of assets | 4,466 | 845 | ||||||
Amortization of deferred lease incentives | (13,210 | ) | (12,680 | ) | ||||
Deferred income taxes | (4,415 | ) | (8,937 | ) | ||||
Tax benefit related to stock-based awards | 9,711 | 14,511 | ||||||
Stock-based compensation expense | 26,526 | 22,829 | ||||||
Other | 166 | 102 | ||||||
Changes in: | ||||||||
Accounts receivable | (13,567 | ) | 10,658 | |||||
Merchandise inventories | (45,159 | ) | (92,711 | ) | ||||
Prepaid catalog expenses | — | (1,384 | ) | |||||
Prepaid expenses and other assets | (29,217 | ) | (25,739 | ) | ||||
Accounts payable | (1,735 | ) | (36,917 | ) | ||||
Accrued expenses and other liabilities | (12,209 | ) | (34,453 | ) | ||||
Gift card and other deferred revenue | 11,927 | (8,553 | ) | |||||
Deferred rent and lease incentives | 18,861 | 12,635 | ||||||
Income taxes payable | (22,712 | ) | 12,409 | |||||
Net cash provided by operating activities | 120,123 | 35,135 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (80,021 | ) | (82,727 | ) | ||||
Other | 513 | 44 | ||||||
Net cash used in investing activities | (79,508 | ) | (82,683 | ) | ||||
Cash flows from financing activities: | ||||||||
Repurchases of common stock | (174,818 | ) | (93,361 | ) | ||||
Payment of dividends | (70,331 | ) | (68,197 | ) | ||||
Tax withholdings related to stock-based awards | (12,335 | ) | (14,117 | ) | ||||
Borrowings under revolving line of credit | — | 115,000 | ||||||
Net cash used in financing activities | (257,484 | ) | (60,675 | ) | ||||
Effect of exchange rates on cash and cash equivalents | 1,313 | (2,381 | ) | |||||
Net decrease in cash and cash equivalents | (215,556 | ) | (110,604 | ) | ||||
Cash and cash equivalents at beginning of period | 390,136 | 213,713 | ||||||
Cash and cash equivalents at end of period | $ | 174,580 | $ | 103,109 |
Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Treasury | Total Stockholders’ | |||||||||||||||||||||||
In thousands | Shares | Amount | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||||||
Balance at February 3, 2019 | 78,813 | $ | 789 | $ | 581,900 | $ | 584,333 | $ | (11,073 | ) | $ | (235 | ) | $ | 1,155,714 | |||||||||||||
Net earnings | — | — | — | 52,656 | — | — | 52,656 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (3,009 | ) | — | (3,009 | ) | |||||||||||||||||||
Change in fair value of derivative financial instruments, net of tax | — | — | — | — | 204 | — | 204 | |||||||||||||||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | — | — | — | (67 | ) | — | (67 | ) | |||||||||||||||||||
Conversion/release of stock-based awards 1 | 571 | 5 | (25,298 | ) | — | — | (113 | ) | (25,406 | ) | ||||||||||||||||||
Repurchases of common stock | (576 | ) | (6 | ) | (2,874 | ) | (30,010 | ) | — | (958 | ) | (33,848 | ) | |||||||||||||||
Reissuance of treasury stock under stock-based compensation plans 1 | — | — | (332 | ) | — | — | 332 | — | ||||||||||||||||||||
Stock-based compensation expense | — | — | 18,376 | — | — | — | 18,376 | |||||||||||||||||||||
Dividends declared | — | — | — | (39,549 | ) | — | — | (39,549 | ) | |||||||||||||||||||
Adoption of accounting pronouncements 2 | — | — | — | (3,303 | ) | — | — | (3,303 | ) | |||||||||||||||||||
Balance at May 5, 2019 | 78,808 | $ | 788 | $ | 571,772 | $ | 564,127 | $ | (13,945 | ) | $ | (974 | ) | $ | 1,121,768 | |||||||||||||
Net earnings | — | — | — | 62,648 | — | — | 62,648 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (1,251 | ) | — | (1,251 | ) | |||||||||||||||||||
Change in fair value of derivative financial instruments, net of tax | — | — | — | — | (132 | ) | — | (132 | ) | |||||||||||||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | — | — | — | (160 | ) | — | (160 | ) | |||||||||||||||||||
Conversion/release of stock-based awards 1 | 31 | 1 | (482 | ) | — | — | — | (481 | ) | |||||||||||||||||||
Repurchases of common stock | (636 | ) | (6 | ) | (3,170 | ) | (35,107 | ) | — | — | (38,283 | ) | ||||||||||||||||
Stock-based compensation expense | — | — | 16,708 | — | — | — | 16,708 | |||||||||||||||||||||
Dividends declared | — | — | — | (39,214 | ) | — | — | (39,214 | ) | |||||||||||||||||||
Balance at August 4, 2019 | 78,203 | $ | 783 | $ | 584,828 | $ | 552,454 | $ | (15,488 | ) | $ | (974 | ) | $ | 1,121,603 |
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Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Treasury | Total Stockholders’ | |||||||||||||||||||||||
In thousands | Shares | Amount | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||||||
Balance at January 28, 2018 | 83,726 | $ | 837 | $ | 562,814 | $ | 647,422 | $ | (6,782 | ) | $ | (725 | ) | $ | 1,203,566 | |||||||||||||
Net earnings | — | — | — | 45,168 | — | — | 45,168 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (1,145 | ) | — | (1,145 | ) | |||||||||||||||||||
Change in fair value of derivative financial instruments, net of tax | — | — | — | — | 1,123 | — | 1,123 | |||||||||||||||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax | — | — | — | — | 49 | — | 49 | |||||||||||||||||||||
Conversion/release of stock-based awards 1 | 228 | 3 | (7,213 | ) | — | — | (226 | ) | (7,436 | ) | ||||||||||||||||||
Repurchases of common stock | (732 | ) | (7 | ) | (3,437 | ) | (34,269 | ) | — | — | (37,713 | ) | ||||||||||||||||
Reissuance of treasury stock under stock-based compensation plans 1 | — | — | (290 | ) | (358 | ) | — | 648 | — | |||||||||||||||||||
Stock-based compensation expense | — | — | 12,811 | — | — | — | 12,811 | |||||||||||||||||||||
Dividends declared | — | — | — | (36,877 | ) | — | — | (36,877 | ) | |||||||||||||||||||
Adoption of accounting pronouncements 2 | — | — | — | 17,688 | — | — | 17,688 | |||||||||||||||||||||
Balance at April 29, 2018 | 83,222 | $ | 833 | $ | 564,685 | $ | 638,774 | $ | (6,755 | ) | $ | (303 | ) | $ | 1,197,234 | |||||||||||||
Net earnings | — | — | — | 51,713 | — | — | 51,713 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (2,993 | ) | — | (2,993 | ) | |||||||||||||||||||
Change in fair value of derivative financial instruments, net of tax | — | — | — | — | 6 | — | 6 | |||||||||||||||||||||
Conversion/release of stock-based awards 1 | 175 | 2 | (4,869 | ) | — | — | (32 | ) | (4,899 | ) | ||||||||||||||||||
Repurchases of common stock | (2,409 | ) | (25 | ) | (11,431 | ) | (125,649 | ) | — | — | (137,105 | ) | ||||||||||||||||
Reissuance of treasury stock under stock-based compensation plans 1 | — | — | (72 | ) | (5 | ) | — | 77 | — | |||||||||||||||||||
Stock-based compensation expense | — | — | 13,497 | — | — | — | 13,497 | |||||||||||||||||||||
Dividends declared | — | — | — | (36,465 | ) | — | — | (36,465 | ) | |||||||||||||||||||
Balance at July 29, 2018 | 80,988 | $ | 810 | $ | 561,810 | $ | 528,368 | $ | (9,742 | ) | $ | (258 | ) | $ | 1,080,988 |
Twenty-six Weeks Ended | ||||||||
In thousands | August 4, 2019 | July 29, 20 18 | ||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 115,304 | $ | 96,881 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 93,744 | 93,809 | ||||||
(Gain) loss on disposal/impairment of assets | (6 | ) | 4,466 | |||||
Amortization of deferred lease incentives | (4,228 | ) | (13,210 | ) | ||||
Non-cash lease expense | 105,437 | — | ||||||
Deferred income taxes | (8,428 | ) | (4,415 | ) | ||||
Tax benefit related to stock-based awards | 14,110 | 9,711 | ||||||
Stock-based compensation expense | 35,401 | 26,526 | ||||||
Other | 92 | 166 | ||||||
Changes in: | ||||||||
Accounts receivable | (4,430 | ) | (13,567 | ) | ||||
Merchandise inventories | (63,576 | ) | (45,159 | ) | ||||
Prepaid expenses and other assets | (24,506 | ) | (29,217 | ) | ||||
Accounts payable | (127,511 | ) | (1,735 | ) | ||||
Accrued expenses and other liabilities | (30,677 | ) | (12,209 | ) | ||||
Gift card and other deferred revenue | (7,173 | ) | 11,927 | |||||
Deferred rent and lease incentives | — | 18,861 | ||||||
Operating lease liabilities | (111,782 | ) | — | |||||
Income taxes payable | (8,407 | ) | (22,712 | ) | ||||
Net cash (used in) provided by operating activities | (26,636 | ) | 120,123 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (77,189 | ) | (80,021 | ) | ||||
Other | 470 | 513 | ||||||
Net cash used in investing activities | (76,719 | ) | (79,508 | ) | ||||
Cash flows from financing activities: | ||||||||
Payment of dividends | (75,453 | ) | (70,331 | ) | ||||
Repurchases of common stock | (72,131 | ) | (174,818 | ) | ||||
Borrowings under revolving line of credit | 60,000 | — | ||||||
Tax withholdings related to stock-based awards | (25,887 | ) | (12,335 | ) | ||||
Net cash used in financing activities | (113,471 | ) | (257,484 | ) | ||||
Effect of exchange rates on cash and cash equivalents | (1,661 | ) | 1,313 | |||||
Net decrease in cash and cash equivalents | (218,487 | ) | (215,556 | ) | ||||
Cash and cash equivalents at beginning of period | 338,954 | 390,136 | ||||||
Cash and cash equivalents at end of period | $ | 120,467 | $ | 174,580 |
February 3, 2019.
Reclassifications
Certain amounts reported in our Condensed Consolidated Balance Sheets as of January 28, 2018 and July 30, 2017 and our Condensed Consolidated Statement of Cash Flows for thetwenty-six weeks ended July 30, 2017 have been reclassified in order to conform to the current period presentation. These reclassifications impacted prepaid catalog expenses, prepaid expenses, goodwill, other long-term assets, accounts payable, accrued expenses, gift card and other deferred revenue and other current liabilities. There was no change to total current assets, total assets, total current liabilities, or cash flows as a result of these reclassifications.
February 3, 2019.
In February 2016, the FASB issued ASU 2016-02,Leases,which will requirerequires lessees to recognize a
4
and early adoption is permitted. Entities should apply the guidance to existing cash flow and net investment hedge relationships using a modified retrospective approach with a cumulative effect adjustment recorded to opening retained earnings on the date of adoption. The guidance also provides transition relief to make it easier for entities to apply certain amendments to existing hedges where the hedge documentation needs to be modified. This ASU was effective for us in the first quarter of fiscal 2019. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.
20, 2021.
5
Stock-Settled Stock Appreciation Rights
A stock-settled stock appreciation right is an award that allows the recipient to receive common stock equal to the appreciation in the fair market value of our common stock between the grant date and the conversion date for the number of shares converted.
The following table summarizes our stock-settled stock appreciation right activity during thetwenty-six weeks ended July 29, 2018:
| ||||
| ||||
| ||||
| ||||
|
Shares | ||||
Balance at | 3,012,923 | |||
Granted | 1,000,469 | |||
Granted, with vesting subject to performance conditions | 238,786 | |||
Released 1 | ( | ) | ||
Cancelled | ( | ) | ||
Balance at | 2,998,164 | |||
Vested plus expected to vest at | 3,158,678 |
6
In thousands, except per share amounts | Net Earnings | Weighted Average Shares | Earnings Per Share | |||||||||
Thirteen weeks ended July 29, 2018 | ||||||||||||
Basic | $ | 51,713 | 82,342 | $ | 0.63 | |||||||
Effect of dilutive stock-based awards | 825 | |||||||||||
Diluted | $ | 51,713 | 83,167 | $ | 0.62 | |||||||
Thirteen weeks ended July 30, 2017 | ||||||||||||
Basic | $ | 52,917 | 86,429 | $ | 0.61 | |||||||
Effect of dilutive stock-based awards | 419 | |||||||||||
Diluted | $ | 52,917 | 86,848 | $ | 0.61 | |||||||
Twenty-six weeks ended July 29, 2018 | ||||||||||||
Basic | $ | 96,881 | 82,867 | $ | 1.17 | |||||||
Effect of dilutive stock-based awards | 652 | |||||||||||
Diluted | $ | 96,881 | 83,519 | $ | 1.16 | |||||||
Twenty-six weeks ended July 30, 2017 | ||||||||||||
Basic | $ | 92,472 | 86,696 | $ | 1.07 | |||||||
Effect of dilutive stock-based awards | 542 | |||||||||||
Diluted | $ | 92,472 | 87,238 | $ | 1.06 |
In thousands, except per share amounts | Net Earnings | Weighted Average Shares | Earnings Per Share | |||||||||
Thirteen weeks ended August 4, 2019 | ||||||||||||
Basic | $ | 62,648 | 78,488 | $ | 0.80 | |||||||
Effect of dilutive stock-based awards | 982 | |||||||||||
Diluted | $ | 62,648 | 79,470 | $ | 0.79 | |||||||
Thirteen weeks ended July 29, 2018 | ||||||||||||
Basic | $ | 51,713 | 82,342 | $ | 0.63 | |||||||
Effect of dilutive stock-based awards | 825 | |||||||||||
Diluted | $ | 51,713 | 83,167 | $ | 0.62 | |||||||
Twenty-six weeks ended August 4, 2019 | ||||||||||||
Basic | $ | 115,304 | 78,586 | $ | 1.47 | |||||||
Effect of dilutive stock-based awards | 1,047 | |||||||||||
Diluted | $ | 115,304 | 79,633 | $ | 1.45 | |||||||
Twenty-six weeks ended July 29, 2018 | ||||||||||||
Basic | $ | 96,881 | 82,867 | $ | 1.17 | |||||||
Effect of dilutive stock-based awards | 652 | |||||||||||
Diluted | $ | 96,881 | 83,519 | $ | 1.16 |
Theseinto a single reportable segments are strategic business units that offer similar productssegment.
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
In thousands | August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | ||||||||||||
Pottery Barn | $ | 524,847 | $ | 506,460 | $ | 1,016,973 | $ | 996,831 | ||||||||
West Elm | 357,574 | 301,213 | 667,057 | 574,562 | ||||||||||||
Williams Sonoma | 191,374 | 195,178 | 386,267 | 396,156 | ||||||||||||
Pottery Barn Kids and Teen | 227,853 | 213,807 | 404,899 | 394,203 | ||||||||||||
Other 1 | 69,166 | 58,516 | 136,750 | 116,422 | ||||||||||||
Total 2 | $ | 1,370,814 | $ | 1,275,174 | $ | 2,611,946 | $ | 2,478,174 |
We use operating income to evaluate segment profitability. Operating income is defined as earnings (loss) before net interest income (expense) and income taxes. Unallocated costs before interest and income taxes include corporate employee-related costs, occupancy expenses (including depreciation expense), administrative costs and third-party service costs, primarily in our corporate administrative and systems departments. Unallocated assets include corporate cash and cash equivalents, prepaid expenses, the net book value of corporate facilities and related information systems, deferred income taxes and other corporate long-lived assets.
Income taxes are calculated at an entity level and are not allocated to our reportable segments.
7
Segment Information
In thousands | E-commerce | Retail | Unallocated | Total | ||||||||||||
Thirteen weeks ended July 29, 2018 | ||||||||||||||||
Net revenues1 | $ | 686,942 | $ | 588,232 | $ | — | $ | 1,275,174 | ||||||||
Depreciation and amortization expense | 7,651 | 22,494 | 15,791 | 45,936 | ||||||||||||
Operating income (loss)2 | 137,236 | 33,922 | (96,992 | ) | 74,166 | |||||||||||
Capital expenditures | 8,958 | 18,495 | 18,539 | 45,992 | ||||||||||||
Thirteen weeks ended July 30, 2017 | ||||||||||||||||
Net revenues1 | $ | 630,793 | $ | 570,813 | $ | — | $ | 1,201,606 | ||||||||
Depreciation and amortization expense | 6,788 | 22,385 | 15,925 | 45,098 | ||||||||||||
Operating income (loss)2 | 135,139 | 34,592 | (88,147 | ) | 81,584 | |||||||||||
Capital expenditures | 8,119 | 23,288 | 19,167 | 50,574 | ||||||||||||
Twenty-six weeks ended July 29, 2018 | ||||||||||||||||
Net revenues1 | $ | 1,333,122 | $ | 1,145,052 | $ | — | $ | 2,478,174 | ||||||||
Depreciation and amortization expense | 16,997 | 45,493 | 31,319 | 93,809 | ||||||||||||
Operating income (loss)2 | 280,041 | 55,983 | (195,308 | ) | 140,716 | |||||||||||
Assets3 | 801,253 | 1,116,904 | 689,820 | 2,607,977 | ||||||||||||
Capital expenditures | 14,752 | 35,690 | 29,579 | 80,021 | ||||||||||||
Twenty-six weeks ended July 30, 2017 | ||||||||||||||||
Net revenues1 | $ | 1,211,303 | $ | 1,101,810 | $ | — | $ | 2,313,113 | ||||||||
Depreciation and amortization expense | 13,755 | 44,727 | 31,566 | 90,048 | ||||||||||||
Operating income (loss)2 | 267,143 | 56,306 | (179,391 | ) | 144,058 | |||||||||||
Assets3 | 672,522 | 1,129,925 | 677,413 | 2,479,860 | ||||||||||||
Capital expenditures | 10,989 | 39,785 | 31,953 | 82,727 |
| Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately 174.3 million and twenty-six weeks ended August 4,2019 and July 29, 2018, |
|
|
In thousands | August 4, 2019 | July 29, 2018 | ||||||
U.S. | $ | 2,146,995 | $ | 1,077,547 | ||||
International | 164,667 | 52,938 | ||||||
Total | $ | 2,311,662 | $ | 1,130,485 |
8
During the thirteen weeks ended July 30, 2017, we repurchased 1,160,381 shares of our common stock at an average cost of $47.41 per share for a total cost of approximately $55,011,000. During thetwenty-six weeks ended July 30, 2017, we repurchased 1,924,924 shares of our common stock at an average cost of $48.50 per share for a total cost of approximately $93,361,000. As of July 30, 2017, we held treasury stock in the amount of $805,000.
In thousands | July 29, 2018 | July 30, 2017 | ||||||
Contracts designated as cash flow hedges | $ | 20,800 | $ | 24,600 | ||||
Contracts not designated as cash flow hedges | $ | 6,600 | $ | 48,000 |
In thousands | August 4, 2019 | July 29, 2018 | ||||||
Contracts designated as cash flow hedges | $ | 6,000 | $ | 20,800 | ||||
Contracts not designated as cash flow hedges | $ | — | $ | 6,600 |
9
In thousands | Thirteen Weeks Ended July 29, 2018 | Thirteen Weeks Ended July 30, 2017 | Twenty-six Weeks Ended July 29, 2018 | Twenty-six Weeks Ended July 30, 2017 | ||||||||||||
Net gain (loss) recognized in OCI | $ | 339 | $ | (1,588 | ) | $ | 1,530 | $ | (696 | ) | ||||||
Net gain (loss) reclassified from OCI into cost of goods sold | $ | (21 | ) | $ | (9 | ) | $ | (73 | ) | $ | 12 | |||||
Net foreign exchange gain (loss) recognized in selling, general and administrative expenses: | ||||||||||||||||
Instruments designated as cash flow hedges1 | $ | 50 | $ | 47 | $ | 33 | $ | 55 | ||||||||
Instruments not designated orde-designated | $ | 1,183 | $ | — | $ | 3,943 | $ | 341 |
|
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | |||||||||||||||||||||||||||||
In thousands | Cost of goods sold | Selling, general and administrative expenses | Cost of goods sold | Selling, general and administrative expenses | Cost of goods sold | Selling, general and administrative expenses | Cost of goods sold | Selling, general and administrative expenses | ||||||||||||||||||||||||
Line items presented in the Condensed Consolidated Statement of Earnings in which the effects of derivatives are recorded | $ | 886,953 | $ | 397,696 | $ | 811,232 | $ | 389,776 | $ | 1,683,754 | $ | 767,895 | $ | 1,582,068 | $ | 755,390 | ||||||||||||||||
Gain (loss) recognized in income | ||||||||||||||||||||||||||||||||
Derivatives designated as cash flow hedges | $ | 187 | $ | — | $ | (21 | ) | $ | 50 | $ | 295 | $ | — | $ | (73 | ) | $ | 33 | ||||||||||||||
Derivatives not designated as hedging instruments | $ | — | $ | 24 | $ | — | $ | 1,183 | $ | — | $ | 18 | $ | — | $ | 3,943 |
In thousands | July 29, 2018 | July 30, 2017 | ||||||
Derivatives designated as cash flow hedges: | ||||||||
Other current assets | $ | 690 | $ | — | ||||
Other long-term assets | $ | 57 | $ | — | ||||
Other current liabilities | $ | — | $ | (704 | ) | |||
Other long-term liabilities | $ | — | $ | (90 | ) | |||
Derivatives not designated as hedging instruments: | ||||||||
Other current assets | $ | 5 | $ | 6 |
In thousands | August 4, 2019 | July 29, 2018 | ||||||
Derivatives designated as cash flow hedges: | ||||||||
Other current assets | $ | 142 | $ | 690 | ||||
Other long-term assets | $ | — | $ | 57 | ||||
Derivatives not designated as hedging instruments: | ||||||||
Other current assets | $ | — | $ | 5 |
10
Property and Equipment
commensurate with the risk.
11
In thousands | Foreign Currency Translation | Cash Flow Hedges | Accumulated Other Comprehensive Income (Loss) | |||||||||
Balance at January 28, 2018 | $ | (6,227 | ) | $ | (555 | ) | $ | (6,782 | ) | |||
Foreign currency translation adjustments | (1,145 | ) | — | (1,145 | ) | |||||||
Change in fair value of derivative financial instruments | — | 1,123 | 1,123 | |||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments1 | — | 49 | 49 | |||||||||
Other comprehensive income (loss) | (1,145 | ) | 1,172 | 27 | ||||||||
Balance at April 29, 2018 | (7,372 | ) | 617 | (6,755 | ) | |||||||
Foreign currency translation adjustments | (2,993 | ) | — | (2,993 | ) | |||||||
Change in fair value of derivative financial instruments | — | 6 | 6 | |||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments1 | — | — | — | |||||||||
Other comprehensive income (loss) | (2,993 | ) | 6 | (2,987 | ) | |||||||
Balance at July 29, 2018 | $ | (10,365 | ) | $ | 623 | $ | (9,742 | ) | ||||
Balance at January 29, 2017 | $ | (9,957 | ) | $ | 54 | $ | (9,903 | ) | ||||
Foreign currency translation adjustments | (1,566 | ) | — | (1,566 | ) | |||||||
Change in fair value of derivative financial instruments | — | 655 | 655 | |||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments1 | — | (16 | ) | (16 | ) | |||||||
Other comprehensive income (loss) | (1,566 | ) | 639 | (927 | ) | |||||||
Balance at April 30, 2017 | (11,523 | ) | 693 | (10,830 | ) | |||||||
Foreign currency translation adjustments | 3,390 | — | 3,390 | |||||||||
Change in fair value of derivative financial instruments | — | (1,166 | ) | (1,166 | ) | |||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments1 | — | 7 | 7 | |||||||||
Other comprehensive income (loss) | 3,390 | (1,159 | ) | 2,231 | ||||||||
Balance at July 30, 2017 | $ | (8,133 | ) | $ | (466 | ) | $ | (8,599 | ) |
|
In thousands | Foreign Currency Translation | Cash Flow Hedges | Accumulated Other Comprehensive Income (Loss) | |||||||||
Balance at February 3, 2019 | $ | (11,259 | ) | $ | 186 | $ | (11,073 | ) | ||||
Foreign currency translation adjustments | (3,009 | ) | (3,009 | ) | ||||||||
Change in fair value of derivative financial instruments | — | 204 | 204 | |||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments | — | (67 | ) | (67 | ) | |||||||
Other comprehensive income (loss) | (3,009 | ) | 137 | (2,872 | ) | |||||||
Balance at May 5, 2019 | (14,268 | ) | 323 | (13,945 | ) | |||||||
Foreign currency translation adjustments | (1,251 | ) | — | (1,251 | ) | |||||||
Change in fair value of derivative financial instruments | — | (132 | ) | (132 | ) | |||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments | — | (160 | ) | (160 | ) | |||||||
Other comprehensive income (loss) | (1,251 | ) | (292 | ) | (1,543 | ) | ||||||
Balance at August 4, 2019 | $ | (15,519 | ) | $ | 31 | $ | (15,488 | ) | ||||
Balance at January 28, 2018 | $ | (6,227 | ) | $ | (555 | ) | $ | (6,782 | ) | |||
Foreign currency translation adjustments | (1,145 | ) | — | (1,145 | ) | |||||||
Change in fair value of derivative financial instruments | — | 1,123 | 1,123 | |||||||||
Reclassification adjustment for realized (gain) loss on derivative financial instruments | — | 49 | 49 | |||||||||
Other comprehensive income (loss) | (1,145 | ) | 1,172 | 27 | ||||||||
Balance at April 29, 2018 | (7,372 | ) | 617 | (6,755 | ) | |||||||
Foreign currency translation adjustments | (2,993 | ) | — | (2,993 | ) | |||||||
Change in fair value of derivative financial instruments | — | 6 | 6 | |||||||||
Other comprehensive income (loss) | (2,993 | ) | 6 | (2,987 | ) | |||||||
Balance at July 29, 2018 | $ | (10,365 | ) | $ | 623 | $ | (9,742 | ) |
12
In thousands | July 29, 2018 | |||
Working capital and other assets | $ | 718,000 | ||
Property and equipment, net | 2,049,000 | |||
Intangible assets | 18,300,000 | |||
Liabilities | (7,160,000 | ) | ||
Total identifiable net assets acquired | $ | 13,907,000 | ||
Goodwill | 66,905,000 | |||
Total purchase consideration | $ | 80,812,000 |
During the second quarter of fiscal 2018, we finalized the valuation of intangible
Working capital and other assets | $ | 718,000 | ||
Property and equipment, net | 2,049,000 | |||
Intangible assets | 18,300,000 | |||
Liabilities | (6,886,000 | ) | ||
Total identifiable net assets acquired | $ | 14,181,000 | ||
Goodwill | 66,631,000 | |||
Total purchase consideration | $ | 80,812,000 |
13
Adoption
the arrangement. Lease commencement is determined to be when the lessor provides us access to, and the right to control, the identified asset.
In thousands | Thirteen weeks ended August 4, 2019 | Twenty-six weeks ended August 4, 2019 | ||||||
Operating lease costs | $ | 66,143 | $ | 131,111 | ||||
Variable lease costs | 5,129 | 9,763 | ||||||
Total lease costs | $ | 71,272 | $ | 140,874 |
the reclassification of breakage incomeSupplemental cash flow information related to our unredeemed stored-value cards from selling, general and administrative expenses into net revenues, as well as an acceleration in the timing of recognizing breakage income,
an acceleration in the timing of revenue recognition for certain merchandise shipped to our customers, and
the recording of a right of return asset for merchandise we expect to receive back from customers of $11,036,000.
The following summarizes the impact of adopting ASU2014-09 on our Condensed Consolidated Statement of Earningsleases for the thirteen and
In thousands | Thirteen weeks ended August 4, 2019 | Twenty-six weeks ended | ||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 71,580 | $ | �� 141,394 | ||||
Net additions to right-of-use assets | 63,871 | 82,393 |
Weighted average remaining lease term (years) | 7.55 | |||
Weighted average incremental borrowing rate | 3.86 | % |
In thousands | ||||
Remaining fiscal 2019 | $ | 143,927 | ||
Fiscal 2020 | 265,375 | |||
Fiscal 2021 | 233,052 | |||
Fiscal 2022 | 201,593 | |||
Fiscal 2023 | 170,283 | |||
Fiscal 2024 | 146,808 | |||
Fiscal 2025 and thereafter | 441,650 | |||
Total lease payments | 1,602,688 | |||
Less interest | (231,679 | ) | ||
Total operating lease liability | 1,371,009 | |||
Less current operating lease liability | (222,978 | ) | ||
Total non-current operating lease liability | $ | 1,148,031 |
In thousands | ||||
Fiscal 2019 | $ | 292,387 | ||
Fiscal 2020 | 262,429 | |||
Fiscal 2021 | 225,755 | |||
Fiscal 2022 | 190,263 | |||
Fiscal 2023 | 160,308 | |||
Thereafter | 559,802 | |||
Total | $ | 1,690,944 |
14
Thirteen Weeks Ended July 29, 2018 | Twenty-six Weeks Ended July 29, 2018 | |||||||||||||||||||||||
In thousands | As Reported | ASU 2014-09 Adjustment | As Adjusted | As Reported | ASU 2014-09 Adjustment | As Adjusted | ||||||||||||||||||
Net revenue | $ | 1,275,174 | $ | (16,831 | ) | $ | 1,258,343 | $ | 2,478,174 | $ | (41,932 | ) | $ | 2,436,242 | ||||||||||
Cost of goods sold | 811,232 | (2,257 | ) | 808,975 | 1,582,068 | (8,401 | ) | 1,573,667 | ||||||||||||||||
Gross profit | 463,942 | (14,574 | ) | 449,368 | 896,106 | (33,531 | ) | 862,575 | ||||||||||||||||
Selling, general and administrative expenses | 389,776 | (10,908 | ) | 378,868 | 755,390 | (23,170 | ) | 732,220 | ||||||||||||||||
Operating income | $ | 74,166 | $ | (3,666 | ) | $ | 70,500 | $ | 140,716 | $ | (10,361 | ) | $ | 130,355 |
Other than the presentation of our sales returns liability and a right of return asset, which resulted in a reclassification of liabilities into other current assets within our Condensed Consolidated Balance Sheet as of July 29, 2018, all other impacts to the Condensed Consolidated Balance Sheet from the adoption of this ASU were not material either individually or in the aggregate for the second quarter of fiscal 2018. The adoption of ASU2014-09 had no net impact to our Condensed Consolidated Statement of Cash Flows for thetwenty-six weeks ended July 29, 2018.
15
All explanations of changes in operational results are discussed in order of their magnitude.
In the second quarter of fiscal 2018, we made progress on our four strategic priorities of digital leadership, product innovation, retail transformation and operational excellence. In digital leadership, we are leveraging our cross-brand platform through initiatives and technology including our cross-brand loyalty program, The Key, which continued to gain momentum. We continued to make progress on our integration of Outward, and launched our photo-realistic space planning experience, “Ensemble” earlier this month. We also improved the digital customer experience through content creation including updating our shop path with more engaging content, and enhanced product information pages. Further, we are optimizing catalog mailings to focus on more profitable digital channels that drive more reach, more efficiently. In product innovation, we continued to have exclusive designs, high-impact collaborations and category expansions. We also built incremental businesses, including PB Apartment, Pottery Barn Modern Baby, as well as a cross brand collaboration between West Elm and Pottery Barn Kids. We made progress on our retail transformation strategy during the quarter by reducing our fleet of underperforming stores and selectively investing in new stores, remodels and relocations, while elevating the store experience. We also remain committed to operational excellence. During the second quarter, we continued to make progress against our inventory initiatives. We reduced overstocks and clearance in stores, bringing our inventory growth down to 2.5%Inc., while revenues grew 6.1%. We continue to focus on managing inventory more effectively, including morein-time inventory and frequent flow from our overseas vendors. In addition to inventory management, we drove further cost reductions across our supply chain, including improved efficiency in our personalization operations and our domestic upholstery manufacturing facility. And in our global business, we saw another quarter of double-digit revenue growth in our company-owned operations. In addition, our existing franchise partners added another six retail locations in the second quarter.
In the second quarter of fiscal 2018, diluted earnings per share was $0.62 (which included a $0.05 impact related to impairment and early lease termination charges, a $0.05 impact related to Outward, a $0.03 impact associated with tax expense from U.S. tax legislationTax Reform, and a $0.02 impact associated withfrom employment-related expense) versus $0.61 inexpenses). We also returned $76,868,000 to our stockholders through dividends and stock repurchases.
deliver long-term shareholder value.
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
In thousands | July 29, 2018 | % Total | July 30, 2017 | % Total | July 29, 2018 | % Total | July 30, 2017 | % Total | ||||||||||||||||||||||||
E-commerce net revenues | $ | 686,942 | 53.9 | % | $ | 630,793 | 52.5 | % | $ | 1,333,122 | 53.8 | % | $ | 1,211,303 | 52.4 | % | ||||||||||||||||
Retail net revenues | 588,232 | 46.1 | % | 570,813 | 47.5 | % | 1,145,052 | 46.2 | % | 1,101,810 | 47.6 | % | ||||||||||||||||||||
Net revenues | $ | 1,275,174 | 100.0 | % | $ | 1,201,606 | 100.0 | % | $ | 2,478,174 | 100.0 | % | $ | 2,313,113 | 100.0 | % |
wholesale customers, breakage income related to our stored-value cards, and incentives received from credit card issuers in connection with our private label and co-branded credit cards.
16
Net revenues foryear-to-date fiscal 20182019 increased by $165,061,000,$133,772,000, or 7.1%5.4%, compared toyear-to-date fiscal 2017,2018, with comparable brand revenue growth of 5.1%. The increase in net revenuesThis growth was primarily driven by a 10.1% increase in oure-commerce net revenues with growth across all brands and a 3.9% increase in our retail net revenues (primarily driven byWest Elm, Pottery Barn West Elm and Williams Sonoma), with particular strength in furniture.our franchise operations. Net revenue growth also included the favorable impact of the adoption of ASU2014-09 (see Note Lan 8.8% increase in international revenue primarily related to our Condensed Consolidated Financial Statements).
franchise operations.
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
Comparable brand revenue growth (decline) | July 29, 2018 | July 30, 2017 | July 29, 2018 | July 30, 2017 | ||||||||||||
Pottery Barn | 2.0 | % | 1.2 | % | 2.3 | % | (0.1 | %) | ||||||||
West Elm | 9.5 | % | 10.1 | % | 9.2 | % | 8.1 | % | ||||||||
Williams Sonoma | 1.6 | % | 1.9 | % | 3.6 | % | 2.5 | % | ||||||||
Pottery Barn Kids and Teen1 | 5.7 | % | (2.7 | %) | 5.5 | % | (5.2 | %) | ||||||||
Total | 4.6 | % | 2.8 | % | 5.1 | % | 1.5 | % |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
Comparable brand revenue growth (decline) | August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | ||||||||||||
Pottery Barn | 4.2 | % | 2.0 | % | 2.9 | % | 2.3 | % | ||||||||
West Elm | 17.5 | % | 9.5 | % | 14.8 | % | 9.2 | % | ||||||||
Williams Sonoma | (1.1 | %) | 1.6 | % | (1.3 | %) | 3.6 | % | ||||||||
Pottery Barn Kids and Teen | 3.7 | % | 5.7 | % | 2.6 | % | 5.5 | % | ||||||||
Total 1 | 6.5 | % | 4.6 | % | 5.1 | % | 5.1 | % |
1 |
|
Store Count | Average Leased Square Footage Per Store | |||||||||||||||||||||||||||
April 29, 2018 | Openings | Closings | July 29, 2018 | July 30, 2017 | July 29, 2018 | July 30, 2017 | ||||||||||||||||||||||
Williams Sonoma | 224 | 4 | (2 | ) | 226 | 234 | 6,800 | 6,600 | ||||||||||||||||||||
Pottery Barn | 203 | 2 | — | 205 | 204 | 13,900 | 13,800 | |||||||||||||||||||||
West Elm | 108 | 3 | (2 | ) | 109 | 101 | 13,100 | 13,200 | ||||||||||||||||||||
Pottery Barn Kids | 84 | — | — | 84 | 88 | 7,400 | 7,400 | |||||||||||||||||||||
Rejuvenation | 8 | — | — | 8 | 8 | 8,800 | 8,800 | |||||||||||||||||||||
Total | 627 | 9 | (4 | ) | 632 | 635 | 10,300 | 10,100 | ||||||||||||||||||||
Store selling square footage atperiod-end |
| 4,058,000 | 3,998,000 | |||||||||||||||||||||||||
Store leased square footage atperiod-end |
| 6,504,000 | 6,428,000 |
Store Count | Average Leased Square Footage Per Store | |||||||||||||||||||||||||||
May 5, 2019 | Openings | Closings | August 4, 2019 | July 29, 2018 | August 4, 2019 | July 29, 2018 | ||||||||||||||||||||||
Williams Sonoma | 219 | — | (1 | ) | 218 | 226 | 6,800 | 6,800 | ||||||||||||||||||||
Pottery Barn | 205 | 2 | (2 | ) | 205 | 205 | 14,400 | 13,900 | ||||||||||||||||||||
West Elm | 113 | — | (1 | ) | 112 | 109 | 13,100 | 13,100 | ||||||||||||||||||||
Pottery Barn Kids | 78 | — | — | 78 | 84 | 7,500 | 7,400 | |||||||||||||||||||||
Rejuvenation | 10 | — | — | 10 | 8 | 8,500 | 8,800 | |||||||||||||||||||||
Total | 625 | 2 | (4 | ) | 623 | 632 | 10,600 | 10,300 | ||||||||||||||||||||
Store selling square footage at period-end | 4,124,000 | 4,058,000 | ||||||||||||||||||||||||||
Store leased square footage at period-end | 6,587,000 | 6,504,000 |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
In thousands | July 29, 2018 | % Net Revenues | July 30, 2017 | % Net Revenues | July 29, 2018 | % Net Revenues | July 30, 2017 | % Net Revenues | ||||||||||||||||||||||||
Cost of goods sold1 | $ | 811,232 | 63.6 | % | $ | 778,895 | 64.8 | % | $ | 1,582,068 | 63.8 | % | $ | 1,494,642 | 64.6 | % |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
In thousands | August 4, 2019 | % Net Revenues | July 29, 2018 | % Net Revenues | August 4, 2019 | % Net Revenues | July 29, 2018 | % Net Revenues | ||||||||||||||||||||||||
Cost of goods sold 1 | $ | 886,953 | 64.7 | % | $ | 811,232 | 63.6 | % | $ | 1,683,754 | 64.5 | % | $ | 1,582,068 | 63.8 | % |
1 | Includes total occupancy expenses of |
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Our classification of expenses in cost of goods sold may not be comparable to other public companies, as we do not includenon-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.
Within our reportable segments, thee-commerce channel does not incurfreight-to-store or store occupancy expenses, and typically operates with lower markdowns and inventory shrinkage than the retail channel. However, thee-commerce channel incurs higher customer shipping, damage and replacement costs than the retail channel.
2018
In thee-commerce channel, cost of goods sold as a percentage of net revenues decreased in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017, primarily driven by higher selling margins.
In the retail channel, cost of goods sold as a percentage of net revenues decreased in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017, primarily driven by higher selling margins.
costs.
In thee-commerce channel, cost of goods sold as a percentage of net revenues decreased foryear-to-date fiscal 2018 compared toyear-to-date fiscal 2017, primarily driven by higher selling margins.
In the retail channel, cost of goods sold as a percentage of net revenues decreased for year-to-date fiscal 2018 compared to year-to-date fiscal 2017, primarily driven by the leverage of occupancy costs.
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
In thousands | July 29, 2018 | % Net Revenues | July 30, 2017 | % Net Revenues | July 29, 2018 | % Net Revenues | July 30, 2017 | % Net Revenues | ||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 389,776 | 30.6 | % | $ | 341,127 | 28.4 | % | $ | 755,390 | 30.5 | % | $ | 674,413 | 29.2 | % |
Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
In thousands | August 4, 2019 | % Net Revenues | July 29, 2018 | % Net Revenues | August 4, 2019 | % Net Revenues | July 29, 2018 | % Net Revenues | ||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 397,696 | 29.0 | % | $ | 389,776 | 30.6 | % | $ | 767,895 | 29.4 | % | $ | 755,390 | 30.5 | % |
We experience differing employment and advertising costs as a percentage of net revenues within the retail ande-commerce channels due to their distinct distribution and marketing strategies. Employment costs represent a greater percentage of net revenues within the retail channel as compared to thee-commerce channel. However, advertising expenses are higher within thee-commerce channel than in the retail channel.
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201820182019 vs. Second Quarter of Fiscal 2017
In thee-commerce channel, selling, general and administrative expenses as a percentage of net revenues increased in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017, primarily driven by higher digital advertising costssales and increased hourly wages from the reinvestmentcontinued benefits of taxour cost savings initiatives across the impact frombusiness, as well as our acquisition of Outward, and an increase in general expenses, partially offset by the optimization of catalog advertising costs.
In the retail channel, selling, general and administrative expenses as a percentage of net revenues increased in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017, primarily driven by impairment and early lease termination charges related to underperforming retail stores.
overall expense discipline.
In thee-commerce channel, selling, general and administrative expenses as a percentage of net revenues increased foryear-to-date fiscal 2018 compared toyear-to-date fiscal 2017, primarily driven by higher digital advertising costs and increased hourly wages from the reinvestment of tax savings, an increase in general expenses,sales and the impact fromcontinued benefits of our acquisitioncost savings initiatives across the business, as well as our overall expense discipline.
In the retail channel, selling, general and administrative expenses as a percentage of net revenues increased foryear-to-datefiscal 2018 compared toyear-to-date fiscal 2017, primarily driven by impairment and early lease termination charges related to underperforming retail stores.
INCOME TAXES
2018. Staff Accounting Bulletin No. 118 (“SAB 118”) issued by the SEC in December 2017 providesprovided us with up to one year to finalize our measurement of the income tax effects of the U.S.2017 Tax ReformCuts and Jobs Act (“the Tax Act”) on our fiscal year ended January 28, 2018. As of January 28, 2018, we had made reasonable estimates of the transition tax under Internal Revenue Code Section 965.
As a result of the issuance of IRS Notice2018-26, we recorded a measurement period adjustment in the first quarter of fiscal 2018 to increase the transition tax by approximately $2,871,000. In the second quarter of fiscal 2018, we finalized our valuation of intangible assets acquired in connection with the acquisition of Outward. As a result, we recorded an increase to tax expense of approximately $1,757,000 representing an adjustment to there-measurement of our deferred tax liabilities under SAB 118.
The effective tax rate was 29.8% foryear-to-date fiscal 2018 and 35.6% foryear-to-date fiscal 2017. Theyear-over-year decrease in the effective tax rate was primarily due to the reduction of the U.S. corporate income tax rate from 35% to 21%, and was partially offset by the adjustment of the provisional transition tax under SAB 118 and the adjustment to there-measurement of our deferred tax liabilities under SAB 118.
In fiscal 2018, we are subject to several provisions of U.S. Tax Reform including a tax on global intangiblelow-taxed income (“GILTI”),118 in the base erosion anti-abuse tax and a deduction for foreign-derived intangible income. The impact of these provisions was immaterial for the second quarterfirst two quarters of fiscal 2018.
A company can elect an accounting policy to account for GILTI as either a periodic expense when the tax arises or as part of deferred taxes related to the investment in the subsidiary. We are currently in the process of analyzing this provision and, as a result, are not yet able to reasonably estimate its effect. Therefore, we have not yet made a policy election regarding the accounting for GILTI. The ultimate impact of U.S. Tax Reform may differ from our provisional amounts due to changes in interpretations and assumptions and/or additional regulatory guidance that may be issued. We expect to revise our U.S. Tax Reform impact estimates as we refine our analysis of the new rules and as new guidance is issued. We expect to finalize accounting for the impact of U.S. Tax Reform under SAB 118 once our 2017 U.S. corporate income tax return is filed in the fourth quarter of fiscal 2018.
19
On August 23, 2019, we renewed all three of our letter of credit facilities for substantially similar terms.
payable due to the timing of payments.
borrowings under our revolver.
20
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 second quarter of fiscal 2018,2019, other than those discussed in Note LNotes H, I and M to our Condensed Consolidated Financial Statements, there have been no significant changes to the critical accounting policies discussed in our Annual Report on Form10-K for the year ended January 28, 2018.
February 3, 2019.
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Recently proposed tariffs could result in increased prices and/or costs of goods and could adversely affect our results of operations.
Recently, the U.S. administration proposed tariffs on many items sourced from China, including certain furniture, accessories, furniture parts, and raw materials for domestic furniture manufacturing products imported into the U.S. While we expect there to be minimal financial impact on our fiscal 2018 results of operations if the proposed tariffs are enacted, it is difficult to quantify the impact until any tariffs are finalized. We may not be able to fully or substantially mitigate the impact of these tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could adversely affect customer sales, our cost of goods sold and results of operations.
Fiscal period | Total Number of Shares Purchased1 | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program1 | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program | ||||||||||||
April 30, 2018 – May 27, 2018 | 245,134 | $ | 48.95 | 245,134 | $ | 469,407,000 | ||||||||||
May 28, 2018 – June 24, 2018 | 1,133,700 | $ | 56.04 | 1,133,700 | $ | 405,869,000 | ||||||||||
June 25, 2018 – July 29, 2018 | 1,030,603 | $ | 59.74 | 1,030,603 | $ | 344,302,000 | ||||||||||
Total | 2,409,437 | $ | 56.90 | 2,409,437 | $ | 344,302,000 |
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 | ||||||||||||
May 6, 2019 – June 2, 2019 | 223,925 | $ | 53.61 | 223,925 | $ | 677,963,000 | ||||||||||
June 3, 2019 – June 30, 2019 | 188,106 | $ | 60.55 | 188,106 | $ | 666,573,000 | ||||||||||
July 1, 2019 – August 4, 2019 | 223,495 | $ | 66.62 | 223,495 | $ | 651,685,000 | ||||||||||
Total | 635,526 | $ | 60.24 | 635,526 | $ | 651,685,000 |
1 | Excludes shares withheld for employee taxes upon vesting of stock-based awards. |
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| |||
Exhibit Number | Exhibit Description | |||
10.1+* | ||||
31.1* | ||||
31.2* | ||||
32.1* | ||||
32.2* | ||||
101.INS* | eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted under Exhibit 101). |
|
+ | Indicates a management contract or compensatory plan or arrangement. |
* | Filed herewith. |
WILLIAMS-SONOMA, INC. | ||
By: | /s/ Julie Whalen | |
Julie Whalen | ||
Duly Authorized Officer and Chief Financial Officer |
12, 2019