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 31, 2021.~~May 1, 2022.


☐			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 28, 2021, 72,954,519~~May 29, 2022, 68,763,017 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 31, 2021~~MAY 1, 2022

TABLE OF CONTENTS


	PART I. FINANCIAL INFORMATION
		PAGE
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1612
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2217
Item 4.	Controls and Procedures	2317
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2418
Item 1A.	Risk Factors	2418
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2418
Item 3.	Defaults Upon Senior Securities	2418
Item 4.	Mine Safety Disclosures	2418
Item 5.	Other Information	2418
Item 6.	Exhibits	2519

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

Thirteen
Weeks Ended Thirty-nine
Weeks Ended
In thousands, except per share amounts October 31,
2021 November 1,
2020 October 31,
2021 November 1,
2020
Net revenues $ 2,047,539 $ 1,764,536 $ 5,744,907 $ 4,490,516
Cost of goods sold 1,152,054 1,058,953 3,238,181 2,819,471
Gross profit 895,485 705,583 2,506,726 1,671,045
Selling, general and administrative expenses 565,218 430,979 1,578,182 1,162,435
Operating income 330,267 274,604 928,544 508,610
Interest expense, net 121 5,344 1,954 13,967
Earnings before income taxes 330,146 269,260 926,590 494,643
Income taxes 80,622 67,488 203,194 122,884
Net earnings $ 249,524 $ 201,772 $ 723,396 $ 371,759
Basic earnings per share $ 3.37 $ 2.60 $ 9.66 $ 4.80
Diluted earnings per share $ 3.29 $ 2.54 $ 9.40 $ 4.71
Shares used in calculation of earnings per share:
Basic 74,010 77,487 74,865 77,511
Diluted 75,943 79,332 76,975 79,012


	For the Thirteen Weeks Ended
(In thousands, except per share amounts)	May 1, 2022		May 2, 2021
Net revenues	$	1,891,227	$	1,749,029
Cost of goods sold	1,062,679		996,176
Gross profit	828,548		752,853
Selling, general and administrative expenses	505,067		477,676
Operating income	323,481		275,177
Interest (income) expense, net	(163)		1,872
Earnings before income taxes	323,644		273,305
Income taxes	69,531		45,503
Net earnings	$	254,113	$	227,802
Basic earnings per share	$	3.59	$	3.01
Diluted earnings per share	$	3.50	$	2.90
Shares used in calculation of earnings per share:
Basic	70,851		75,800
Diluted	72,652		78,485

See Notes to Condensed Consolidated Financial Statements.

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Thirteen
Weeks Ended Thirty-nine
Weeks Ended
In thousands October 31,
2021 November 1,
2020 October 31,
2021 November 1,
2020
Net earnings $ 249,524 $ 201,772 $ 723,396 $ 371,759
Other comprehensive income (loss):
Foreign currency translation adjustments 792 (745) 970 716
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(19), $21, $(235), and $146 (54) 54 (654) 403
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $(131), $85, $(312), and $136 369 (231) 859 (375)
Comprehensive income $ 250,631 $ 200,850 $ 724,571 $ 372,503


	For the Thirteen Weeks Ended
(In thousands)	May 1, 2022		May 2, 2021
Net earnings	$	254,113	$	227,802
Other comprehensive income (loss):
Foreign currency translation adjustments	(1,514)		3,700
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $33 and $(241)	93		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $6 and $(55)	(18)		153
Comprehensive income	$	252,674	$	230,990

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In thousands, except per share amounts		October 31, 2021		January 31, 2021		November 1, 2020
									As of
(In thousands, except per share amounts)								(In thousands, except per share amounts)	May 1, 2022		January 30, 2022		May 2, 2021
ASSETS	ASSETS							ASSETS
Current assets	Current assets							Current assets
Cash and cash equivalents	Cash and cash equivalents	$	656,898	$	1,200,337	$	773,170	Cash and cash equivalents	$	324,835	$	850,338	$	639,670
Accounts receivable, net	Accounts receivable, net	139,511		143,728		129,782		Accounts receivable, net	122,946		131,683		142,459
Merchandise inventories, net	Merchandise inventories, net	1,272,028		1,006,299		1,125,475		Merchandise inventories, net	1,396,135		1,246,372		1,087,528
Prepaid expenses	Prepaid expenses	85,433		93,822		84,974		Prepaid expenses	60,997		69,252		58,837
Other current assets	Other current assets	22,852		22,894		23,556		Other current assets	23,939		26,249		20,502
Total current assets	Total current assets	2,176,722		2,467,080		2,136,957		Total current assets	1,928,852		2,323,894		1,948,996
Property and equipment, net	Property and equipment, net	892,226		873,894		869,092		Property and equipment, net	942,460		920,773		875,384
Operating lease right-of-use assets	Operating lease right-of-use assets	1,159,315		1,086,009		1,091,649		Operating lease right-of-use assets	1,102,056		1,132,764		1,054,746
Deferred income taxes, net	Deferred income taxes, net	61,768		61,854		42,185		Deferred income taxes, net	48,737		56,585		57,499
Goodwill	Goodwill	85,392		85,446		85,402		Goodwill	85,298		85,354		85,435
Other long-term assets, net	Other long-term assets, net	101,901		87,141		85,394		Other long-term assets, net	103,310		106,250		88,180
Total assets	Total assets	$	4,477,324	$	4,661,424	$	4,310,679	Total assets	$	4,210,713	$	4,625,620	$	4,110,240
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	Current liabilities							Current liabilities
Accounts payable	Accounts payable	$	638,371	$	542,992	$	562,294	Accounts payable	$	642,619	$	612,512	$	574,876
Accrued expenses	Accrued expenses	273,722		267,592		194,985		Accrued expenses	183,729		319,924		174,139
Gift card and other deferred revenue	Gift card and other deferred revenue	431,446		373,164		349,671		Gift card and other deferred revenue	490,821		447,770		389,640
Income taxes payable	Income taxes payable	38,320		69,476		36,037		Income taxes payable	126,270		79,554		93,282
Current debt		—		299,350		—

Operating lease liabilities	Operating lease liabilities	218,348		209,754		217,448		Operating lease liabilities	211,614		217,409		208,739
Other current liabilities	Other current liabilities	91,418		85,672		99,691		Other current liabilities	88,587		94,517		78,597
Total current liabilities	Total current liabilities	1,691,625		1,848,000		1,460,126		Total current liabilities	1,743,640		1,771,686		1,519,273
Deferred lease incentives	Deferred lease incentives	17,268		20,612		21,858		Deferred lease incentives	15,576		16,360		19,505
Long-term debt		—		—		299,173

Long-term operating lease liabilities	Long-term operating lease liabilities	1,095,290		1,025,057		1,027,142		Long-term operating lease liabilities	1,038,249		1,066,839		999,288
Other long-term liabilities	Other long-term liabilities	129,771		116,570		100,478		Other long-term liabilities	103,504		106,528		124,878
Total liabilities	Total liabilities	2,933,954		3,010,239		2,908,777		Total liabilities	2,900,969		2,961,413		2,662,944
Commitments and contingencies – See Note F		0		0		0

Stockholders’ equity	Stockholders’ equity							Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued	Preferred stock: $0.01 par value; 7,500 shares authorized; none issued	—		—		—		Preferred stock: $0.01 par value; 7,500 shares authorized; none issued	—		—		—
Common stock: $0.01 par value; 253,125 shares authorized; 73,326, 76,340 and 76,697 shares issued and outstanding at October 31, 2021, January 31, 2021 and November 1, 2020, respectively		734		764		768
Common stock: $0.01 par value; 253,125 shares authorized; 69,219, 71,982 and 75,235 shares issued and outstanding at May 1, 2022, January 30, 2022 and May 2, 2021, respectively								Common stock: $0.01 par value; 253,125 shares authorized; 69,219, 71,982 and 75,235 shares issued and outstanding at May 1, 2022, January 30, 2022 and May 2, 2021, respectively	693		720		753
Additional paid-in capital	Additional paid-in capital	585,449		638,375		623,379		Additional paid-in capital	532,205		600,942		556,305
Retained earnings	Retained earnings	963,840		1,019,762		792,196		Retained earnings	789,852		1,074,084		894,878
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(5,942)		(7,117)		(13,843)		Accumulated other comprehensive loss	(12,267)		(10,828)		(3,929)
Treasury stock, at cost: 4, 8 and 8 shares as of October 31, 2021, January 31, 2021 and November 1, 2020, respectively		(711)		(599)		(598)
Treasury stock, at cost: 1, 4 and 4 shares as of May 1, 2022, January 30, 2022 and May 2, 2021, respectively								Treasury stock, at cost: 1, 4 and 4 shares as of May 1, 2022, January 30, 2022 and May 2, 2021, respectively	(739)		(711)		(711)
Total stockholders’ equity	Total stockholders’ equity	1,543,370		1,651,185		1,401,902		Total stockholders’ equity	1,309,744		1,664,207		1,447,296
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,477,324	$	4,661,424	$	4,310,679	Total liabilities and stockholders’ equity	$	4,210,713	$	4,625,620	$	4,110,240

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

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			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
(In thousands)															(In thousands)	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
Balance at January 30, 2022															Balance at January 30, 2022	71,982	$	720
Net earnings	Net earnings	—	—		—		227,802		—		—		227,802		Net earnings	—	—		—		254,113		—		—		254,113
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		—		3,700		—		3,700		Foreign currency translation adjustments	—	—		—		—		(1,514)		—		(1,514)
Change in fair value of derivative financial instruments, net of tax	Change in fair value of derivative financial instruments, net of tax	—	—		—		—		(665)		—		(665)		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	Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		153		—		153		Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		(18)		—		(18)
Conversion/release of stock-based awards1	Conversion/release of stock-based awards1	686	7		(97,958)		—		—		(500)		(98,451)		Conversion/release of stock-based awards1	617	6		(78,142)		—		—		(372)		(78,508)
Repurchases of common stock	Repurchases of common stock	(1,791)	(18)		(9,239)		(306,272)		—		—		(315,529)		Repurchases of common stock	(3,380)	(33)		(18,590)		(482,452)		—		—		(501,075)
Reissuance of treasury stock under stock-based compensation plans1	Reissuance of treasury stock under stock-based compensation plans1	—	—		(344)		(44)		—		388		—		Reissuance of treasury stock under stock-based compensation plans1	—	—		(344)		—		—		344		—
Stock-based compensation expense	Stock-based compensation expense	—	—		25,471		—		—		—		25,471		Stock-based compensation expense	—	—		28,339		—		—		—		28,339
Dividends declared	Dividends declared	—	—		—		(46,370)		—		—		(46,370)		Dividends declared	—	—		—		(55,893)		—		—		(55,893)
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 awards1		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
Balance at May 1, 2022															Balance at May 1, 2022	69,219	$	693	$	532,205	$	789,852	$	(12,267)	$	(739)	$	1,309,744

1.1Amounts are shown net of shares withheld for employee taxes.

~~See Notes to Condensed Consolidated Financial Statements.~~

~~Table of Contents~~

~~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			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
In thousands		Shares	Amount
Balance at February 2, 2020		77,137	$	772	$	605,822	$	644,794	$	(14,587)	$	(941)	$	1,235,860
Net earnings		—	—		—		35,423		—		—		35,423
Foreign currency translation adjustments		—	—		—		—		(5,276)		—		(5,276)
Change in fair value of derivative financial instruments, net of tax		—	—		—		—		549		—		549
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		—	—		—		—		(37)		—		(37)
Conversion/release of stock-based awards1		622	6		(28,747)		—		—		(171)		(28,912)

Reissuance of treasury stock under stock-based compensation plans1		—	—		(499)		(14)		—		513		—
Stock-based compensation expense		—	—		19,608		—		—		—		19,608
Dividends declared		—	—		—		(38,286)		—		—		(38,286)

Balance at May 3, 2020		77,759	$	778	$	596,184	$	641,917	$	(19,351)	$	(599)	$	1,218,929
Net earnings		—	—		—		134,564		—		—		134,564
Foreign currency translation adjustments		—	—		—		—		6,737		—		6,737
Change in fair value of derivative financial instruments, net of tax		—	—		—		—		(200)		—		(200)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax		—	—		—		—		(107)		—		(107)
Conversion/release of stock-based awards1		37	—		(677)		—		—		—		(677)

Stock-based compensation expense		—	—		13,385		—		—		—		13,385
Dividends declared		—	—		—		(39,709)		—		—		(39,709)
Balance at August 2, 2020		77,796	$	778	$	608,892	$	736,772	$	(12,921)	$	(599)	$	1,332,922
(In thousands)															(In thousands)	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
Balance at January 31, 2021															Balance at January 31, 2021	76,340	$	764
Net earnings	Net earnings	—	—		—		201,772		—		—		201,772		Net earnings	—	—		—		227,802		—		—		227,802
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		—		(745)		—		(745)		Foreign currency translation adjustments	—	—		—		—		3,700		—		3,700
Change in fair value of derivative financial instruments, net of tax	Change in fair value of derivative financial instruments, net of tax	—	—		—		—		54		—		54		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	Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		(231)		—		(231)		Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax	—	—		—		—		153		—		153
Conversion/release of stock-based awards1	Conversion/release of stock-based awards1	20	1		(968)		—		—		1		(966)		Conversion/release of stock-based awards1	686	7		(97,958)		—		—		(500)		(98,451)
Repurchases of common stock	Repurchases of common stock	(1,119)	(11)		(5,640)		(103,397)		—		—		(109,048)		Repurchases of common stock	(1,791)	(18)		(9,239)		(306,272)		—		—		(315,529)

Reissuance of treasury stock under stock-based compensation plans1															Reissuance of treasury stock under stock-based compensation plans1	—	—		(344)		(44)		—		388		—
Stock-based compensation expense	Stock-based compensation expense	—	—		21,095		—		—		—		21,095		Stock-based compensation expense	—	—		25,471		—		—		—		25,471
Dividends declared	Dividends declared	—	—		—		(42,951)		—		—		(42,951)		Dividends declared	—	—		—		(46,370)		—		—		(46,370)
Balance at November 1, 2020		76,697	$	768	$	623,379	$	792,196	$	(13,843)	$	(598)	$	1,401,902
Balance at May 2, 2021															Balance at May 2, 2021	75,235	$	753	$	556,305	$	894,878	$	(3,929)	$	(711)	$	1,447,296

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

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

WILLIAMS-SONOMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Thirty-nine Weeks Ended					For the Thirteen Weeks Ended
In thousands		October 31, 2021		November 1, 2020
(In thousands)						(In thousands)	May 1, 2022		May 2, 2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings	Net earnings	$	723,396	$	371,759	Net earnings	$	254,113	$	227,802
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:	Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:					Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	145,897		140,340		Depreciation and amortization	50,251		47,922
Loss on disposal/impairment of assets	Loss on disposal/impairment of assets	887		26,220		Loss on disposal/impairment of assets	159		195
Amortization of deferred lease incentives	Amortization of deferred lease incentives	(3,345)		(4,538)		Amortization of deferred lease incentives	(784)		(1,108)
Non-cash lease expense	Non-cash lease expense	159,757		162,767		Non-cash lease expense	54,338		52,955
Deferred income taxes	Deferred income taxes	(11,440)		(6,969)		Deferred income taxes	(2,725)		(3,981)
Tax benefit related to stock-based awards	Tax benefit related to stock-based awards	10,838		13,143		Tax benefit related to stock-based awards	10,522		10,146
Stock-based compensation expense	Stock-based compensation expense	70,566		54,671		Stock-based compensation expense	28,542		26,330
Other	Other	4		(9)		Other	(17)		(223)
Changes in:	Changes in:					Changes in:
Accounts receivable	Accounts receivable	4,941		(18,017)		Accounts receivable	8,741		1,522
Merchandise inventories	Merchandise inventories	(264,094)		(22,990)		Merchandise inventories	(149,470)		(79,726)
Prepaid expenses and other assets	Prepaid expenses and other assets	(10,078)		(4,807)		Prepaid expenses and other assets	13,517		34,562
Accounts payable	Accounts payable	74,181		54,279		Accounts payable	25,559		27,910
Accrued expenses and other liabilities	Accrued expenses and other liabilities	24,400		58,539		Accrued expenses and other liabilities	(139,883)		(90,883)
Gift card and other deferred revenue	Gift card and other deferred revenue	58,189		59,953		Gift card and other deferred revenue	42,924		16,174
Operating lease liabilities	Operating lease liabilities	(164,569)		(171,245)		Operating lease liabilities	(58,025)		(53,633)
Income taxes payable	Income taxes payable	(31,191)		13,532		Income taxes payable	46,757		22,917
Net cash provided by operating activities	Net cash provided by operating activities	788,339		726,628		Net cash provided by operating activities	184,519		238,881
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(141,010)		(124,885)		Purchases of property and equipment	(71,186)		(42,360)
Other	Other	97		506		Other	86		93
Net cash used in investing activities	Net cash used in investing activities	(140,913)		(124,379)		Net cash used in investing activities	(71,100)		(42,267)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repurchases of common stock	Repurchases of common stock	(652,699)		(109,048)		Repurchases of common stock	(501,075)		(315,529)
Tax withholdings related to stock-based awards						Tax withholdings related to stock-based awards	(78,508)		(98,451)
Payment of dividends						Payment of dividends	(58,150)		(45,576)
Repayment of long-term debt	Repayment of long-term debt	(300,000)		—		Repayment of long-term debt	—		(300,000)
Payment of dividends		(135,201)		(116,761)
Tax withholdings related to stock-based awards		(102,482)		(30,555)
Debt issuance costs		(777)		(3,645)
Borrowings under revolving line of credit		—		487,823
Repayments under revolving line of credit		—		(487,823)

Net cash used in financing activities	Net cash used in financing activities	(1,191,159)		(260,009)		Net cash used in financing activities	(637,733)		(759,556)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	294		(1,232)		Effect of exchange rates on cash and cash equivalents	(1,189)		2,275
Net (decrease) increase in cash and cash equivalents		(543,439)		341,008
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(525,503)		(560,667)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	1,200,337		432,162		Cash and cash equivalents at beginning of period	850,338		1,200,337
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	656,898	$	773,170	Cash and cash equivalents at end of period	$	324,835	$	639,670

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 31,~~May 1, 2022 and May 2, 2021, ~~and November 1, 2020,~~ the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, 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~~thirteen weeks then ended, have been prepared by us, ~~without audit.~~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.~~eliminated in our consolidation. The balance sheet as of January 31, 2021, 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 31, 2021.

The results of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~October 31, 2021~~May 1, 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 ~~31, 2021.~~30, 2022.

~~COVID-19~~

~~In March 2020, we announced~~During fiscal 2021 and continuing into the ~~temporary~~first quarter of fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures ~~of all of our retail store operations to protect our employees, customers~~ and the communities in which we operate and to help contain the COVID-19 pandemic. As of October 31, 2021, all of our stores have reopened for in-person shopping. However, we have experienced, and expect to continue to experience,increased port congestion, caused delays in inventory receipts, increased raw material costs, and higher shipping-related ~~charges as a result~~charges. We expect these supply chain challenges to continue into the remainder of ~~port slowdowns and congestion, as well as shipping container shortages, due in part to the~~fiscal 2022, which could negatively impact ~~from COVID-19.~~

our business.

New Accounting Pronouncements

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes~~ (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU was effective for us in the first quarter of fiscal 2021. The adoption of this ASU did not have an impact on our financial condition, results of operations or cash flows.

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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NOTE B. BORROWING ARRANGEMENTS

Credit Facility

We have a credit facility (the "Credit Facility") which provides for a ~~$500,000,000~~$500 million unsecured revolving line of credit ~~(“revolver”~~(the “Revolver”). ~~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~~Revolver by up to ~~$250,000,000~~$250 million to provide for a total of ~~$750,000,000~~$750 million of unsecured revolving credit. Our credit facility also provided for a $300,000,000 unsecured term loan facility (“term loan”), which was fully repaid in February 2021. In September 2021, we entered into an amendment to our credit facility (the "Amended Credit Agreement"), which extended the maturity date of the revolver to September 30, 2026 and removed the $300,000,000 term loan component available under the existing credit facility. The Amended Credit Agreement maintains the interest rate of the revolver.

During the ~~third~~first quarter of fiscal ~~2021 and for year-to-date fiscal 2021,~~2022, we had no borrowings under ~~the revolver.~~our Revolver. Additionally, as of ~~October 31, 2021, $11,919,000 in~~May 1, 2022, issued but undrawn standby letters of credit of $11.4 million were outstanding under ~~the revolver.~~our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs. We had no borrowings under our Revolver during the ~~third~~first quarter of fiscal 2020, and for year-to-date fiscal 2020, we had borrowings of $487,823,000 under the revolver (at a year-to-date weighted average interest rate of 2.47%), all of which were repaid prior to the end of fiscal 2020. The revolver2021. 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 ~~the revolver~~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 ~~the credit facility,~~our Credit Facility, plus an applicable margin based on our leverage ratio ranging from 0% to 0.775%.

~~The credit facility~~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 ~~and rent expense~~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 31, 2021,~~May 1, 2022, we were in compliance with our financial covenants under ~~the credit facility~~our Credit Facility and, based on current projections, we expect to remain in compliance ~~with our covenants under the credit facility~~ throughout the next 12 months.

Letter of Credit Facilities

~~On August 22, 2021, we renewed all~~We have 3 ~~of our~~unsecured letter of credit reimbursement facilities ~~on substantially similar terms~~ for a total of ~~$35,000,000. We also extended each facility's maturity date until August 22, 2022. The~~$35 million. Our letter of credit facilities contain covenants that are consistent with our ~~credit facility.~~Credit Facility. Interest on unreimbursed amounts under ~~the~~our letter of credit facilities accrues at a base rate as defined in ~~the credit facility,~~our Credit Facility, plus an applicable margin based on our leverage ratio. As of ~~October 31, 2021, an~~May 1, 2022, the aggregate ~~of $7,542,000 was~~amount outstanding under ~~the~~our letter of credit facilities was $6.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration date possible for any future letters of credit issued under the facilities is January 19, 2023.

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 ~~42,720,000~~42.7 million shares. As of ~~October 31, 2021,~~May 1, 2022, there were approximately ~~7,507,000~~6.1 million shares available for future grant. Awards may be granted under ~~the~~our Plan to officers, employees and non-employee members of the ~~board~~Board of ~~directors~~Directors of the ~~company~~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 ~~1,000,000~~1 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

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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 resulting from 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 31,~~May 1, 2022 and May 2, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of ~~$24,306,000~~$28.5 million and ~~$70,566,000,~~$26.3 million, respectively. During the thirteen and thirty-nine weeks ended November 1, 2020, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $21,276,000 and $54,671,000, respectively.

~~Restricted Stock Units~~

~~The following table summarizes our restricted stock unit activity during the thirty-nine weeks ended October 31, 2021:~~


			~~Shares~~
~~Balance at January 31, 2021~~			~~3,118,884~~
~~Granted~~			~~393,572~~
~~Granted, with vesting subject to performance conditions~~			~~107,075~~
~~Released~~ 1			~~(1,096,821)~~
~~Cancelled~~			~~(124,603)~~
~~Balance at October 31, 2021~~			~~2,398,107~~
~~Vested plus expected to vest at October 31, 2021~~			~~2,373,380~~

1~~Excludes 229,000 incremental shares released due to achievement of performance conditions above target.~~

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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 ~~with exercise prices less than or equal to the average market price of our common stock for the period,~~ 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 31, 2021
(In thousands, except per share amounts)							(In thousands, except per share amounts)	Net Earnings		Weighted Average Shares	Earnings Per Share
Thirteen weeks ended May 1, 2022							Thirteen weeks ended May 1, 2022
Basic	Basic	$	249,524	74,010	$	3.37	Basic	$	254,113	70,851	$	3.59
Effect of dilutive stock-based awards	Effect of dilutive stock-based awards			1,933			Effect of dilutive stock-based awards			1,801
Diluted	Diluted	$	249,524	75,943	$	3.29	Diluted	$	254,113	72,652	$	3.50
Thirteen weeks ended November 1, 2020
Thirteen weeks ended May 2, 2021							Thirteen weeks ended May 2, 2021
Basic	Basic	$	201,772	77,487	$	2.60	Basic	$	227,802	75,800	$	3.01
Effect of dilutive stock-based awards	Effect of dilutive stock-based awards			1,845			Effect of dilutive stock-based awards			2,685
Diluted	Diluted	$	201,772	79,332	$	2.54	Diluted	$	227,802	78,485	$	2.90
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
Thirty-nine weeks ended November 1, 2020
Basic		$	371,759	77,511	$	4.80
Effect of dilutive stock-based awards				1,501
Diluted		$	371,759	79,012	$	4.71

~~Stock-based~~The effect of anti-dilutive stock-based awards ~~of 500 and 4,300 were excluded from the computation of diluted earnings per share~~was not material for the thirteen ~~and thirty-nine~~ weeks ended ~~October 31,~~May 1, 2022 and May 2, 2021, respectively, as their inclusion would be anti-dilutive. Stock-based awards of 200 and 19,300 were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, as their inclusion would be anti-dilutive.respectively.

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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 31, 2021~~May 1, 2022 and ~~November 1, 2020.~~May 2, 2021.

Thirteen Weeks Ended Thirty-nine Weeks Ended
In thousands October 31, 2021 November 1, 2020 October 31, 2021 November 1, 2020
Pottery Barn $ 788,732 $ 684,029 $ 2,200,110 $ 1,726,920
West Elm 579,668 474,959 1,636,621 1,170,941
Williams Sonoma 272,361 259,725 793,423 702,160
Pottery Barn Kids and Teen 316,417 277,598 826,421 702,137
Other 1
90,361 68,225 288,332 188,358
Total 2
$ 2,047,539 $ 1,764,536 $ 5,744,907 $ 4,490,516

1~~Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham.~~

2Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $93.1 million and $87.1 million for the thirteen weeks ended October 31, 2021 and November 1, 2020, respectively, and approximately $309.1 million and $219.8 million for the thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively.


	For the Thirteen Weeks Ended
(In thousands)	May 1, 2022		May 2, 2021
Pottery Barn	$	774,646	$	679,055
West Elm	536,293		477,317
Williams Sonoma	252,220		265,607
Pottery Barn Kids and Teen	226,969		236,067


Other 1	101,099		90,983
Total 2	$	1,891,227	$	1,749,029
1Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.

2Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $95.0 million and $99.9 million for the thirteen weeks ended May 1, 2022 and May 2, 2021, respectively.

Long-lived assets by geographic location are as follows:


In thousands		October 31, 2021		November 1, 2020
							As of
(In thousands)						(In thousands)	May 1, 2022 1		May 2, 20211
U.S.	U.S.	$	2,154,392	$	2,025,140	U.S.	$	2,146,474	$	2,012,572
International	International	146,210		148,582		International	135,387		148,672
Total	Total	$	2,300,602	$	2,173,722	Total	$	2,281,861	$	2,161,244

1Includes total goodwill, deferred tax assets and intangibles of $144.3 million and $154.3 million for the thirteen weeks ended May 1, 2022 and May 2, 2021, respectively, of which $132.0 million and $142.1 million, respectively, is related to the U.S.

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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

In ~~August 2021,~~March 2022, our Board ~~approved~~authorized a new ~~$1,250,000,000~~ stock repurchase ~~authorization,~~program for $1.5 billion, which replaced our existing ~~program and superseded the remaining amount outstanding under our prior stock repurchase authorization.~~program. During the thirteen weeks ended ~~October 31, 2021,~~May 1, 2022, we repurchased ~~1,119,748~~3,379,731 shares of our common stock at an average cost of ~~$179.78~~$148.26 per share for a total cost of ~~approximately $201,312,000~~$501.1 million under our prior and new stock repurchase programs. As of May 1, 2022, there was $1.1 billion remaining under our current stock repurchase program. During the ~~thirty-nine~~thirteen weeks ended ~~October 31,~~May 2, 2021, we repurchased ~~3,744,767~~1,790,725 shares of our common stock at an average cost of ~~$174.30~~$176.20 per share for a total cost of ~~approximately $652,699,000 under our prior and new stock repurchase programs. As of October 31, 2021, there was approximately $1,057,485,000 remaining under our current stock repurchase program.~~$315.5 million.

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~~During~~Stock repurchased by the ~~thirteen and thirty-nine weeks ended November 1, 2020,~~Company is typically cancelled after purchasing. However, we ~~repurchased 1,119,335~~hold some shares ~~of our common stock at an average cost of $97.42 per share for a total cost of approximately $109,048,000.~~

~~As of October 31, 2021 and November 1, 2020, we held~~in treasury ~~stock of $711,000 and $598,000, respectively, that represents the cost of shares available for issuance that are intended~~ to satisfy future stock-based award settlements in certain foreign jurisdictions.

We held treasury stock of $0.7 million as of May 1, 2022 and May 2, 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

In ~~August 2021,~~March 2022, our Board ~~approved~~authorized a ~~20.3%~~10% increase in our quarterly cash dividend, from ~~$0.59~~$0.71 to ~~$0.71~~$0.78 per ~~share.~~common share, subject to capital availability. We declared cash dividends of ~~$0.71~~$0.78 and ~~$0.53~~$0.59 per common share during the thirteen weeks ended ~~October 31,~~May 1, 2022 and May 2, 2021, ~~and November 1, 2020, respectively. We declared cash dividends of $1.89 and $1.49 per common share during the thirty-nine weeks ended October 31, 2021 and November 1, 2020,~~ respectively. Our quarterly cash dividend may be limited or terminated at any time.

NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS

We have retail and e-commerce businesses in Canada, Australia and the United Kingdom, and operations throughout Asia and Europe, which expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a functional currency other than the U.S. dollar. To mitigate this risk, we 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 ~~or long-term~~ assets or other current ~~or long-term~~ 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 the 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 31, 2021, we expect to reclassify a net~~May 1, 2022, our reclassification of pre-tax ~~loss of approximately $696,000~~gains or losses from OCI to cost of goods sold over the next 12 ~~months.~~months is not material.

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As of ~~October 31,~~May 1, 2022 and May 2, 2021, ~~and November 1, 2020,~~ we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:

In thousands October 31, 2021 November 1, 2020
Contracts designated as cash flow hedges $ 19,500 $ 28,200


	As of
(In thousands)	May 1, 2022		May 2, 2021
Contracts designated as cash flow hedges	$	17,500	$	18,000

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 31, 2021~~May 1, 2022 and ~~November 1, 2020.~~

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May 2, 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 31, 2021~~May 1, 2022 and ~~November 1, 2020.~~May 2, 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.

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.

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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.

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During the thirteen and thirty-nine weeks ended October 31, 2021, no impairment charges were recognized. During the thirteen weeks ended November 1, 2020, no impairment charges were recognized. During the thirty-nine weeks ended November 1, 2020, we recognized impairment charges of $16,514,000, related to the impairment of property and equipment and $5,461,000, related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from the impact of COVID-19.

There were no transfers in and out of Level 3 categories during the thirteen ~~and thirty-nine~~ weeks ended ~~October 31, 2021~~May 1, 2022 or ~~November 1, 2020.~~May 2, 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)
(In thousands)								(In thousands)	Foreign Currency Translation		Cash Flow Hedges		Accumulated Other Comprehensive Income (Loss)
Balance at January 30, 2022								Balance at January 30, 2022	$	(10,886)	$	58	$	(10,828)
Foreign currency translation adjustments								Foreign currency translation adjustments	(1,514)		—		(1,514)
Change in fair value of derivative financial instruments								Change in fair value of derivative financial instruments	—		93		93
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1								Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		(18)		(18)
Other comprehensive income (loss)								Other comprehensive income (loss)	(1,514)		75		(1,439)
Balance at May 1, 2022								Balance at May 1, 2022	$	(12,400)	$	133	$	(12,267)

Balance at January 31, 2021	Balance at January 31, 2021	$	(6,398)	$	(719)	$	(7,117)	Balance at January 31, 2021	$	(6,398)	$	(719)	$	(7,117)
Foreign currency translation adjustments	Foreign currency translation adjustments	3,700		—		3,700		Foreign currency translation adjustments	3,700		—		3,700
Change in fair value of derivative financial instruments	Change in fair value of derivative financial instruments	—		(665)		(665)		Change in fair value of derivative financial instruments	—		(665)		(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		153		153		Reclassification adjustment for realized (gain) loss on derivative financial instruments 1	—		153		153
Other comprehensive income (loss)	Other comprehensive income (loss)	3,700		(512)		3,188		Other comprehensive income (loss)	3,700		(512)		3,188
Balance at May 2, 2021	Balance at May 2, 2021	$	(2,698)	$	(1,231)	$	(3,929)	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 instruments1		—		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)

Balance at February 2, 2020		$	(14,593)	$	6	$	(14,587)
Foreign currency translation adjustments		(5,276)		—		(5,276)
Change in fair value of derivative financial instruments		—		549		549
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1		—		(37)		(37)
Other comprehensive income (loss)		(5,276)		512		(4,764)
Balance at May 3, 2020		$	(19,869)	$	518	$	(19,351)
Foreign currency translation adjustments		6,737		—		6,737
Change in fair value of derivative financial instruments		—		(200)		(200)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1		—		(107)		(107)
Other comprehensive income (loss)		6,737		(307)		6,430
Balance at August 2, 2020		$	(13,132)	$	211	$	(12,921)
Foreign currency translation adjustments		(745)		—		(745)
Change in fair value of derivative financial instruments		—		54		54
Reclassification adjustment for realized (gain) loss on derivative financial instruments1		—		(231)		(231)
Other comprehensive income (loss)		(745)		(177)		(922)
Balance at November 1, 2020		$	(13,877)	$	34	$	(13,843)

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, ~~or at our retail stores~~ 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 ~~other~~ wholesale transactions, ~~breakage income related to stored-value cards, and~~ incentives received from credit card issuers in connection with our private label and co-branded credit ~~cards.~~

~~We recognize revenue as control of promised goods or services are transferred~~cards and breakage income related to our customers. We record a liability at each period end where we have an obligation to transfer goods or services for which we have received consideration or have a right to consideration. 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.

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

~~Merchandise Sales~~stored-value cards.

Revenues from ~~the sale~~sales of ~~our~~ merchandise ~~through our e-commerce websites, our direct mail catalogs, at our retail stores, as well as to our franchisees and wholesale customers~~ are ~~in each case,~~ recognized at a point in time when control of merchandise is transferred to the customer. Merchandise can either be picked up in our stores or delivered to the customer. For merchandise picked up in the store, control is transferred at ~~that time.~~the time of the sale to the customer. For merchandise delivered to the customer, control is transferred either when ~~either~~ 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 31,~~May 1, 2022 and May 2, 2021, ~~and November 1, 2020,~~ we recorded a liability for expected sales returns of approximately ~~$40,956,000~~$40.8 million and ~~$37,678,000,~~$34.3 million, respectively, within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately ~~$12,127,000~~$12.1 million and ~~$12,347,000,~~$10.2 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.

~~Stored-value Cards~~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. Revenue from estimated unredeemed stored-value cards ~~("breakage"~~(“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.

~~Credit Card Incentives~~

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. 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.

~~Customer Loyalty Programs~~

We have customer loyalty programs, which allow members to earn points for each qualifying purchase. Points earned 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

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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 ~~redemption~~ 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.

~~Deferred Revenue~~

We ~~defer revenue when cash payments are received~~enter into agreements with credit card issuers in ~~advance of satisfying performance obligations, primarily associated~~connection with our ~~stored-value~~private label and co-branded credit cards, ~~merchandise sales,~~whereby we receive cash incentives in exchange for promised services, such as licensing our brand names and ~~incentives received from~~marketing the credit card ~~issuers.~~ program to customers. 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 31,~~May 1, 2022 and May 2, 2021, ~~and November 1, 2020,~~ we had recorded ~~$435,213,000~~$494.3 million and ~~$349,671,000,~~$392.8 million, respectively, for gift card and other deferred revenue in our Condensed Consolidated Balance ~~Sheet,~~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; ~~supply chain challenges; backorder levels;~~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 ~~31, 2021,~~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 ~~representing distinct merchandise strategies~~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 and retail stores.~~catalogs. These brands are also part of The Key Rewards, our ~~free-to-join~~ 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 ~~the~~our industry with our Environmental, Social and Governance (“ESG”) efforts.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended ~~October 31, 2021~~May 1, 2022 (“~~third~~first quarter of fiscal ~~2021”~~2022”), as compared to the thirteen weeks ended ~~November 1, 2020~~May 2, 2021 (“~~third~~first quarter of fiscal ~~2020”) and the thirty-nine weeks ended October 31, 2021 (“year-to-date fiscal~~ 2021”~~), as compared to the thirty-nine weeks ended November 1, 2020 (“year-to-date fiscal 2020”~~), 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.

~~Table~~During fiscal 2021 and continuing into the first quarter of ~~Contents~~

fiscal 2022, global supply chain disruptions, including COVID-19

~~In March 2020, we announced the temporary~~ related factory closures ~~of all of our retail store operations to protect our employees, customers~~ and the communities in which we operate and to help contain the COVID-19 pandemic. As of October 31, 2021, all of our stores have reopened for in-person shopping. However, we have experienced, and expect to continue to experience,increased port congestion, caused delays in inventory receipts, increased raw material costs, and higher shipping-related ~~charges as a result~~charges. We expect these supply chain challenges to continue into the remainder of ~~port slowdowns and congestion, as well as shipping container shortages, due in part to the~~fiscal 2022, which could negatively impact ~~from COVID-19.~~our business.

~~Third~~First Quarter of Fiscal ~~2021~~2022 Financial Results

Net revenues in the ~~third~~first quarter of fiscal ~~2021~~2022 increased by ~~$283,003,000~~$142.2 million or ~~16.0%~~8.1%, compared to the ~~third~~first quarter of fiscal ~~2020,~~2021, with comparable brand revenue growth of ~~16.9% and growth in all brands.~~9.5%. This was ~~primarily~~ driven by strength in both retail and e-commerce, particularly in our Pottery Barn and ~~retail,~~West Elm brands, primarily due to an increase in furniture ~~sales, as well as~~sales. Net revenue growth was partially offset by comparable brand revenue declines in our Williams Sonoma and Pottery Barn Kids and Teen brands, and a decrease in international net revenues of 5.0%.

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For the ~~impact of stores operating at a limited capacity due to COVID-19 during the third~~first quarter of fiscal 2020. The increase in net revenues also included a 6.9% increase in international revenues primarily related to our franchise operations. On a two-year basis, comparable brand revenues increased 41.3%.

~~For the third quarter of fiscal 2021,~~2022, we delivered comparable brand revenue growth of ~~16.9%~~9.5%. Pottery Barn, our largest brand, delivered 14.6% comparable brand revenue growth during the quarter. All channels and product categories contributed, with growth primarily driven by our high-quality proprietary furniture business. In addition, we saw strength across the Pottery Barn business - in core product, new offerings and our seasonal inventories. In West Elm, comparable brand revenue growth was ~~22.5%~~12.8%, ~~with all categories driving growth. The upholstery business was~~driven by strong ~~and customers~~performance in furniture. Customers responded ~~well~~ to new ~~products, including bedroom, dining~~collections and ~~occasional categories. Additionally, new~~line extensions in incremental sizes and aesthetics. New categories such as ~~bath,~~ kids and ~~kitchen~~bath contributed to incremental growth. Pottery Barn, our largest brand, delivered 15.9% comparable brand revenue growth during the quarter driven by strong growth in all product categories, including our seasonal decorating business. In addition, we saw strength across our core lifestyle furniture category, our design services, and our furniture-advantaged growth initiatives such as apartment and our curated market-place assortments. The Williams Sonoma brand ~~delivered~~saw a comparable brand revenue ~~growth~~decline of ~~7.6%, with growth across all key categories driven primarily~~2.2% during the quarter, following a 35.3% increase in comparable brand revenues in the first quarter of fiscal 2021. Comparable brand revenues in the first quarter of fiscal 2022 were affected by ~~product innovation, edited and relevant assortments, and high demand for Thanksgiving and Holiday products. Both~~out-of-stock inventories, including constraints on our exclusive ~~and Williams Sonoma branded products continued to grow, and we saw strength in key entertaining items.~~products. In our Pottery Barn Kids and Teen ~~businesses,~~brands, we saw comparable brand revenue ~~growth of 16.9%~~decline 3.1% during the ~~quarter. The demand for~~quarter, driven by supply chain pressure out of Vietnam. Despite some current recoveries in inventory, our ~~GREENGUARD GOLD furniture remained strong, our baby business continued to accelerate as our customers expanded their families,~~backorders remain at significant levels, and ~~the response to our holiday and gifting offerings was strong.~~we have seen further push-outs of delivery. Finally, our emerging brands, Rejuvenation and Mark and Graham, delivered a combined ~~accelerated to 26.5%~~ comparable brand revenue ~~growth.~~growth of 31.0% during the first quarter of fiscal 2022.

For the first quarter of fiscal 2022, diluted earnings per share was $3.50, compared to $2.90 in the first quarter of fiscal 2021 (which included a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.).

As of ~~October 31, 2021,~~May 1, 2022, we had ~~approximately $656,898,000~~$324.8 million in cash and generated positive operating cash flow of ~~$788,339,000~~$184.5 million year-to-date. In addition to our strong cash balance, we also ended the quarter with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business by investing ~~over $141,010,000~~$71.2 million in capital expenditures year-to-date, and to provide ~~shareholder~~stockholder returns of ~~approximately $787,900,000~~$559.2 million year-to-date through ~~share~~stock repurchases and dividends.

For the third quarter of fiscal 2021, diluted earnings per share was $3.29 (which included a $0.03 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.), versus $2.54 in the third quarter of fiscal 2020 (which included a $0.02 impact related to acquisition-related compensation expense and amortization of acquired intangibles of Outward, Inc.).

Looking Ahead

Looking forward to thethe balance of the year, we believe ~~we will continue to see strong sales and operating margins. We believe the favorable macro trends and~~ 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, we continue to experience ~~stronger than expected demand~~delays and increased costs across ~~all brands, as well as various~~our global supply chain, ~~disruptions~~including higher product costs, elevated backorders, higher freight and ~~delays in inventory receipts, particularly in Vietnam.~~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. This,~~resolved and we currently expect these supply chain challenges, combined with our strong demand, ~~we expect will cause backorder levels~~ to ~~remain elevated and we do not expect full recovery of~~negatively impact our inventory levels until the ~~middle~~second half of fiscal year 2022. 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 ~~31, 2021.~~30, 2022.

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NET REVENUES

Net revenues primarily consist of sales of merchandise to our customers through our e-commerce websites, ~~direct mail catalogs, and~~ 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, ~~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, and breakage income related to our stored-value cards.

Revenue from the sale of merchandise is reported net of sales returns.

Net revenues in the ~~third~~first quarter of fiscal ~~2021~~2022 increased by ~~$283,003,000~~$142.2 million or ~~16.0%~~8.1%, compared to the ~~third~~first quarter of fiscal ~~2020,~~2021, with comparable brand revenue growth of ~~16.9% and growth in all brands.~~9.5%. This was ~~primarily~~ driven by strength in both retail and e-commerce, particularly in our Pottery Barn and ~~retail,~~West Elm brands, primarily due to an increase in furniture sales, as well as the impact of stores operating at a limited capacity due to COVID-19 during the third quarter of fiscal 2020. The increase in net revenues also included a 6.9% increase in international revenues primarily related to our franchise operations. On a two-year basis, comparable brand revenues increased 41.3%.

sales. Net ~~revenues for year-to-date fiscal 2021 increased~~revenue growth was partially offset by ~~$1,254,391,000, or 27.9%, compared to year-to-date fiscal 2020, with~~ comparable brand revenue ~~growth of 27.7%~~declines in our Williams Sonoma and ~~double-digit~~ ~~comparable brand revenue growth across all our brands. This was primarily driven by strength~~Pottery Barn Kids and Teen brands, and a decrease in both e-commerce and retail, primarily due to an increase in furniture sales, as well as the impact of stores operating at a limited capacity due to COVID-19 during year-to-date fiscal 2020. The increase ininternational net revenues ~~also included a 40.6% increase in international revenues primarily related to our franchise and company-owned operations. On a two-year basis, comparable brand revenues increased 40.8%~~of 5.0%.

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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 ~~typically~~ 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 seven or more consecutive ~~days.~~days within the same fiscal month. Comparable stores that were temporarily closed due to COVID-19 were not excluded from the comparable ~~stores~~brand revenue calculation. Outlet comparable store net revenues are included in their respective 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.

Thirteen Weeks Ended Thirty-nine Weeks Ended
Comparable brand revenue growth October 31,
2021 November 1,
2020 October 31,
2021 November 1,
2020
Pottery Barn 15.9 % 24.1 % 27.5 % 10.9 %
West Elm 22.5 % 21.8 % 39.5 % 11.4 %
Williams Sonoma 7.6 % 30.4 % 15.1 % 21.9 %
Pottery Barn Kids and Teen 16.9 % 23.8 % 20.2 % 12.7 %
Total 1
16.9 % 24.4 % 27.7 % 13.1 %
1 ~~Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.~~


	For the Thirteen Weeks Ended
Comparable brand revenue growth (decline)	May 1, 2022		May 2, 2021
Pottery Barn	14.6	%	41.3	%
West Elm	12.8		50.9
Williams Sonoma	(2.2)		35.3
Pottery Barn Kids and Teen	(3.1)		27.6

Total1	9.5	%	40.4	%

1 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.

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STORE DATA


		Store Count 1					Average Leased Square Footage Per Store			Store Count					Average Leased Square Footage Per Store
		August 1, 2021	Openings	Closings	October 31, 2021	November 1, 2020	October 31, 2021	November 1, 2020		January 30, 2022	Openings	Closings	May 1, 2022	May 2, 20211	May 1, 2022	May 2, 20211
Pottery Barn									Pottery Barn	188	1	(1)	188	195	14,500	14,600
Williams Sonoma	Williams Sonoma	196	—	(2)	194	210	6,800	6,800	Williams Sonoma	174	2	(1)	175	195	6,900	6,800
Pottery Barn		195	—	—	195	201	14,500	14,400
West Elm	West Elm	123	1	(3)	121	122	13,100	13,100	West Elm	121	—	—	121	121	13,200	13,100
Pottery Barn Kids	Pottery Barn Kids	57	—	—	57	71	7,800	7,800	Pottery Barn Kids	52	—	—	52	57	7,700	7,800
Rejuvenation	Rejuvenation	10	—	—	10	10	8,700	8,500	Rejuvenation	9	—	—	9	10	9,400	8,500
Total	Total	581	1	(5)	577	614	10,900	10,700	Total	544	3	(2)	545	578	11,000	10,900
Store selling square footage at period-end	Store selling square footage at period-end						3,978,000	4,143,000	Store selling square footage at period-end						3,823,000	3,972,000
Store leased square footage at period-end	Store leased square footage at period-end						6,263,000	6,569,000	Store leased square footage at period-end						6,006,000	6,289,000

1~~Store count~~Retail store data ~~does not reflect temporary closures~~for fiscal 2021 includes stores temporarily closed due to COVID-19.

All stores were reopened as of the end of fiscal 2021.

COST OF GOODS SOLD


		Thirteen Weeks Ended								Thirty-nine Weeks Ended									For the Thirteen Weeks Ended
In thousands		October 31, 2021		% Net Revenues		November 1, 2020		% Net Revenues		October 31, 2021		% Net Revenues		November 1, 2020		% Net Revenues
(In thousands)																		(In thousands)	May 1, 2022		% Net Revenues		May 2, 2021		% Net Revenues
Cost of goods sold 1	Cost of goods sold 1	$	1,152,054	56.3	%	$	1,058,953	60.0	%	$	3,238,181	56.4	%	$	2,819,471	62.8	%	Cost of goods sold 1	$	1,062,679	56.2	%	$	996,176	57.0	%

1Includes total occupancy expenses of ~~$183.1~~$186.4 million and ~~$174.2~~$175.7 million for the ~~third~~first quarter of fiscal 2022 and the first quarter of fiscal 2021, ~~and the third quarter of fiscal 2020, respectively, and $534.8 million and $515.3 million for year-to-date fiscal 2021 and year-to-date fiscal 2020,~~ 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, ~~depreciation and~~ other occupancy costs ~~including~~(including property taxes, common area maintenance ~~property taxes~~ and ~~utilities.~~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.

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~~Third~~First Quarter of Fiscal ~~2021~~2022 vs. ~~Third~~First Quarter of Fiscal ~~2020~~2021

Cost of goods sold increased ~~by $93,101,000,~~$66.5 million, or ~~8.8%~~6.7%, in the ~~third~~first quarter of fiscal ~~2021,~~2022, compared to the ~~third~~first quarter of fiscal ~~2020.~~2021. Cost of goods sold as a percentage of net revenues decreased to ~~56.3%~~56.2% in the ~~third~~first quarter of fiscal ~~2021~~2022 from ~~60.0%~~57.0% in the ~~third~~first quarter of fiscal ~~2020.~~2021. This decrease in rate was primarily driven by higher merchandise margins from reduced promotional ~~activity and the leverage of occupancy costs from higher sales and low occupancy dollar growth, partially offset by higher ocean freight rates as a result of container shortages coming out of Asia.~~activity.

~~Year-to-date Fiscal~~ ~~2021~~ ~~vs. Year-to-date Fiscal~~ ~~2020~~

Cost of goods sold increased by $418,710,000, or 14.9%, for year-to-date fiscal 2021, compared to year-to-date fiscal 2020. Cost of goods sold as a percentage of net revenues decreased to 56.4% for year-to-date fiscal 2021 from 62.8% for year-to-date fiscal 2020. This decrease was primarily driven by higher selling margins from reduced promotional activity and the leverage of occupancy costs from higher sales and low occupancy dollar growth, as well as inventory write-offs of approximately $11,378,000 from the closure of our outlet stores due to COVID-19 in the first quarter of fiscal 2020 that did not recur in fiscal 2021.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Thirteen Weeks Ended Thirty-nine Weeks Ended
In thousands October 31,
2021 % Net Revenues November 1,
2020 % Net Revenues October 31,
2021 % Net Revenues November 1,
2020 % Net Revenues
Selling, general and administrative expenses $ 565,218 27.6 % $ 430,979 24.4 % $ 1,578,182 27.5 % $ 1,162,435 25.9 %


	For the Thirteen Weeks Ended
(In thousands)	May 1, 2022		% Net Revenues		May 2, 2021		% Net Revenues
Selling, general and administrative expenses	$	505,067	26.7	%	$	477,676	27.3	%

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~~First Quarter of Fiscal ~~2021~~2022 vs. ~~Third~~First Quarter of Fiscal ~~2020~~2021

Selling, general and administrative expenses increased ~~by $134,239,000,~~$27.4 million, or ~~31.1%~~5.7%, in the ~~third~~first quarter of fiscal ~~2021,~~2022, compared to the ~~third~~first quarter of fiscal ~~2020.~~2021. Selling, general and administrative expenses as a percentage of net revenues ~~increased~~decreased to ~~27.6%~~26.7% in the ~~third~~first quarter of fiscal ~~2021~~2022 from ~~24.4%~~27.3% in the ~~third~~first quarter of fiscal ~~2020.~~2021. This ~~increase~~decrease in rate was primarily driven by significantly reduced advertising costs in the third quarter of fiscal 2020 as a result of our financial response to COVID-19 and an incremental investment in highly efficient advertising in the third quarter of fiscal 2021.

~~Year-to-date Fiscal 2021 vs. Year-to-date Fiscal 2020~~

Selling, general and administrative expenses increased by $415,747,000, or 35.8%, for year-to-date fiscal 2021, compared to year-to-date fiscal 2020. Selling, general and administrative expenses as a percentage of net revenues increased to 27.5% for year-to-date fiscal 2021 from 25.9% for year-to-date fiscal 2020. This increase was primarily driven by significantly reduced advertising costs for year-to-date fiscal 2020 as a result of our financial response to COVID-19 and an incremental investment in highly efficient advertising for year-to-date fiscal 2021. This increase was partially offset by the leverage of employment costs and ~~other general~~advertising expenses from higher sales and overall cost discipline, as well as store asset impairment charges of approximately $21,975,000 due to the impact of COVID-19 on our retail stores in year-to-date fiscal 2020 that did not recur in year-to-date fiscal 2021.discipline.

INCOME TAXES

The effective tax rate was ~~21.9%~~21.5% for ~~year-to-date~~the first quarter of fiscal ~~2021~~2022 compared to ~~24.8%~~16.6% for ~~year-to-date~~the first quarter of fiscal ~~2020.~~2021. The ~~decrease~~increase in the effective tax rate is primarily due to ~~an increase in our~~less excess tax benefit from stock-based compensation in fiscal ~~2021~~2022 compared to fiscal ~~2020.~~2021.

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, stock repurchases, the payment of income taxes, rental payments on our leases, property and equipment purchases, and dividend payments.

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 stock repurchases, capital expenditures, dividends 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 31, 2021,~~May 1, 2022, we held ~~$656,898,000~~$324.8 million in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which ~~$132,093,000~~$156.0 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.

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For the remainder of fiscal 2021, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, stock repurchases and dividend payments, advertising and marketing initiatives, and property and equipment purchases.

In addition to our cash balances on hand, we have a credit facility (the "Credit Facility") which provides for a ~~$500,000,000~~$500 million unsecured revolving line of credit ~~(“revolver”~~(the “Revolver”). ~~The revolver~~Our Revolver may be used to borrow revolving loans or to request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, ~~to increase the revolver by up to $250,000,000,~~ at such lenders’ option, to increase the Revolver by up to $250 million to provide for a total of ~~$750,000,000~~$750 million of unsecured revolving credit. In September 2021, we entered into an amendment to our credit facility (the "Amended Credit Agreement"), which extended the maturity date of the revolver to September 30, 2026 and removed the $300,000,000 term loan component available under the existing credit facility, which was fully repaid in February 2021. The Amended Credit Agreement maintains the interest rate of the revolver.

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During the ~~third~~first quarter of fiscal ~~2021,~~2022, we had no borrowings under ~~the revolver.~~our Revolver. Additionally, as of ~~October 31, 2021, a total of $11,919,000 in~~May 1, 2022, issued but undrawn standby letters of credit ~~was~~of $11.4 million were outstanding under ~~the credit facility.~~our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.

~~The credit facility~~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 ~~and rent expense~~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 31, 2021,~~May 1, 2022, we were in compliance with our financial covenants under ~~the credit facility~~our Credit Facility and, based on ~~our~~ current projections, we expect to remain in compliance ~~with the covenants under our credit facility~~ throughout the next 12 months. ~~We believe our cash on hand, in addition to our available credit facility, will provide adequate liquidity for our business operations over the next 12 months.~~

Letter of Credit Facilities

~~On August 22, 2021, we renewed all~~We have three ~~of our~~unsecured letter of credit reimbursement facilities ~~on substantially similar terms~~ for a total of ~~$35,000,000. We also extended each facility's maturity date until August 22, 2022. The~~$35 million. Our letter of credit facilities contain covenants that are consistent with our ~~credit facility.~~Credit Facility. Interest on unreimbursed amounts under ~~the~~our letter of credit facilities accrues at a base rate as defined in ~~the credit facility,~~our Credit Facility, plus an applicable margin based on our leverage ratio. As of ~~October 31, 2021, an~~May 1, 2022, the aggregate ~~of $7,542,000 was~~amount outstanding under ~~the~~our letter of credit facilities was $6.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration date possible for any future letters of credit issued under the facilities is January 19, 2023.

Cash Flows from Operating Activities

For ~~year-to-date~~the first quarter of fiscal ~~2021,~~2022, net cash provided by operating activities was ~~$788,339,000~~$184.5 million compared to ~~$726,628,000~~$238.9 million for ~~year-to-date~~the first quarter of fiscal ~~2020.~~2021. For ~~year-to-date~~the first quarter of fiscal ~~2021,~~2022, net cash provided by operating activities was primarily attributable to net earnings adjusted for non-cash items, an increase in income tax payable, and an increase in ~~accounts payable and~~ gift card and other deferred revenue (as a result of an increase in sales), partially offset by ~~an increase~~higher spending on merchandise inventories (as a result of the strong customer demand for our products) and decreases in ~~merchandise inventories.~~accrued expenses and operating lease liabilities. Net cash provided by operating activities for ~~year-to-date~~the first quarter of fiscal ~~2021 increased~~2022 decreased compared to ~~year-to-date~~the first quarter of fiscal ~~2020~~2021, primarily due to an increase in ~~net earnings,~~merchandise inventories and a decrease in accrued expenses and other liabilities, partially offset by an increase in ~~merchandise inventories and an increase in income taxes paid.~~

net earnings adjusted for non-cash items.

Cash Flows from Investing Activities

For ~~year-to-date~~the first quarter of fiscal ~~2021,~~2022, net cash used in investing activities was ~~$140,913,000~~$71.1 million compared to ~~$124,379,000~~$42.3 million for ~~year-to-date~~the first quarter of fiscal ~~2020,~~2021, and was primarily attributable to purchases of property and ~~equipment.~~

equipment related to technology and supply chain enhancements.

Cash Flows from Financing Activities

For ~~year-to-date~~the first quarter of fiscal ~~2021,~~2022, net cash used in financing activities was ~~$1,191,159,000~~$637.7 million compared to ~~net cash used in financing activities~~$759.6 million for the first quarter of ~~$260,009,000 for year-to-date fiscal 2020. For year-to-date~~ fiscal 2021, ~~net cash used in financing activities was primarily attributable to~~driven by repurchases of common stock, ~~the repayment of our term loan~~tax withholdings related to stock-based awards and payment of dividends. Net cash used in financing activities for ~~year-to-date~~the first quarter of fiscal 2022 decreased compared to the first quarter of fiscal 2021, ~~increased compared to year-to-date fiscal 2020~~ primarily due to the repayment of debt in the first quarter of fiscal 2021 that did not recur in the first quarter of fiscal 2022, partially offset by an increase in repurchases of common ~~stock and the repayment~~stock.

Seasonality

Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our ~~term loan~~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 ~~year-to-date fiscal 2021.~~our retail stores, distribution facilities and customer care centers.

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~~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.~~

~~Critical Accounting Policies~~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~~first quarter

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of fiscal ~~2021,~~2022, there were no significant changes to the critical accounting ~~policies~~estimates discussed in our Annual Report on Form 10-K for the fiscal year ended January ~~31, 2021.~~

~~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, customer care centers and distribution facilities.

~~Contractual Obligations, Commitments, Contingencies and Off-balance Sheet Arrangements~~

There were no material changes during the quarter to the Company’s contractual obligations, commitments, contingencies and off-balance sheet arrangements that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021, which is incorporated herein by reference.30, 2022.

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~~Revolver has a variable interest rate which, when drawn upon, subjects us to risks associated with changes in that interest rate. During the ~~third~~first quarter of fiscal ~~2021,~~2022, we had no borrowings under ~~the revolver.~~

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 31, 2021,~~May 1, 2022, our investments, made primarily in interest-bearing demand deposit accounts and money market funds, 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~~first quarter of fiscal ~~2021~~2022 or the ~~third~~first quarter of fiscal ~~2020.~~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~~first quarters of fiscal ~~2021~~2022 or ~~the third quarter of~~ fiscal ~~2020,~~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).

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~October 31, 2021,~~May 1, 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~~first quarter of fiscal ~~2021,~~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 ~~31, 2021~~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

program.

The following table provides information as of ~~October 31, 2021~~May 1, 2022 with respect to shares of common stock we repurchased during the ~~third~~first quarter of fiscal ~~2021~~2022 under our ~~current~~prior and new stock repurchase ~~program.~~programs. 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 2, 2021 - August 29, 2021 60,448 $ 162.96 60,448 $ 1,248,946,000
August 30, 2021 - September 26, 2021 431,023 $ 182.73 431,023 $ 1,170,183,000
September 27, 2021 - October 31, 2021 628,277 $ 179.38 628,277 $ 1,057,485,000
Total 1,119,748 $ 179.78 1,119,748 $ 1,057,485,000


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
January 31, 2022 - February 27, 2022	432,841	$	161.72	432,841	$	740,751,000
February 28, 2022 - March 27, 2022	443,234	$	151.01	443,234	$	1,433,068,000
March 28, 2022 - May 1, 2022	2,503,656	$	145.44	2,503,656	$	1,068,925,000
Total	3,379,731	$	148.26	3,379,731	$	1,068,925,000

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

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

10.1*10.1+						~~Eighth~~ ~~Amendment~~Amended and Restated 2012 EVP Level Management Retention Plan (incorporated by reference to ~~Reimbursement Agreement between~~ Exhibit 10.18 to the ~~Company, Williams-Sonoma Singapore Pte. Ltd., and Bank of America, N.A., dated~~Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2022 as ~~of August~~ 22 ~~, 202~~1filed with the Commission March 28, 2022, File No. 001-14077)

10.2*						~~Eighth Amendment to Reimbursement Agreement between the Company, Williams-Sonoma Singapore Pte. Ltd., and Wells Fargo Bank, N.A., dated as of August 22, 2021~~

10.3*						~~Eighth Amendment to Reimbursement Agreement between the Company, Williams-Sonoma Singapore Pte. Ltd., and U.S. Bank National Association, dated as of August 22, 2021~~

10.4*						Eighth Amended and Restated Credit Agreement, dated September 30, 2021, between the Company and Bank of America, N.A., as administrative agent, letter of credit issuer and swingline lender, Wells Fargo Bank, National Association, as syndication agent and the lenders party thereto

31.1*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*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*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*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 31, 2021,~~May 1, 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

Indicates a management contract or compensatory plan or arrangement.

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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/ Julie Whalen
						Julie Whalen
						Duly Authorized Officer and Chief Financial Officer

Date: ~~December 6, 2021~~June 1, 2022

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	Thirteen Weeks Ended				Thirty-nine Weeks Ended
In thousands, except per share amounts	October 31, 2021		November 1, 2020		October 31, 2021		November 1, 2020
Net revenues	$	2,047,539	$	1,764,536	$	5,744,907	$	4,490,516
Cost of goods sold	1,152,054		1,058,953		3,238,181		2,819,471
Gross profit	895,485		705,583		2,506,726		1,671,045
Selling, general and administrative expenses	565,218		430,979		1,578,182		1,162,435
Operating income	330,267		274,604		928,544		508,610
Interest expense, net	121		5,344		1,954		13,967
Earnings before income taxes	330,146		269,260		926,590		494,643
Income taxes	80,622		67,488		203,194		122,884
Net earnings	$	249,524	$	201,772	$	723,396	$	371,759
Basic earnings per share	$	3.37	$	2.60	$	9.66	$	4.80
Diluted earnings per share	$	3.29	$	2.54	$	9.40	$	4.71
Shares used in calculation of earnings per share:
Basic	74,010		77,487		74,865		77,511
Diluted	75,943		79,332		76,975		79,012


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
Comparable brand revenue growth	October 31, 2021		November 1, 2020		October 31, 2021		November 1, 2020
Pottery Barn	15.9	%	24.1	%	27.5	%	10.9	%
West Elm	22.5	%	21.8	%	39.5	%	11.4	%
Williams Sonoma	7.6	%	30.4	%	15.1	%	21.9	%
Pottery Barn Kids and Teen	16.9	%	23.8	%	20.2	%	12.7	%
Total 1	16.9	%	24.4	%	27.7	%	13.1	%