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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 1996.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 2-83992
WILLIAMS-SONOMA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
California 94-2203880
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3250 Van Ness Avenue, San Francisco, CA 94109
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code (415) 421-7900
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check X 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 X No
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As of June 3, 1996, 25,464,833 shares of the Registrant's Common Stock were
outstanding.
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WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 28, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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PAGE
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Item 1. Financial Statements: (1)
Condensed Consolidated Balance Sheets
April 28, 1996, January 28, 1996, and April 30, 1995
Condensed Consolidated Statements of Operations
Thirteen weeks ended April 28, 1996, and April 30, 1995
Condensed Consolidated Statements of Cash Flows
Thirteen weeks ended April 28, 1996, and April 30, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and (7)
Financial Condition
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (9)
Item 6. Exhibits and Reports on Form 8-K (9)
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
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<CAPTION>
April 28, January 28, April 30,
1996 1996 1995
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,930 $ 4,166 $ 5,897
Accounts receivable (net) 13,824 13,157 6,316
Merchandise inventories 113,440 121,603 105,923
Prepaid expenses and other assets 11,576 6,506 9,567
Prepaid catalog expenses 10,873 15,613 12,459
Deferred income taxes 139 139 259
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Total current assets 152,782 161,184 140,421
Property and equipment (net) 154,378 147,302 87,155
Investments and other assets (net) 7,517 6,570 6,272
Deferred income taxes 4,040 4,040 4,021
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$ 318,717 $ 319,096 $ 237,869
========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $42,269 $ 58,295 $ 36,075
Accrued expenses 7,744 8,323 5,280
Accrued salaries and benefits 9,013 8,666 7,986
Line of credit 10,900 29,600 40,000
Current portion of long-term debt 125 125 141
Customer deposits 9,034 9,587 5,713
Other liabilities 2,894 5,565 2,506
Income taxes payable -- 1,947 --
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Total current liabilities 81,979 122,108 97,701
Deferred lease credits and other liabilities 30,580 28,578 15,494
Long-term debt 86,806 46,757 6,749
Shareholders' equity 119,352 121,653 117,925
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$ 318,717 $ 319,096 $ 237,869
========= ========= =========
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See Notes to Condensed Consolidated Financial Statements.
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
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<CAPTION>
Thirteen Weeks Ended
April 28, April 30,
1996 1995
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<S> <C> <C>
Net sales $157,396 $118,160
Costs and expenses:
Cost of goods sold and occupancy 102,775 73,778
Selling, general and administrative 57,180 44,584
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Total costs and expenses 159,955 118,362
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Earnings (loss) from operations (2,559) (202)
Interest expense - net 1,541 350
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Earnings (loss) before income taxes (4,100) (552)
Income taxes (benefit) (1,722) (226)
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Net earnings (loss) $ (2,378) $ (326)
========= ========
Earnings (loss) per share:
Primary $ (0.09) $ (0.01)
Fully diluted * *
Average number of common shares outstanding:
Primary 25,432 25,343
Fully diluted * *
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* Incremental shares from assumed exercise of stock options and convertible
debt are antidilutive for primary and fully diluted loss per share, and
therefore not presented.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
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<CAPTION>
Thirteen Weeks Ended
April 28, April 30,
1996 1995
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Cash flows from operating activities:
Net earnings (loss) $ (2,378) $ (326)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 5,294 3,451
Amortization of deferred lease incentives (715) (301)
Change in allowance for doubtful accounts 14 19
Change in deferred rents 61 (81)
Loss on disposal of assets -- 180
Change in:
Accounts receivable (681) (941)
Merchandise inventories 8,163 (17,973)
Prepaid catalog expenses 4,740 (1,254)
Prepaid expenses and other assets (5,071) (1,827)
Accounts payable (10,353) (7,832)
Accrued expenses and other liabilities (2,701) 1,015
Deferred lease incentives 2,655 1,625
Income taxes payable (1,947) (9,545)
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Net cash used in operating activities (2,919) (33,790)
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Cash flows from investing activities:
Purchases of property and equipment (13,079) (13,163)
Other investments 7 21
Proceeds from sale of property and equipment 1 796
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Net cash used in investing activities (13,071) (12,346)
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Cash flows from financing activities:
Change in cash overdrafts (5,672) (5,451)
Borrowings under line of credit 67,180 51,700
Repayments under line of credit (85,880) (11,700)
Proceeds from long-term debt 40,000 --
Long term debt issuance costs (1,000) --
Repayment of long-term debt (31) (32)
Proceeds from exercise of stock options 77 35
Change in other long term liabilities 80 --
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Net cash provided by financing activities 14,754 34,552
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Net decrease in cash and cash equivalents (1,236) (11,584)
Cash and cash equivalents at beginning of period 4,166 17,481
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Cash and cash equivalents at end of period $ 2,930 $ 5,897
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen Weeks Ended April 28, 1996 and April 30, 1995
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of April 28, 1996, and April 30,
1995, the condensed consolidated statements of operations for the thirteen
week periods ended April 28, 1996, and April 30, 1995, and condensed
consolidated statements of cash flows for the thirteen week periods ending
April 28, 1996, and April 30, 1995, have been prepared by Williams-Sonoma,
Inc., (the Company) without audit. In the opinion of management, 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 weeks
then ended. These financial statements include Williams-Sonoma, Inc., and its
wholly owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated. The balance sheet at January 28, 1996, presented
herein, has been prepared from the audited balance sheet of the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended January 28, 1996.
Certain reclassifications have been made to the prior year financial statements
to conform to classifications used in the current period.
The results of operations for the thirteen weeks ended April 28, 1996, are not
necessarily indicative of the operating results of the full year.
NOTE B. DEBT
On April 15, 1996, the Company issued $40,000,000 principal amount of 5.25%
convertible, subordinated notes (Convertible Notes) due April 15, 2003. Net
proceeds from the transaction amounted to $38,739,000 and will be used to
provide the Company with a long-term source of working capital. Interest is
payable semi-annually beginning in October 1996. The Convertible Notes are
convertible into shares of common stock at any time on or after July 15, 1996,
at a conversion price of $26.10 per share (equivalent to a conversion rate of
38.3 shares per $1,000 principal amount). The conversion price is subject to
adjustment in certain events, including stock splits, and stock dividends. In
the event of a change in control, holders of the Convertible Notes may, at
their option, require the Company to repurchase all or any portion of the
principal amount. The agreement does not restrict the Company from incurring
additional indebtedness.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Net sales consists of the following components (dollars in thousands):
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Thirteen Weeks Ended Thirteen Weeks Ended
April 28, 1996 April 30, 1995
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Catalog sales $ 66,311 42.1% $ 52,965 44.8%
Retail sales 91,085 57.9% 65,195 55.2%
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$ 157,396 100.0% $ 118,160 100.0%
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SALES
Net sales for Williams-Sonoma, Inc. and its subsidiaries (the Company) for the
thirteen weeks ended April 28,1996 (First Quarter of 1996), were $157,396,000--
an increase of $39,236,000 over the thirteen weeks ended April 30,1995 (First
Quarter of 1995).
Catalog sales in the First Quarter of 1996 increased 25% over the same period of
the prior year. While all concepts recorded at least modest gains, Pottery Barn
accounted for 80% of the total growth in catalog sales. This is partly
attributable to a 32% increase in the number of Pottery Barn catalogs mailed,
compared to a 16.3% decrease in the total number of catalogs mailed for the
remaining concepts. Overall, the total number of catalogs mailed in the First
Quarter remained relatively flat compared to the same period of the prior year--
a decision which was driven primarily by increases in the Company's cost of
paper.
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Retail sales increased 40% over the same period of the prior year. The Company
operated 244 stores at the end of the quarter--a net increase of 25 since April
30, 1995, and same store sales in the First Quarter of 1996 increased 7.5% over
the prior year. The Pottery Barn concept was responsible for 62% of the retail
sales growth in the First Quarter. The Company plans to open or expand 28 stores
in 1996 (5 of which were opened in the First Quarter) which will increase store
selling square footage by approximately 19%.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expense for the First Quarter of 1996
increased as a percentage of net sales from 62.4% in the First Quarter of 1995
to 65.3%. Higher occupancy expenses, which were primarily due to higher
depreciation expense for the Memphis distribution center and a second corporate
headquarters facility, as well as the Company's program to bring its inventory
in line with planned sales by taking markdowns, were the principal reasons for
this increase.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales
decreased 1.4 percentage points in the First Quarter of 1996, to 36.3% from
37.7% in the First Quarter of 1995. Advertising expenditures declined
.9 percentage points and employment costs declined .2 percentage points.
INTEREST EXPENSE
Interest expense in the thirteen weeks ended April 28,1996, increased $1,190,000
over the same period of the prior year due to higher borrowings used to fund new
stores and the Memphis distribution center expansion. The Company borrowed
$40,000,000 for ten years at 7.2% on August 14, 1995, and sold $40,000,000 of
5.25% convertible subordinated notes due 2003 on April 15,1996. Proceeds were
used to reduce bank line borrowings, which averaged $35,747,000 during the First
Quarter of 1996 versus $47,033,000 during the year ended January 28, 1996.
INCOME TAXES
The Company's effective tax rate for the First Quarter of 1996 was 42.0% -- an
increase of 1.1% over the same period of the prior year. This is a result of
the higher aggregate state tax rates based on the mix of retail sales and
catalog sales in the various states where the Company has sales or conducts
business.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at April 28, 1996, increased by $28,083,000 over that at April
30, 1995, primarily due to a reduction in the Company's bank line borrowings as
a result of the issuance of $40,000,000 of convertible debentures, discussed
below. Net cash used in operating activities in the First Quarter of 1996
improved $30,871,000, which is primarily attributable to the decrease in
merchandise inventories. Net cash used in investing activities of $13,071,000 in
the First Quarter of 1996 includes expenditures of $8,357,000 for new stores and
$3,574,000 for the Memphis distribution center. On April 15,1996, the Company
sold $40,000,000 of 5.25% convertible subordinated notes due 2003 which will be
convertible at any time on or after July 15,1996, into shares of the Company's
common stock at a conversion price of $26.10 per share (or 38.3 shares per
$1,000 of principal amount). The proceeds from the sale of the notes were used
to reduce bank borrowings.
The capital expenditures made in the First Quarter of 1996 are the continuation
of an expansion program begun in 1995, when the Company invested $86,513,000
principally on new stores and the expansion of its Memphis distribution
facility. These expenditures were financed through $16,224,000 of landlord
construction allowances, the issuance of $40,000,000 ten-year notes at 7.2% and
increased bank borrowings. The Company is planning net capital expenditures in
1996 of approximately $30,000,000.
The Company's existing credit agreement was renewed on March 29, 1996, with a
360-day, combined letter of credit and credit facility. The aggregate principal
amount available under the renewed line of credit varies according to seasonal
requirements from a high of $90,000,000 ( $80,000,000 for cash advances) to a
low of $60,000,000 ($35,000,000 for cash advances). This represents a lower
overall commitment of funds for the Company than was available under the prior
credit agreement.
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SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December , and levels of
net sales and net income have generally been significantly lower during the
period from February through July. The Company believes this is the general
pattern associated with the mail order and retail industries. In anticipation of
its peak season, the Company hires a substantial number of additional employees
in its retail stores and mail order processing and distribution areas, and
incurs significant fixed catalog production and mailing costs.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this document are forward-looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's ability to improve
planning and control processes and other infrastructure issues, the potential
for construction and other delays in store openings, the Company's dependence on
external funding sources, a limited operating history for the Company's new,
large-format stores, the potential for changes in consumer spending patterns,
consumer preferences and overall economic conditions, the Company's dependence
on foreign suppliers and increasing competition in the specialty retail
business. Other factors that could cause actual results to differ materially
from those set forth in such forward-looking statements include the risks and
uncertainties detailed in the Company's most recent Form 10-K and its other
filings with the Securities and Exchange Commission.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company. The
Company is, however,involved in routine litigation arising in the ordinary
course of its business, and, while the results of the proceedings cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a materially adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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EXHIBIT NUMBER EXHIBIT DESCRIPTION
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<S> <C>
11 Statement re computation of per share earnings
27 Financial Data Schedule
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(b) There have been no reports on Form 8-K filed during the quarter for which
this report is being filed.
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SIGNATURE
Pursuant to the requirements of the Securities and 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/Dennis A. Chantland
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Dennis A. Chantland
Executive Vice President
Chief Administrative Officer
Acting Principal Financial Officer
Dated: June 3, 1996
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EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<PAGE>
EXHIBIT 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
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Thirteen Weeks Ended
April 28, April 30,
1996 1995
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Net earnings (loss) $(2,378,000) $(326,200)
Average shares of common stock
outstanding during the period 25,432,398 25,342,842
Incremental shares from assumed exercise
of stock options (primary) * *
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25,432,398 25,342,842
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Primary earnings (loss) per share $(0.09) $(0.01)
=========== ============
Average shares of common stock
outstanding during the period 25,432,398 25,342,842
Incremental shares from assumed exercise
of stock options (fully diluted) * *
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25,432,398 25,342,842
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Fully diluted earnings (loss) per share $(0.09) $(0.01)
=========== ============
</TABLE>
* Incremental shares from assumed exercise of stock options and convertible
debt are antidilutive for primary and fully diluted loss per share, and
therefore not presented.
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED APRIL 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> APR-28-1996
<CASH> 2,930
<SECURITIES> 0
<RECEIVABLES> 14,075
<ALLOWANCES> 252
<INVENTORY> 113,440
<CURRENT-ASSETS> 152,782
<PP&E> 222,392
<DEPRECIATION> 68,014
<TOTAL-ASSETS> 318,717
<CURRENT-LIABILITIES> 81,979
<BONDS> 40,000
0
0
<COMMON> 48,393
<OTHER-SE> 70,959
<TOTAL-LIABILITY-AND-EQUITY> 318,717
<SALES> 157,396
<TOTAL-REVENUES> 157,396
<CGS> 102,775
<TOTAL-COSTS> 102,775
<OTHER-EXPENSES> 57,180
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 1,541
<INCOME-PRETAX> (4,100)
<INCOME-TAX> (1,722)
<INCOME-CONTINUING> (2,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,378)
<EPS-PRIMARY> $(.09)
<EPS-DILUTED> $(.09)
</TABLE>
