Why did profitability decline in fiscal 2000 despite strong revenue growth?

Cost of goods and occupancy expenses rose to 56.1% of net revenues from 55.7%, mainly due to significant promotional activity in the third and fourth quarters and higher inventory shrinkage, damage and obsolescence costs. Selling, general and administrative expenses rose to 32.5% of net revenues from 31.4%, primarily because of increased catalog costs tied to lower-than-anticipated direct-to-customer demand in the second half of the year.

What is driving growth at the company?

Growth came primarily from new stores and the Pottery Barn brand in the direct-to-customer segment. Pottery Barn grew 47.2% in fiscal 2000, with the Pottery Barn Bed + Bath catalog and Pottery Barn e-commerce website representing 29.7% of direct-to-customer revenue growth. The company opened 62 stores and closed 24 smaller stores during the year.

How strong is the company's financial position?

Shareholders' equity was $427,458,000 at January 28, 2001, and the debt-to-equity ratio was 8.3%. Cash and cash equivalents fell to $19,730,000 after the $73,300,000 purchase of a corporate facility. The company had no borrowings under its $200,000,000 revolving credit facility, and management believes available cash, operating cash flow and credit facilities will be sufficient for at least the next twelve months.

What are the company's plans for fiscal 2001?

The company projects gross capital expenditures of $135,000,000 to $150,000,000, including $70,000,000 to $75,000,000 for stores. It plans three new direct-to-customer growth initiatives, including a Pottery Barn Kids e-commerce website, opening five stores in Toronto, Canada, and approximately 16 new Pottery Barn Kids stores, and it expects to increase leased square footage by approximately 15%.

Does the company pay dividends, and who leads it?

The company has never declared or paid a cash dividend on its common stock, and its bank line of credit prohibits payment of cash dividends. Dale W. Hilpert became Chief Executive Officer on April 2, 2001, succeeding W. Howard Lester, who remains Chairman of the Company.

WSM 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 26, 2001. Cited figures are marked; the original filing is the authoritative source.

Williams-Sonoma, Inc. and its subsidiaries are specialty retailers of home products, operating through a retail segment (382 stores in 39 states and Washington DC as of January 28, 2001) and a direct-to-customer segment (six catalogs and three e-commerce websites).

Retail accounted for 57.2% of fiscal 2000 net revenues and direct-to-customer for 42.8%. Fiscal 2000 net revenues were $1.83 billion^a, up $369,483,000 (25.3%) from fiscal 1999, driven by new stores and growth of the Pottery Barn brand. Net earnings fell to $56.8 million from $68.1 million, and diluted earnings per share declined to $.99 from $1.16.

Gross margin as a percent of net revenues decreased to 37.9% from 38.8%, and operating margin fell to 5.4% from 7.5%, reflecting promotional activity, higher inventory shrinkage, and increased catalog costs as a percent of revenue after lower-than-anticipated direct-to-customer demand in the second half of the year. The balance sheet strengthened over the year: shareholders' equity rose to $427.5 million, cash fell to $19.7 million^b after a $73.3 million purchase of a San Francisco corporate facility, and operating cash flow increased to $181.3 million. The company had no borrowings outstanding under its new $200 million unsecured revolving credit facility at year-end.

Management expects fiscal 2001 gross capital expenditures of $135 million to $150 million^c and plans three new direct-to-customer growth initiatives, five Toronto stores, and about 16 new Pottery Barn Kids stores. The company has never paid a cash dividend, and its credit covenants prohibit one. Dale W.

Hilpert became Chief Executive Officer on April 2, 2001, succeeding W. Howard Lester, who remains Chairman.

02—Key points

Key Highlights

Net revenues grew 25.3% to $1,829,483,000 in fiscal 2000, with retail sales at $1,039,312,000 and direct-to-customer sales at $685,202,000.
Net earnings declined to $56,782,000 from $68,100,000, and diluted EPS fell to $.99 from $1.16.
Gross margin as a percent of net revenues was 37.9%, down from 38.8%; operating margin was 5.4%, down from 7.5%.
The Pottery Barn brand grew 47.2% in fiscal 2000 and accounted for 53.6% of retail revenue growth.
Comparable store sales grew 5.5% in fiscal 2000, and the store count rose to 382 from 344.
Shareholders' equity increased to $427,458,000, and operating cash flow rose to $181,329,000.
A new $200,000,000 unsecured revolving credit facility had no outstanding borrowings at January 28, 2001; the company has never paid a cash dividend.

03—Questions

Frequently Asked Questions

Why did profitability decline in fiscal 2000 despite strong revenue growth?
Cost of goods and occupancy expenses rose to 56.1% of net revenues from 55.7%, mainly due to significant promotional activity in the third and fourth quarters and higher inventory shrinkage, damage and obsolescence costs. Selling, general and administrative expenses rose to 32.5% of net revenues from 31.4%, primarily because of increased catalog costs tied to lower-than-anticipated direct-to-customer demand in the second half of the year.
What is driving growth at the company?
Growth came primarily from new stores and the Pottery Barn brand in the direct-to-customer segment. Pottery Barn grew 47.2% in fiscal 2000, with the Pottery Barn Bed + Bath catalog and Pottery Barn e-commerce website representing 29.7% of direct-to-customer revenue growth. The company opened 62 stores and closed 24 smaller stores during the year.
How strong is the company's financial position?
Shareholders' equity was $427,458,000 at January 28, 2001, and the debt-to-equity ratio was 8.3%. Cash and cash equivalents fell to $19,730,000 after the $73,300,000 purchase of a corporate facility. The company had no borrowings under its $200,000,000 revolving credit facility, and management believes available cash, operating cash flow and credit facilities will be sufficient for at least the next twelve months.
What are the company's plans for fiscal 2001?
The company projects gross capital expenditures of $135,000,000 to $150,000,000, including $70,000,000 to $75,000,000 for stores. It plans three new direct-to-customer growth initiatives, including a Pottery Barn Kids e-commerce website, opening five stores in Toronto, Canada, and approximately 16 new Pottery Barn Kids stores, and it expects to increase leased square footage by approximately 15%.
Does the company pay dividends, and who leads it?
The company has never declared or paid a cash dividend on its common stock, and its bank line of credit prohibits payment of cash dividends. Dale W. Hilpert became Chief Executive Officer on April 2, 2001, succeeding W. Howard Lester, who remains Chairman of the Company.

04—Continue

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