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Williams-Sonoma ( WSM 2.65% )
This fall 2021 Earnings Name
Mar 16, 2022, 5:00 p.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Individuals
Ready Remarks:
Operator
Welcome to the Williams-Sonoma, Inc. fourth quarter and financial 12 months 2021 earnings convention name. Immediately’s convention is being recorded. Right now, all contributors are in a listen-only mode.
An issue-and-answer session will comply with the conclusion of the ready remarks. I might now like to show the decision over to Jeremy Brooks, chief accounting officer and head of investor relations. Please go forward.
Jeremy Brooks — Chief Accounting Officer and Head of Investor Relations
Good afternoon, and thanks for becoming a member of our fourth quarter and financial ’21 earnings name. I might wish to remind you that in this name, we’ll make forward-looking statements with respect to future occasions and monetary efficiency, together with steerage for fiscal ’22 and our long-term outlook. Though we consider these statements replicate our greatest estimates and all accessible data, we can’t make any assurances that these statements will materialize, and precise outcomes could differ considerably from our expectations. The corporate undertakes no obligation to publicly replace or revise any of those statements to replicate occasions or circumstances that will come up after right this moment’s name.
Moreover, we’ll consult with sure non-GAAP monetary measures. These measures shouldn’t be thought-about replacements for and needs to be learn along with our GAAP outcomes. A reconciliation of non-GAAP measures to essentially the most straight comparable GAAP measures together with an evidence of how and why we use these measures seems in Exhibit 1 to the press launch we issued earlier right this moment. This name must also be thought-about along side our periodic and annual filings with the SEC.
Lastly, the decision is being recorded, and a replay can be accessible on our investor relations web site. Now I might like to show the decision over to Laura Alber, our president and chief government officer.
Laura Alber — President and Chief Government Officer
Thanks, Jeremy. Good afternoon, everybody, and thanks all for becoming a member of us. We’re thrilled to ship a robust end to fiscal 2021, driving document outcomes with a This fall comp of 10.8% and working margin growth of 310 foundation factors. These outcomes replicate the resilience in our enterprise mannequin as we efficiently navigated unprecedented challenges inside the provide chain, materials and labor scarcity and capability limitations from our unimaginable shopper demand.
This resilience, coupled with continued execution in our development initiatives, fueled an annual comp of twenty-two%, working margin growth of 350 foundation factors, and EPS development of 64% to $14.85 per share. Our three key differentiators, our in-house design, our digital-first channel technique, and our values, proceed to supply the framework for execution each in our core enterprise and in our development areas like B2B, market, cross-brands, and our international enterprise, which excitingly have all gained traction sooner than predicted and display to us that we’re well-positioned to proceed to take share on this {industry}. First, let’s spend a while on our top-line efficiency within the fourth quarter. All through fiscal 2021, we continued a deliberate discount in our sitewide promotional cadence in all of our manufacturers.
As an alternative, we shifted our give attention to delivering aspirational and inspirational content material, and our prospects clearly responded. This pricing energy is totally a operate of our differentiated and sustainable product providing that our prospects know and love. And additional, regardless of the extremely promotional surroundings within the fourth quarter, we made a acutely aware choice to keep up this pricing integrity and never pursue incremental prime line at the price of our merchandise margins. In truth, we delivered gross margin growth of 290 foundation factors within the quarter.
Additional, this pricing energy has allowed us the pliability to soak up provide chain prices and aggressively fund advertising efforts. Our bottom-line efficiency within the fourth quarter speaks for itself. We drove working margin of 21% and a 37% improve in EPS, each of which display the sturdiness of our earnings energy by way of execution in our core and development initiatives, which I am excited to replace you on now. Our B2B enterprise continues to outperform, constructing its guide of enterprise to $753 million in 2021.
B2B is an underserved and fractured {industry} as we proceed to take share on this white area, servicing companies that want high-quality, sustainable furnishings at good worth factors. Moreover, our in-house design capabilities providing the large breadth of aesthetics throughout our manufacturers, coupled with our industry-leading international sourcing and provide chain operations, permits us to take this service to the subsequent stage. Our B2B enterprise has large potential to contribute to our outcomes. Our development targets proceed to climb as we unlock new alternatives.
And never solely is our B2B enterprise mannequin accretive to our gross margin however much more accretive to op margin on account of the mounted working prices. We proceed to exceed our personal expectations for this enterprise. And long run, we consider that is one in every of our greatest alternatives. One other contributor to our success has been our international technique.
We’re franchise first with robust retail and digital execution. Throughout 2021, international achieved document income up 23% over final 12 months with robust earnings development. Core company-owned markets of Canada and U.Okay. achieved document outcomes for the 12 months and the quarter.
Franchise continues to be a development automobile with the essential markets of the Center East, Mexico, and India offering a big various development base. With our techniques funding in our new digital platform and huge value reductions in warehousing, transportation, and supply, we count on to exceed our document leads to 2022. Advertising is one other element that units us aside and drove leads to FY ’21. Clients who store throughout our manufacturers generate three to 4 instances extra income than the only model buyer.
And we have seen unimaginable outcomes this previous 12 months as a consequence of our continued advertising efforts. In fiscal ’21, roughly 60% of our gross sales got here from cross-brand prospects, a document excessive by way of p.c to whole. And our cross-brand buyer counts grew sooner than these of the single-brand buyer. Whereas new buyer acquisition is all the time a precedence and continues to develop, we consider we’ve got much more upside by growing our share of pockets with our present buyer base.
Core to this technique are three issues. First, our cross-brand loyalty program, The Key. We proceed to see document ranges of buyer engagement and an all-time excessive membership. Second, our just lately launched cross-brand bank card.
This card reached its six-month anniversary, producing cardholder spend and cross-brand exercise that has exceeded our expectations. And third, we’re centered on personalization efforts in our digital advertising. We proceed to leverage our in-house managed first-party information throughout our manufacturers, which positions us for the cookieless future that’s quickly approaching. Keep in mind, our multifaceted loyalty program generates advantages throughout our portfolio and is a transparent aggressive benefit a number of of our friends provide.
As a digital-first firm, we’re in fixed pursuit of incremental enchancment to our prospects’ purchasing journey on-line. We have improved a number of product discovering and buying experiences on our web site, from improved room styling, native registry functions, and the removing of friction within the checkout course of. Moreover, we relentlessly give attention to continued optimization and automation in our DCs and logistics networks to enhance our service time. On the sustainability entrance, we take nice pleasure within the progress we’re making with our affect initiatives and ESG management throughout the house furnishings {industry}.
Notable accomplishments on this quarter included our second annual inclusion in Bloomberg’s Gender-Equality Index, being acknowledged as No. 21 on Barron’s 100 Most Sustainable Firms, and receiving an A score from CDP for management in provider engagement and our work with suppliers on tackling local weather change. These commitments are mirrored within the high-quality sustainable merchandise that we provide our prospects and proceed to tell apart our firm and our manufacturers. Our values are each central in our actions and embedded in our merchandise.
We all the time need to present our prospects with transparency. And every day, we commit ourselves to sustaining the very best stage of integrity and moral requirements. We’re deeply saddened by the warfare in Ukraine, and we stand with Ukrainians and all individuals who oppose warfare and its atrocities on household and the house. Associated to product and enterprise with Russia, we’ve got no operations in Russia.
And because the state of affairs between Russia and Ukraine escalated, our group recognized a handful of merchandise of Russian origin, which we’re not promoting. And now let’s flip to the efficiency of our manufacturers. West Elm delivered an 18.3% comp within the fourth quarter with all classes driving robust development. Clients responded nicely to new merchandise, together with best-sellers in bed room, eating, storage, and occasional classes.
Moreover, new classes akin to bathtub, youngsters, and kitchen additionally contributed to incremental development. On the total 12 months, West Elm delivered a comp of 33.1%, constructing to a 48.3% on a two-year foundation and persevering with to construct velocity in its mission to develop into a $3 billion model. Pottery Barn delivered one other high-performance quarter with a 16.2% comp, pushed by robust core franchises in key classes. This fall outcomes have been enhanced by a robust seasonal adorning enterprise and provoking seasonal bedding and entertaining.
On the total 12 months, Pottery Barn celebrated a document 12 months with a comp of 23.9%, constructing to a 39.1% on a two-year foundation. Additionally, we’re delighted to report that Pottery Barn has surpassed the midway mark on its dedication to plant 3 million timber in three years to revive susceptible forests. Our accomplice, Arbor Basis, follows the very best practices and the newest science to make sure most affect and promote biodiversity. And even higher, primarily based on the large success of this program, our different manufacturers have joined the hassle, doubling our dedication to planting 6 million timber by 2023.
We couple this with commitments to responsibly harvest wooden and a sturdy sustainability story. Now I might like to speak about Pottery Barn Children and Teen. As we indicated throughout our third quarter name, we weren’t totally resistant to the ripple impact from delays ensuing from the availability chain disruption world wide. Specifically, the shutdown in associated backlogs from Vietnam had a bigger affect on our kids’s residence furnishings enterprise, which ran a unfavorable 6.1% comp for the quarter.
Sadly, we count on to really feel this affect a minimum of by way of the second quarter this 12 months. Regardless of the availability chain strain, power within the enterprise contains our child enterprise, which is delivering development by way of our providing of GREENGUARD Gold furnishings, together with further quantity from our in-store and on-line child registry. Additionally, we delivered document leads to our seasonal trim enterprise as prospects benefit from the holidays. Pottery Barn Children and Teen delivered a full 12 months comp of 11.6%, constructing to a 28.2% on a two-year foundation.
Our Williams-Sonoma enterprise drove a fourth quarter comp of 4.5% on prime of a 26.2% comp final 12 months, with development pushed by demand for entertaining at residence and gift-giving. We proceed to focus our technique on increasing our unique product and Williams-Sonoma branded product to drive development. We’re happy with enhancements within the digital expertise on the web site which are driving conversion, and our retailer optimization technique is working. Our high-impact retailer remodels and our market consolidation efforts are driving improved working margins.
On the total 12 months, Williams-Sonoma delivered a comp of 10.5%, constructing to a 34.3% on a two-year foundation. Considered one of our key parts of development is our Williams-Sonoma Home-based business. Given the power of the Williams-Sonoma model identify, our experience within the furnishings class, and the clear alternative within the high-end residence market, we consider that Williams-Sonoma House is one in every of our greatest development alternatives. In abstract, we’re immensely pleased with our accomplishments and document outcomes this fiscal 12 months.
I’m assured that we are going to proceed to boost the bar and prolong this momentum in fiscal 2022. To this point, within the first quarter, we proceed to see robust gross sales and margins. Now we have a sturdy lineup of development initiatives and operational enhancements deliberate for this 12 months. And as we glance additional, we’re assured in our long-term outlook, driving a minimum of mid- to excessive single-digit comps with top-line development to $10 billion by 2024 and working margins comparatively consistent with fiscal 2021.
Earlier than I cross the decision to Julie to undergo the financials in additional element, I need to thank our total group for by no means slowing down. I am endlessly grateful for his or her excellent work, their artistic vitality, and their relentless focus. I’m privileged to work alongside this gifted group of individuals. And with that, I might like to show the decision to Julie.
Julie Whalen — Government Vice President and Chief Monetary Officer
Thanks, Laura, and good afternoon, everybody. We’re happy to report one other quarter and financial 12 months of excellent monetary outcomes with revenues and earnings on the highest ranges we’ve got seen. The demand for our proprietary merchandise stays robust. Our development methods proceed to thrive.
Our working mannequin, which is tough to duplicate, continues to set us other than the competitors. And all of those, plus our confirmed skill to dynamically function in a fancy macro surroundings, continues to display that we’re well-positioned to succeed long run on this {industry}. Transferring to our fourth quarter leads to extra element. Web revenues surpassed $2.5 billion with one other quarter of double-digit comparable model income development at 10.8%.
These robust top-line outcomes have been throughout each channels, together with retail at a 20% comp and e-commerce at a 7.2% comp on prime of final 12 months’s 47.9% for a 55.1% two-year stack. By model, West Elm delivered an 18.3% comp on prime of 25.2% final 12 months. Pottery Barn accelerated from the third quarter to a 16.2% comp. Williams-Sonoma drove a 4.5% comp on prime of final 12 months’s 26.2%.
And our rising manufacturers accelerated to a 30.3% comp. Within the youngsters’s residence furnishings companies, Pottery Barn Children and Teen, comps have been a unfavorable 6.1%. That is beneath their third quarter year-to-date development of roughly 20% as these manufacturers have been essentially the most impacted throughout the fourth quarter by the availability chain points from the COVID-related closure of Vietnam. Transferring down the revenue assertion.
Gross margin got here in at a document 45%, a 290-basis-point growth over final 12 months. The power of our merchandise margins drove virtually all or 270 foundation factors of this growth. Our strategic choice to protect our pricing integrity by eliminating sitewide promotions was as soon as once more a transparent success. This pricing energy enabled us to soak up elevated freight and product prices whereas nonetheless delivering robust, worthwhile merchandise gross sales.
Occupancy prices at 7.7% of internet revenues leveraged roughly 20 foundation factors, ensuing from one other quarter of upper gross sales and decrease occupancy greenback development. Occupancy {dollars} elevated 6.7% to roughly $193 million, which features a full quarter of incremental prices from our new East Coast distribution heart to additional help our buyer demand, partially offset by our ongoing retail optimization efforts from further retailer closures and diminished hire. In fiscal 12 months ’21, we closed an extra 37 shops and are on monitor to shut roughly 25% of our whole retail fleet. SG&A additionally leveraged 20 foundation factors to a historic low of 24% regardless of absorbing increased year-over-year promoting prices from our diminished spend final 12 months.
Leverage was pushed by employment and common bills, which incorporates decrease incentive compensation throughout the quarter as a consequence of timing and the year-over-year profit from our ongoing retail restoration, varied operational efficiencies throughout the vacation season, and general robust monetary self-discipline all through. In consequence, we delivered one other quarter of document profitability with working revenue development of 28% to $525 million and our highest ever working margin at 21%, increasing 310 foundation factors over final 12 months and roughly 500 foundation factors increased than our final three quarters this 12 months. This resulted in diluted earnings per share of $5.42, up 37% from final 12 months’s document fourth quarter earnings per share of $3.95. These fourth quarter outcomes, mixed with our outperformance we’ve got seen all through 2021, allowed us to ship one other 12 months of considerable development and outperformance.
On the highest line, these full 12 months highlights embody an extra $1.5 billion in internet revenues, rising to over $8.2 billion, together with comparable model income development of twenty-two% on prime of final 12 months’s 17% or a 39% two-year stack; e-commerce rising to a 14.3% comp and a 58.8% two-year comp with our e-commerce combine at 66% of whole revenues; retail rising at a 43.2% comp regardless of visitors ranges at unfavorable 16% to 2019; a second consecutive 12 months of double-digit development throughout all manufacturers with vital acceleration throughout our two largest manufacturers, with West Elm at a 33.1% comp, Pottery Barn at a 23.9% comp, Williams-Sonoma at a ten.5% comp on prime of final 12 months’s 23.8%; our rising manufacturers, Rejuvenation and Mark and Graham mixed, delivering one other 12 months of accelerating double-digit development; our international enterprise rising 23% to over $425 million; and our cross-brand initiatives outperforming with our business-to-business division rising 109% to over $750 million in demand and contributing roughly 500 foundation factors to our whole firm comp. On the underside line, this top-line power and powerful monetary self-discipline all through enabled us to develop 2021 working revenue to $1.5 billion, over $0.5 billion and 52% increased than final 12 months. Working margin at 17.7% on the 12 months expanded 350 foundation factors over final 12 months and was greater than two instances increased than our 2019 and prior working margin ranges. This was pushed by gross margins increasing to document ranges or 500 foundation factors above final 12 months to 44% regardless of elevated prices related to provide chain disruptions all year long.
This working revenue power resulted in EPS of $14.85, which was $5.81 or 64% above final 12 months and drove our return on invested capital to an all-time excessive at 57.9%. On the steadiness sheet, we ended the 12 months with robust liquidity ranges with a money steadiness of $850 million and no debt or quantities excellent on our line of credit score. The power of our enterprise generated working money circulation of virtually $1.4 billion throughout fiscal 12 months 2021, which has allowed us to fund the operations of the enterprise, to speculate over $225 million in capital expenditures primarily in expertise and provide chain, and to return almost $1.1 billion to shareholders within the type of $188 million in dividends and 900 million in share repurchases. These selections replicate our confidence within the sustainability of our development and our dedication to maximizing returns for our shareholders.
Transferring down the steadiness sheet. Merchandise inventories have been $1.246 billion, growing 24% over final 12 months, which incorporates stock in transit. Stock available elevated 14.8% however was nonetheless unfavorable 13% on a two-year foundation. Given the numerous macro provide chain disruptions all year long and the continued robust buyer demand, we’re nonetheless beneath optimum ranges.
In consequence, we count on to see elevated back-order ranges proceed till the again half of 2022. Now let me flip to our expectations for the long run. As Laura mentioned, we stay very optimistic within the long-term outlook of the enterprise. Our enterprise stays robust as we enter Q1 with momentum in our core companies and our development initiatives persevering with.
In consequence, for each fiscal 12 months 2022 and past, we’re reiterating our beforehand supplied monetary outlook of mid- to excessive single-digit comp development with working margins comparatively consistent with fiscal 12 months 2021. We estimate revenues will attain $10 billion by fiscal 12 months 2024, with our manufacturers accelerating or reaching our prior dedicated targets sooner, together with Pottery Barn increasing to $3.5 billion in revenues; West Elm including $1 billion in revenues to over $3.3 billion; Williams-Sonoma will attain virtually $1.6 billion in revenues, and our Pottery Barn Children and Teen companies will develop to $1.4 billion. This anticipated top-line development can even be fueled by development throughout our strategic initiatives, akin to our B2B enterprise doubling to $1.5 billion in revenues, our market enterprise rising 20% yearly to just about $700 million, our rising manufacturers increasing to a mixed income of over $600 million, and our international operations persevering with to broaden in dimension to $700 million. And we’re assured we will drive this top-line development profitably as a consequence of leverage throughout the P&L from ongoing increased gross sales development; further accretion from our accelerating development initiatives which have the next working margin profile; an accelerating shift on-line the place the working margin is increased; robust merchandise margins from the pricing energy our proprietary and vertically built-in merchandise present; continued occupancy leverage from additional retailer closures and diminished rents; varied long-term provide chain efficiencies, akin to automation and higher in-stock stock ranges; and leverage from general robust monetary self-discipline all through, conserving expense development beneath gross sales development.
Our capital-allocation plans for 2022 will proceed to first prioritize investments into the enterprise after which return extra money to our shareholders. We count on to speculate roughly $350 million within the enterprise, with over 80% of the spend prioritized on expertise and provide chain initiatives primarily to help e-commerce, together with the addition of a brand new automated distribution heart in Arizona. We additionally count on to return extra money to our shareholders within the type of elevated quarterly dividend payouts and elevated share repurchases. For dividends, we introduced earlier right this moment one other double-digit improve in our quarterly dividend, up 10% or $0.07 to $0.78 per share.
We additionally introduced our Board has accredited a brand new share repurchase authorization to $1.5 billion, which is able to change the remaining quantity excellent beneath our prior authorization. We proceed to consider that our inventory worth stays undervalued given our projections for development and profitability. This new authorization will permit us the pliability to opportunistically spend money on our personal inventory and drive long-term monetary returns. As we start our subsequent fiscal 12 months, our focus stays on executing towards our alternatives to drive long-term elevated prime and bottom-line development.
We consider we’re uniquely positioned to proceed to take market share and profitably. Lengthy-term macro developments ought to proceed to favor our enterprise, together with a robust housing market driving ongoing funding within the residence, an accelerating shift to e-commerce, and the growing significance to the buyer of sustainability and being a values-driven firm. And this, mixed with our accelerating development initiatives, our robust working money circulation and liquidity and a confirmed monitor document of robust monetary self-discipline give us the boldness to reiterate our accelerated long-term development and profitability outlook and to drive robust monetary returns for our shareholders. I might now wish to additionally thank all of our associates and enterprise companions for all that they do for our firm.
It’s their ongoing dedication that has enabled us to ship one other 12 months of economic outperformance and to reward all of our stakeholders. I might now wish to open the decision for questions. Thanks.
Questions & Solutions:
Operator
[Operator instructions] And our first query comes from Max Rakhlenko of Cowen and Co.
Max Rakhlenko — Cowen and Firm — Analyst
Nice. Thanks lots and thanks for all the colour. Simply curious, on the brand new companies, what are you able to share about how a lot increased margins these companies are? After which as they proceed to develop over time, how a lot do you suppose that they will contribute to the enterprise long run and offset any normalization that we’ll see in any other case? Thanks lots.
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. These companies are extremely accretive to op margin. We’ve not disclosed the quantity, however it’s one thing that we’re tremendous enthusiastic about as a result of as you’ll be able to see, for instance, with B2B and the quantity that, that’s driving and the larger piece that’s changing into of our comp, it has a big profit to the working margin on the similar time into our earnings. And so we’re very enthusiastic about that development trajectory.
Laura Alber — President and Chief Government Officer
And I assumed, Max, that you just have been asking the query about a few of our smaller manufacturers. And within the case of these manufacturers, they’re nonetheless so small that there is really runway for enchancment of their revenue profiles as a result of we nonetheless aren’t sufficiently big to get the good sourcing leverage that we do in our bigger manufacturers. In order that they’re very worthwhile. As you’ll think about, they’re right this moment however they are often — we see a extremely robust alternative to enhance these margins additional as they develop.
Operator
Our subsequent query comes from Anthony Chukumba of Loop Capital Markets.
Anthony Chukumba — Loop Capital Markets — Analyst
Thanks a lot for taking my query and congrats to a robust end to an extremely robust 12 months. My first query, you talked concerning the cross-brand, and you have got The Key cross-brand loyalty program. Are you able to simply give us an replace by way of the variety of members that you’ve? If I recollect it appropriately, final time — final quantity — I all the time have it in my notes, about 12 million members.
Felix Carbullido — Chief Advertising Officer and Government Vice President
Yeah. Hello, there, Anthony, it is Felix. I can let you know — I do not consider we’re sharing the numbers, however I can let you know that is considerably up. And as Laura mentioned, program so far, life so far have been at an all-time excessive.
And with the introduction of the bank card this 12 months this previous August, we’re beginning to see our dividends repay in an enormous method by way of cross-shopping. We consider that is one in every of our greatest alternatives as an organization. It is growing our share of pockets. And The Key, each from a multi-tender loyalty perspective and the bank card, are key drivers for that initiative.
Anthony Chukumba — Loop Capital Markets — Analyst
Received it. After which simply if I can get one fast follow-up. Is there any method you’ll be able to form of dimensionalize the, I assume, misplaced gross sales in Children and Teen given the worldwide provide chain points? I imply it is simply such a stark slowdown, as you identified.
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. I imply I believe in case you did the mathematics, what I had mentioned on — in my script that their year-to-date run charge was about 20% and — however for form of these provide chain points, we had no purpose to consider that their enterprise will not stay as robust. So if — you are able to do the mathematics on that and provide you with how a lot immense within the fourth quarter. And definitely, had they delivered the place they’d are available, we’d have been on the increased finish of our implied steerage.
So it was an honest affect to the fourth quarter, sadly.
Anthony Chukumba — Loop Capital Markets — Analyst
Received it. Thanks. And sustain the great work.
Operator
Our subsequent query comes from Cristina Fernandez of Telsey Advisory Group.
Cristina Fernandez — Telsey Advisory Group — Analyst
Good afternoon and thanks for taking my query. I needed to ask, when you concentrate on mid- to excessive single-digit development in 2022, how are you desirous about {industry} development, if any, demand for the house furnishings {industry} versus market share beneficial properties?
Laura Alber — President and Chief Government Officer
Positive. You understand, all of us acknowledge there’s an excessive amount of uncertainty on the planet we dwell in right this moment, from rising rates of interest to international conflicts. However what provides me confidence is that we function in an {industry} that’s actually massive and fragmented. And nonetheless, greater than half of the gross sales are generated from smaller brick-and-mortar retailers.
And this offers us an enormous alternative. And as we enter the endemic, two issues are clear to us: individuals have reprioritized what’s essential to them and other people love their residence. And there isn’t any doubt they will proceed to entertain, prepare dinner and work extra of their houses. And in speaking to a whole lot of CEOs, I consider hybrid work is admittedly right here to say.
So whether or not the entire {industry} grows or not, the macro shifts and adjustments in the best way we dwell, mixed with our key differentiators and our long-term development prospects leads us to consider that we’ll have the flexibility to proceed to take market share and develop. And truthfully, I consider there isn’t any one in a stronger place to disrupt the house furnishings {industry} than us.
Cristina Fernandez — Telsey Advisory Group — Analyst
Thanks for that. After which as a follow-up however maybe for Julie, in your — the flexibility to keep up the working margin this 12 months, ought to we take into consideration the gross margin and bills each being consistent with 2021? Or will one be higher enchancment 12 months over 12 months versus 2021? Thanks.
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. I imply clearly, we’re not offering steerage on the road objects. We’re centered on sustaining our working margin at these extremely elevated ranges as I believe, I mentioned, they’re greater than two instances the place we have been in 2019. And so our dedication is to have the ability to preserve these ranges.
And so by way of all of the completely different line objects that I went by way of, we’ve got that chance to do it. Some could go up. Some could go down. However on the finish of the day, as a result of we’ve got the flexibility to leverage the P&L with the upper gross sales, we have got the accelerating development initiatives that I simply answered a query about, that as these proceed to maneuver ahead like with B2B, we’ve got the chance to drive that working margin to keep up on the similar ranges.
We have our merchandise margins which are extremely robust. And given our proprietary product and vertical integration, we will preserve these regardless of increased costs on product and freight and provide chain efficiencies and on and on. There’s many issues, many levers that we’re utilizing to proceed to keep up these elevated op margins. And so it would rely which line it lands on.
However I might say for modeling functions, I might maintain them flat at this level.
Operator
And our subsequent query comes from Chuck Grom of Gordon Haskett.
Greg Sommer — Gordon Haskett — Analyst
Hello, that is Greg Sommer on for Chuck Grom. My first query is simply in case you might possibly give us some coloration on the cadence of demand all through the quarter and alongside these traces, in case you’ve seen any indicators of commerce down or fatigue by the client. After which I’ve a fast follow-up.
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. I imply we did see a extremely robust begin to the fourth quarter. We noticed a bit little bit of a dip throughout the vacation promoting weekend the place I believe that was fairly frequent amongst most retailers. After which we got here out of that even stronger in January.
And as we have entered into the primary quarter, we made a strategic choice to not chase the gross sales. And that is the fact. We might have been rather more promotional, and we did not do any sitewide promo. And so on the finish of the day, we nonetheless delivered, no matter, 10.8%, double-digit comps with unimaginable working margins and earnings.
And so that’s what we stay dedicated to proceed to do. And we’re simply excited to see that, that power is continuous.
Greg Sommer — Gordon Haskett — Analyst
OK. After which only a fast follow-up, did you guys present a requirement comp for 4Q?
Julie Whalen — Government Vice President and Chief Monetary Officer
We did not, however it’s comparatively in line. So — and once more, on that, that does not imply that we do not have elevated again orders. We nonetheless have elevated again orders. We’re nonetheless encouraging — incurring provide chain challenges, as Laura alluded to, however the actuality is that we have not been capable of carry down these backwards to the extent that we would like.
And so, due to this fact, we’re persevering with to carry these and proceed to carry demand consistent with internet, which clearly we’re all the time listening to. We would like — a very powerful factor is our buyer and ensuring they get the product in a well timed style. However from a monetary perspective, definitely, it is alternative as these merchandise are available for supply.
Greg Sommer — Gordon Haskett — Analyst
OK. Thanks.
Operator
Our subsequent query comes from Simeon Gutman of Morgan Stanley.
Michael Kessler — Morgan Stanley — Analyst
Hello, everyone. That is Michael Kessler on for Simeon. First query, for a lot of retailers, as a result of the expectation for 2022 was that transactions or items are in all probability not rising however you have got worth as an offset and a driver, we’re listening to anyplace 5%, 10%, 15%, 20% year-over-year worth development. So your gross sales man is kind of good guiding to development.
I imply we’re assuming there’s possibly a possible for some actual worth inflation inside that, which suggests items could possibly be down. I assume, is that the proper framework? And whether it is, how ought to we really feel about that? Does it imply there’s extra danger or extra upside to the information? And does it imply, if that is true, that development might sluggish in ’23 if pricing normalizes? So I assume how does that — what does that let you know? How is that — how do you body that?
Laura Alber — President and Chief Government Officer
Positive. Good query. In order , it is actually essential to us that we offer our prospects a product that’s nicely designed, sustainable, and the very best worth out there, and that is the place we have gained. After all, prices have gone up.
And so we — not solely did we cease sitewide promotions, however we have strategically taken worth will increase fastidiously the place we might. And if costs to us come down, we’d give our prospects a break on some merchandise as a result of we all the time need to provide them the very best worth. Proper now, I’ll let you know that I consider that we’re doing that, and that is why our gross sales development is increased than our {industry} and versus our friends. But it surely’s one thing we’ll keep very humble about and we verify it on a regular basis.
We’re continually checking our merchandise and our costs versus our competitors and innovating to make sure that we’ve got merchandise that our prospects cannot purchase on the opponents. This can be a actually key a part of our technique. Because it pertains to items versus AUR development, I count on although we noticed improve in items final 12 months to see it — to be extra flat this 12 months. On the unit development, that is my expectation.
That is what’s implied on this steerage. However we’re very assured on this steerage for all of the elements that we have gone by way of already, each our differentiators, our development initiatives, and the fact that we’ve got an enormous again order log that should are available generally. It hasn’t are available but, however it ought to are available. And we’re pondering — sadly and I hate to maneuver the state out continually, however the provide chain points proceed to be many and diversified that we predict it may be on the again half of this 12 months now as a result of you’ll be able to — everybody I do know is studying the identical information and there is all types of issues that proceed to go on.
And so our focus continues to be to actually give our prospects a fantastic service. And to that time, whereas I’ve the ground, I will simply additionally make the remark that we’re seeing our buyer calls to be diminished and fewer escalations from our prospects. So I believe regardless of these disruptions that everyone knows are occurring, we’re nonetheless competitively providing sooner lead instances and we’re doing a great job speaking with our prospects — or a greater job, I ought to say, speaking with our prospects concerning the push-up.
Michael Kessler — Morgan Stanley — Analyst
OK. Nice. That was all actually useful. Thanks.
If I might simply ask one fast follow-up. That is possibly extra of a technicality kind of query. I believe your prior language had been speaking concerning the long-term working margin steerage being a minimum of ranges of 2021. I believe now we’re simply saying extra comparatively in line a minimum of for 2022.
Clearly, the bottom is now increased than the place it was 1 / 4 in the past otherwise you guided 1 / 4 in the past. Is there something to learn into that or simply form of primary language?
Felix Carbullido — Chief Advertising Officer and Government Vice President
No.
Laura Alber — President and Chief Government Officer
You bought it.
Felix Carbullido — Chief Advertising Officer and Government Vice President
Yeah. You bought it.
Michael Kessler — Morgan Stanley — Analyst
OK. Thanks.
Laura Alber — President and Chief Government Officer
Thanks.
Operator
And we will go to Jason Haas of Financial institution of America.
Jason Haas — Financial institution of America Merrill Lynch — Analyst
Nice, good afternoon. Thanks for taking my query. The primary one is simply on the B2B enterprise. I am curious simply what developments you are seeing there and the way you are desirous about that in 2022.
Laura Alber — President and Chief Government Officer
Superior. In order we mentioned, B2B grew over 100%, and it simply continues to go. I believe I’ve revised my estimates each time I’ve gotten on this name. I made a decision to not give estimates anymore as a result of I maintain undershooting it.
That is embarrassing as nicely. The marketplace for B2B is big. And as I mentioned earlier, nobody is admittedly doing an excellent job. And so as a result of we’ve got in-house design merchandise, which permit us to do particular product growth for our shoppers and in addition our provide chain, we will ship it collectively and provides them a fantastic expertise and simply a few enjoyable, completely different initiatives, pipeline, guide of enterprise.
So our stadium and enviornment work continues to construct momentum. We had massive initiatives for the San Diego Padres and the New York Mets. In hospitality, we’re seeing a promising and inspiring return of our massive Marriott model commonplace enterprise. In healthcare, we’re constructing a robust relationship with an enormous account.
I do not suppose we will say the identify but however we’re enthusiastic about that. We’re doing massive residential — working with massive residential builders, like associated firms. And a enjoyable one which I actually suppose is nice is Churchill Downs, and we’re working with Woodford Reserve on that. After which the final, which can also be superior and actually related, is Below Canvas, which is a premier, luxurious glamping firm, and we’re furnishing their camps throughout the nation adjoining to the main nationwide parks.
In order that simply provides you a way of what we’re doing. So there’s new guide of enterprise after which there’s the companies that simply proceed to go as a result of we’ve got extra items and there is additionally alternative.
Jason Haas — Financial institution of America Merrill Lynch — Analyst
Thanks. That is nice coloration. After which simply as a follow-up, I needed to ask concerning the stock on the steadiness sheet being up. I do know — I believe it is Julie who touched on it within the ready remarks, however simply curious in case you might give any coloration by way of how a lot of that’s simply stock being caught out within the ports versus what you have got available and simply form of general how you are feeling about your stock place.
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. I mentioned in my ready remarks that about 14.8% of the 24% improve is on-hand stock. So the delta is what’s in transit of that 24%. So a large portion of it’s nonetheless on the water.
And clearly, there’s been some delays in bringing that stock in for a myriad of causes that definitely with our scale and class, we’re a lot better at maneuvering by way of that and getting it in lots faster, extra successfully than others, however we’re not resistant to it. And so we’re positively working by way of these elements. However definitely, we’re nowhere close to the place we need to be. We’re not at optimum ranges with a unfavorable 13% of on-hand stock on a two-year foundation.
Whenever you take a look at our gross sales development at a 39% comp on a two-year foundation, we’ve got a whole lot of room to go. And so it is an enormous alternative for the corporate. And hopefully, by the again half of the 12 months, we’ll be in a a lot better place.
Jason Haas — Financial institution of America Merrill Lynch — Analyst
Thanks. That is useful.
Operator
And the subsequent query comes from Adrienne Yih of Barclays.
Adrienne Yih — Barclays — Analyst
Nice. Thanks very a lot and congratulations to the whole group. The 12 months was incredible. The quarter was incredible.
So, Laura, I need to return to the aggressive panorama. And I might like to listen to your ideas on how a lot of the {industry} was in form of small chains, independents prepandemic. The place have they gone? After which different opponents — and I will simply identify, like RH has moved increased pricing and possibly create some white area. So I actually am curious.
Whenever you say opponents, are you able to assist us perceive like who’s the nationwide chain that you just compete towards for West Elm, for Pottery Barn? As a result of after I take into consideration form of the place individuals would go, it actually comes all the way down to these two names and never a whole lot of others. In order that’s my first one. Sorry, it is so long-winded. After which, Julie, are you able to assist us out with Q1 shaping? It looks like in case you take a look at regular seasonality, there’s extra alternative in Q1 from an op margin standpoint.
Thanks very a lot.
Laura Alber — President and Chief Government Officer
Thanks, Adrienne. So I want there was higher market information frankly. I imply we attempt to piece it collectively. However the — earlier than the pandemic, we noticed even increased quantity being accomplished on the road with brick-and-mortar retailers, and it was a part of, I believe, an investor deck like three years in the past that we mentioned it isn’t going to be 80% accomplished brick-and-mortar.
It is going to be transferring on-line. And so even earlier than the pandemic occurred, we have been speaking concerning the alternative, as individuals transfer on-line, to be one of many clear winners on-line. And so that’s about as a lot information as I’ve. I imply you’ll be able to see it in your native cities the place it is modified lots on the road.
Now by way of head-to-head competitors, it is actually arduous to search out any individual who does what we do, which is nice. However there’s lots of people promoting items and components. And the massive ones that we — individuals speak concerning the specialty individuals, however really, we’re desirous about the actually massive ones who are likely to have value-priced merchandise that aren’t something like our merchandise nor do they put the entire home collectively. I am resisting the temptation to name them by identify, however who they’re.
After which the specialty retailers, a whole lot of the specialty retailers — to begin with, they do not have the identical digital capabilities. They do not have a number of manufacturers. They do not have a number of aesthetics. After which additionally, they do not design their very own merchandise, which can seem that they do.
They do a whole lot of different issues, I believe, nicely. However they do not essentially have merchandise that you may’t discover elsewhere in case you attempt arduous sufficient. And in order that’s actually one of the essential aggressive differentiators. After which add to it that there is no one else who — that makes that Barron’s record who’s in residence furnishing, not one.
We’re the one residence furnishings retailer on the Barron’s record of prime sustainable firms. And we all know our prospects care about that, and so they’d relatively purchase from somebody who can also be sustainable. And albeit, they’re glad to spend a bit bit extra as a result of it is essential to them to understand how their merchandise are made and what chemical compounds are used and all these issues. And we — you noticed us.
I hope everyone noticed the brand new affect report that we put out and all of the items and components of enhancing our footprint. And we’re definitely not accomplished, however we’ll proceed to step it up and announce even greater targets after we rise up to Earth Day, and I am enthusiastic about these targets. So there’s a whole lot of work to be accomplished there, however we’re forward. We’re in a management place already, and we intend to remain there on sustainability and high-quality, sturdy merchandise.
Julie Whalen — Government Vice President and Chief Monetary Officer
All proper. Adrienne, on the Q1 query. I imply clearly, we do not present steerage on a quarterly foundation. I am certain you are asking from a directional standpoint.
I do not suppose there’s something that is actually noteworthy to name out that is completely different than form of the conventional run charge. So I do not suppose there’s something to spotlight at that time. We’re tremendous excited, clearly, concerning the unimaginable steerage we gave on the 12 months and the truth that we’re dedicated to holding working margins on the 12 months. So I believe that is our focus.
Adrienne Yih — Barclays — Analyst
After which, Julie, only one quick follow-up. What’s the standards for closing shops? As a result of clearly, you’re closing four-wall worthwhile shops, which is, for a retailer, a really, very tough choice to make. Laura, I do know you talked about this earlier than, having a hurdle charge for profitability and that is how you retain driving the earnings up. So whenever you’re that 25% of sq. footage, your shops, how are you making that call every year?
Julie Whalen — Government Vice President and Chief Monetary Officer
Yeah. I imply I believe one of many first issues that makes us completely different clearly is the dimensions of our e-commerce enterprise. Whenever you take a look at different retailers, they do not have that alternative. And so we’re making selections.
One of many selections we’re is the profitability on our e-commerce enterprise and evaluating that to the retail shops. And so do we would like that sale in retailer? Do we would like it on the e-commerce facet? However that is one issue. We’re additionally wanting on the retailer. And is it brand-enhancing? Is there different causes to have the shop? As a result of definitely, shops are extremely essential to us from a service facet for our prospects.
And so — however we have not given out the precise metric, however I might say that is a technique to consider it. You understand what our working margins have been traditionally in e-commerce, and I believe that is form of an attention-grabbing spot to consider. We positively need to guarantee that the sale is worthwhile.
Laura Alber — President and Chief Government Officer
And we’re actually glad to see that, as I mentioned, particularly in Sonoma. However actually throughout the board, our retail optimization technique is admittedly working. We’re seeing the brand new shops, the transformed shops beat our expectations, and we’re seeing higher switch from the closed shops. After which our incredible actual property group has — final 12 months, I imply we renegotiated 90% of our leases that got here up for renewal.
So there’s a whole lot of great things happening with the retail profitability, and our groups at retail proceed to innovate. I imply I — we have talked about how robust they have been throughout the pandemic in serving to us do Design Chat, design companies. Despite the fact that our shops have been closed, we saved them employed. And so they have paid us again in spades with loyalty and fervour and creativity, and so they proceed to be actually the face of our manufacturers.
And a lot of our enterprise is finished with these design appointments, and we’re doing it now just about too. And that is one thing that — I imply we’re not simply dabbling. It is a massive piece of our enterprise, and it is supported by ever-improving tech capabilities so that folks can actually think about how issues will look of their residence once they’re making the buying choice and get rid of errors that so many people make after we do a complete room or a complete home.
Adrienne Yih — Barclays — Analyst
Incredible. Wanting ahead to seeing you in individual. Bye.
Julie Whalen — Government Vice President and Chief Monetary Officer
Thanks.
Laura Alber — President and Chief Government Officer
Bye. Thanks.
Operator
And our subsequent query comes from Brian Nagel of Oppenheimer.
Brian Nagel — Oppenheimer and Firm — Analyst
Hello, good afternoon. Congrats on one other good quarter.
Laura Alber — President and Chief Government Officer
Thanks.
Brian Nagel — Oppenheimer and Firm — Analyst
So my query — and I do know we have talked about provide chain a bunch already, however I need to simply speak about it extra. As you take a look at the availability chain dynamic that is impacting Williams-Sonoma, is it — do you suppose — once more, recognizing how fluid the state of affairs is on the market, are dynamics getting worse? Or are they staying the identical? After which as you concentrate on the length of this and we speak to you now concerning the points persisting fairly far into ’22, are there levers that Williams-Sonoma might pull or issues that — that you just guys haven’t pulled but that from an inside standpoint might assist to mitigate a few of these pressures?
Laura Alber — President and Chief Government Officer
So, I imply, it is so humorous how dynamics are worse. We have been speaking about this the opposite day. And our perspective is that this 12 months goes to be about the identical as final 12 months, and we thought nothing could possibly be worse than final 12 months. So I might say it is as dangerous as final 12 months.
It is a horrible remark, however I imply we’re realist about this. We’re anticipating it to be stops and begins. We see all types of issues, COVID stop-and-starts. We see materials labor shortages.
Now the horrible warfare may have some affect. And so these are all issues which are occurring to everybody within the {industry} in all shopper companies. However the purpose we’re so assured is that we’ve got an unimaginable group and scale. We are the thirteenth largest container importer.
Now we have nice relationships with our distributors and our shippers that permits us to expedite manufacturing and stock circulation. And we’ll — we are usually very frightened about what might occur and create contingency plans for these items as a lot as we will. And so we’re additionally, on the similar time, how can we management what we will management higher, i.e., time to course of an order and to get it to our buyer. And that’s the reason we’re persevering with to regionalize our distribution community so we’re nearer to our prospects and we give them unimaginable service with even fewer damages.
There’s lots. I believe Julie gave a fantastic abstract of all of the working margin levers that we’ve got in our firm and — in addition to we have accomplished. We consider there’s nonetheless a whole lot of room to enhance significantly within the provide chain. And I do not suppose that we’ve got to — we will do — there’s lots of them that I count on to occur this 12 months.
However we additionally know that there are some issues that we have not predicted but which are prone to come our method as nicely.
Brian Nagel — Oppenheimer and Firm — Analyst
No. Thanks for that. That is useful. After which as a fast follow-up, and I assume considerably associated to that, you talked concerning the, I assume, I might say, lack of promotions.
Lack of widespread promotions is a driver of upside to the margins right here within the quarter. And I believe we have mentioned this earlier than, however how do you concentrate on the sustainability? Is the flexibility of Williams-Sonoma now to drive higher, say, full worth sell-through extra a operate of inside initiatives such because the merchandising? Or are you continue to actually benefiting from the availability chain constraints, in a method this lack of product being inside the channel?
Laura Alber — President and Chief Government Officer
No. It is actually, I might say, greater than even both a kind of issues. It was a mindset shift that it wasn’t a good suggestion to have a worth go up and down on a product that you just’re promoting regularly. You will notice us take markdowns.
We’ll miss on style. We may have issues which are overstocked. I do know that you’ve got seen us take markdowns. These should not what I am speaking about.
The place we have been speaking about not working sitewide promotions that you just see others run, you noticed many individuals run throughout the vacation season. You’ll be able to nonetheless pull them up and take a look at them now. And actually, it is a measure. Our pricing energy is a measure of our merchandise and product initiatives internally and the power of our manufacturers.
Brian Nagel — Oppenheimer and Firm — Analyst
I recognize it. Congrats once more. Thanks.
Laura Alber — President and Chief Government Officer
Thanks.
Julie Whalen — Government Vice President and Chief Monetary Officer
Thanks.
Operator
And we will go to Seth Basham of Wedbush Securities.
Matt McCartney — Wedbush Securities — Analyst
Hello, that is Matt McCartney on for Seth. Simply actual fast, simply need to revisit the value quantity form of equation for this 12 months. Is it honest to form of take into consideration volumes being down within the first half given the availability chain points after which form of choosing up within the again half, possibly even rising, after which form of popping out to that flattish steadiness for the total 12 months?
Julie Whalen — Government Vice President and Chief Monetary Officer
Sorry. Are you speaking about items? Are you speaking about — what are you speaking about? I am attempting to grasp your query.
Matt McCartney — Wedbush Securities — Analyst
I am taking about simply pricing apart, simply items first half versus second half given the availability chain points.
Julie Whalen — Government Vice President and Chief Monetary Officer
No. I would not assume that in any respect. I believe it is only a operate of we’ve got extremely robust gross sales that we have been chasing stock on for an extended time period. And so we’re persevering with to chase that stock, which is sustaining elevated back-order ranges, however we’re nonetheless having robust gross sales going ahead.
There’ll nonetheless be unit gross sales that happen as we transfer all year long. I do not suppose there’s something to tie the variety of items to — relative to stock receipts with provide chain within the first half.
Matt McCartney — Wedbush Securities — Analyst
OK. That is useful. After which only one final query right here. Simply questioning about your skill to form of cross on worth.
You are mentioning your pricing energy. Is there any form of a differentiation on a model stage the place you are seeing maybe extra pricing energy or possibly even much less pricing energy?
Laura Alber — President and Chief Government Officer
I would not — no. We have been very cautious, and there is a advantageous line. We need to be sure that, as I mentioned, that we’re giving our prospects nice worth. So it is a judgment by product class.
And we’re doing a whole lot of testing in each single model. And we’re seeing success within the pricing will increase that we have needed to take as a result of value will increase have gone up as nicely. However we additionally on the similar time — keep in mind, as a result of we care a lot about conserving our vary of consumers, we proceed to extend the quantity of opening worth level merchandise. So although one thing might need to go up in worth, we are also bringing in a bunch of opening worth level merchandise so we will actually maintain pushing our buyer acquisition.
And we’ve got labored with our distributors to actually worth engineer and nonetheless construct our similar high quality and sustainability profiles into these merchandise in order that we do not simply develop into a really costly set of manufacturers.
Operator
Women and gents, that is on a regular basis we’ve got for questions right this moment. I might like handy the decision again to the administration group for any further or closing remarks.
Laura Alber — President and Chief Government Officer
Effectively, thanks all. Actually recognize your questions and your enthusiasm and your engagement and may’t wait to see you all in individual.
Operator
[Operator signoff]
Period: 60 minutes
Name contributors:
Jeremy Brooks — Chief Accounting Officer and Head of Investor Relations
Laura Alber — President and Chief Government Officer
Julie Whalen — Government Vice President and Chief Monetary Officer
Max Rakhlenko — Cowen and Firm — Analyst
Anthony Chukumba — Loop Capital Markets — Analyst
Felix Carbullido — Chief Advertising Officer and Government Vice President
Cristina Fernandez — Telsey Advisory Group — Analyst
Greg Sommer — Gordon Haskett — Analyst
Michael Kessler — Morgan Stanley — Analyst
Jason Haas — Financial institution of America Merrill Lynch — Analyst
Adrienne Yih — Barclays — Analyst
Brian Nagel — Oppenheimer and Firm — Analyst
Matt McCartney — Wedbush Securities — Analyst
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even one in every of our personal – helps us all suppose critically about investing and make selections that assist us develop into smarter, happier, and richer.
