Welcome to the Williams-Sonoma, Inc. First Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining our first quarter earnings call. Before we get started, I'd like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including annual guidance for fiscal '25 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. Also, with respect to year-over-year comparisons for the first quarter, we will make reference to our Q1 results last year, both with and without a benefit of $49 million, related to an out of period adjustment we recorded last year. We believe providing these disclosures is useful to understanding our quarterly financial results. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura Alber, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I'm excited to discuss our first quarter. Before we dive into our results, I want to recognize our team for their contributions. Their passion, dedication, and talent continue to drive our performance. We are proud to report strong results for the first quarter of 2025, fueled by a positive top-line comparison and sustained profitability. In Q1, our comparable sales exceeded expectations at positive 3.4%, with all brands posting positive comparisons. We also surpassed profitability estimates, achieving an operating margin of 16.8% and earnings per share of $1.85, reflecting an earnings growth of 8.8%. During the quarter, the positive trend observed in Q4 accelerated, despite consumer distractions from tariffs, ongoing geopolitical uncertainty, and a lack of significant improvement in the housing market. We continue to outperform the industry, which saw a 3% decline in Q1. Our growth outperformance was largely attributed to improved furniture sales, effective collaborations, and robust performance in our retail and e-commerce channels. As we move forward in 2025, we believe we have established a solid foundation for growth and profitability. Despite significant macro and geopolitical uncertainties, we are focused on three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. Now, let's discuss our strategies to sustain the positive momentum from Q1 and foster growth for the remainder of the year and beyond. First, we are confident in our ability to achieve core brand growth backed by a strong pipeline of new and compelling innovations. Our distinctiveness through in-house design and a vertically integrated sourcing model remains a key advantage, allowing us to provide high-quality products and exceptional value. We understand that the housing market, and hence the furniture industry, could remain soft this year due to high interest rates. Therefore, our growth strategy focuses on a broad and inspiring non-furniture assortment that includes seasonal and decorative accessories, textiles, and housewares. Strategic collaborations are another crucial element of our plan, fostering new customer growth and boosting sales, while also enhancing the relevance and excitement of our brands for customers. Our B2B program is also a significant growth driver. The B2B segment had a strong start to the year, growing 8% and delivering another record-breaking quarter. Leveraging our design expertise and commercial-grade product range, we have established a strong and expanding client base across various industries. Our B2B offering is a powerful differentiator, and we continue to witness positive momentum. We are also seeing strong performance and positive comparisons in our emerging brands: Rejuvenation, Mark and Graham, and GreenRow. With our track record of successfully incubating and scaling brands in-house, we are optimistic about their continued growth and profitability. In addition to these growth drivers, we are committed to enhancing every customer touchpoint and channel experience. One area of continued investment is our next generation of design services. We have launched new tools for both online and in-store use to help customers visualize and plan their spaces. We are also making significant advances in integrating AI across our digital platforms. From personalized emails to tailored homepages, we aim to enhance the customer journey through smart, data-driven experiences. We believe AI will be a transformational force in our operations, and we intend to lead the industry in its application. In our retail stores, we are maintaining momentum. The strong retail comparisons from Q4 have continued into Q1, driven by an improved in-store experience featuring increased inventory availability, fresh product assortments, enhanced design services, and engaging events. Our omni-channel capabilities are a core strength and we are optimizing them further with AI, which includes enhancements in sales performance, cost efficiency, and delivery speed. As we look towards the rest of the year, our focus is on delivering exceptional customer service through perfect orders that arrive on time and damage-free. Our operational metrics are exceeding pre-pandemic levels, and we are working to optimize them further, aiming to reduce split shipments, minimize returns and damages, and streamline fulfillment processes. From a cost perspective, we are committed to maintaining a lean headcount and utilizing AI tools for productivity improvements where beneficial. Additionally, our in-house marketing teams are exploring ways to maximize ROI and create a substantial impact with lower investment. In summary, while existing macroeconomic and geopolitical uncertainties are a major focus, volatility is not new to our industry, and we have confidence in our ability to adapt and navigate whatever challenges arise. Therefore, we maintain an optimistic outlook for 2025, planning to gain market share, enhance customer experiences, and deliver strong earnings. Our commitment to our three key priorities remains steadfast. Turning to guidance, I would like to outline our current assumptions. We are reaffirming the outlook shared in the previous quarter. Our guidance reflects our current knowledge and does not assume significant upside or downside from broader macroeconomic factors. As previously mentioned, our guidance takes into account our ongoing initiatives and the existing tariff environment, which includes the previously discussed tariffs and the additional 30% China tariff along with a 10% global reciprocal tariff. It does not consider any new tariffs. If future tariffs change significantly, we will reevaluate our guidance. For fiscal 2025, we continue to project comparable brand revenue growth to be flat to positive 3% and an operating margin between 17.4% and 17.8%. Regarding tariffs, we have actively and aggressively managed these new costs through our six-point plan, which includes several key actions. First, we have successfully secured cost concessions from our strong vendor community, which involve not only reductions on current product pricing but also on new products we are developing for the future. Second, we are sourcing goods from lower-tariff countries and further reducing reliance on China. Third, we are identifying additional supply chain efficiencies. Fourth, we are cutting SG&A expenses through strict cost control and financial discipline. Fifth, we are expanding our made-in-the-USA assortment and partnerships. Lastly, we are strategically implementing select price increases on products to maintain strong value while keeping competitive pricing. We believe this six-point plan will allow us to absorb the additional tariffs since our last update while still reaffirming our annual guidance. Now, let’s review our brands. Pottery Barn achieved a positive comparison in Q1, with a 46.7% increase over the past five years. The brand is enhancing innovation in its product lines and launching more collaborations, including four strategic partnerships in the quarter with Cravis, LoveShackFancy, Monique Lhuillier, and Mark Sykes. Pottery Barn is also seeing strong performance in seasonal offerings, and we are pleased with the results from Easter and Valentine's Day. We believe we are well-positioned for the remainder of 2025 thanks to increased new offerings, exciting collaborations, a focus on seasonal decorating and entertaining, and strong design services. Pottery Barn Children's business reported a 3.8% increase in Q1, marking five consecutive quarters of positive performance, and a five-year growth rate of 27.8% for Pottery Barn Kids and Team combined. These life-stage categories have shown resilience in a challenging macro environment. Product introductions—from baby to dorm—were key growth drivers in the quarter, receiving positive customer responses to items such as our latest Modern Baby collection and our best-ever Easter baskets and decorations. Collaborations have been a growth area, and we expanded our collection with Aaron Lauder across the Kids and Team brands. Our LoveShackFancy collaborations are gaining popularity with new styles in nursery and dorm. Innovation extends beyond products for us; we are also revamping channel experiences. We've launched tools to inspire baby registry online and increased our take-at-home-today offerings in our stores. Additionally, we expanded our dorm offerings and services in-store and online, including campus pickup at over 450 participating Williams Sonoma Inc. stores and, for the first time, a concierge service for dorm deliveries. We are encouraged by customer feedback on our product and service innovations and have a solid pipeline in place for continued growth. Now let's discuss West Elm. The brand reported a slight positive growth of 0.2% in Q1, along with a five-year growth of 44%. We are making strides in line with the brand’s four key pillars: product brand, channel excellence, and operational efficiencies. West Elm is focusing on non-furniture categories as part of its total assortment, achieving positive comparisons in areas such as lighting, bath, kids, and textiles. The brand has successfully introduced new products in all categories, with spring and summer offerings yielding double-digit positive growth compared to last year. In March, West Elm launched an exciting collaboration with award-winning designers Pearson Ward, featuring 165 pieces across furniture, textiles, and decorative accessories. This co-design line received substantial praise, garnering coverage from top publications such as Architectural Digest, Vogue, Domino, Better Homes and Gardens, and New York Magazine, and is on track to be one of West Elm's most successful collaborations to date. Next, let's talk about the Williams-Sonoma brand, which reported a positive 7.3% growth in Q1 and a five-year growth rate of 36.9%. Customers continue to respond positively to our functional and aesthetically appealing products. We are delighted to see that our curation and creation of these items are resonating well. We experienced particular strength in the cookware, entertaining, and housewares categories. The electrics category benefited from launching Breville Brass, an exclusive line of kitchen appliances featuring cutting-edge technology with bold brass accents, and our new butter-yellow KitchenAid stand mixer, also exclusive to Williams-Sonoma, was a hit. Our in-house design teams introduced the Williams-Sonoma Thermo-Clad Copper Pro Cookware Collection in early Q1, which combines the heat control of copper with the durability of stainless steel and quickly became a best-seller. Additionally, we hosted several successful book events with celebrity chefs like Alton Brown, Morimoto, and Michael Symon, and we are eager to continue inviting customers to engage with their culinary heroes at our stores throughout the year. Our Williams-Sonoma Home brand is also progressing well, as we continue to refresh and integrate our furniture assortment into our Williams-Sonoma stores. We have enhanced our offerings of in-house designed textiles, printed bedding, decorative pillows, and occasional furniture pieces. The brand has also benefited from expanding our collaboration with Aaron Lauder, and we believe there is a significant opportunity for Williams-Sonoma Home to disrupt the high-end furniture market. Moving on to B2B, we are witnessing rising success in the hospitality sector with an impressive list of Q1 projects involving brands such as St. Regis, Hendry, Auberge, Sheraton, Hilton, Tapestry, Hyatt House, Weston, SpringHill Suites, and Elamet. Alongside our hospitality wins, the team is also focused on expanding our business into the education sector with clients like Tulane University, as well as sports and entertainment partnerships with organizations such as Gaylord Opryland Waterpark and Live Nation, plus various restaurant projects across the country. Regarding our emerging brands, they continue to show strong growth and profitability. Our Rejuvenation brand is exceeding expectations with another quarter of double-digit growth, driven by continued strength in core categories like cabinet hardware, lighting, and bath, underpinned by our commitment to design-forward high-quality products for home renovation projects. Product innovation is key at Rejuvenation; we recently introduced heritage brass, a new finish inspired by aged metal, across lighting, hardware, and bath, resulting in a strong customer response. We are also expanding into new categories, adding closet hardware and outdoor pillows, alongside double-digit performance from vanities and seasonal textiles. Looking ahead to the remainder of 2025, we are optimistic about Rejuvenation’s ongoing momentum and potential. Mark and Graham is strategically focusing on leveraging frequent gifting occasions and milestones to drive growth. The brand's latest business extensions in Pet and Baby have proven highly successful and have helped acquire new customers. Turning to our newest brand, GreenRow, it experienced strong growth in Q1, fueled by demand for vintage-inspired, colorful products. We are excited to see GreenRow's growth through innovative products and materials, along with exciting partnerships in the coming year. Lastly, regarding our global business, we are seeing strong growth across strategic markets. In Canada, growth is driven by our appealing product offerings complemented by design and trade services. In Mexico, we are expanding with four new store openings this quarter: West Elm in Puerto Vallarta, as well as Pottery Barn, Pottery Barn Kids, and West Elm in another location. We continue to see growth in both existing retail and e-commerce channels. Our UK business is gaining traction, especially within the trade segment, and we are excited to announce the upcoming launch of the Pottery Barn brand online this fall. In summary, we take pride in our strong execution and outperformance in the first quarter. While uncertainty is a significant concern for everyone, we at Williams Sonoma, Inc. will continue to focus on delivering industry-leading channel experiences and cultivating our diverse portfolio of brands. We are an innovative company fueling a robust product development pipeline that positions us as an industry leader with solid financial results. With our focus on our three key priorities—returning to growth, enhancing customer service, and driving earnings—we are well-prepared for ongoing execution in 2025. Before I hand it off to Jeff, I want to express my gratitude to our associates, our vendors, and our shareholders for their invaluable partnerships. Now, I will turn it over to Jeff for a detailed overview of the numbers and our outlook.

Thank you, Laura, and good morning, everyone. We are proud to have delivered Q1 results exceeding expectations on both the top and bottom lines. Our results reflect the three key priorities we outlined for 2025. First, returning to growth: our top line accelerated to a positive 3.4% comp in Q1, driven by innovation and newness across our core brands, double-digit comps in our emerging brands, and strong growth in business-to-business. Second, elevating our world-class customer service: our supply chain team yet again produced efficiencies and, most importantly, improved customer service. And third, our focus on driving earnings: we tightly managed SG&A to deliver strong operating margin and EPS growth. Our results this quarter demonstrate the flexibility, strength, and durability of our operating model to drive market share gains and deliver highly profitable earnings in almost any environment. Now let's dive into the numbers. I'll start with our Q1 results and then touch on guidance for ’25. Q1 net revenues finished at $1.73 billion at a positive 3.4% comp, with all brands delivering positive comps in the quarter. Our revenue comps came in above the high end of our expectations, driven by positive comps in our furniture business and continued strength in our non-furniture categories. With the home furnishings industry contracting approximately 3% in Q1, we gained market share, even as we maintained our penetration of full price selling. From a channel perspective, both the retail and e-commerce channels delivered positive comps, with retail up 6.2% comp and e-commerce up 2.1% comp. As we move down the income statement to gross margin, I'd like to remind everyone that last year in the first quarter of fiscal year '24, we recorded a $49 million out-of-period adjustment, related to prior year's freight accruals. This benefited margin results by approximately 300 basis points in Q1 '24. Q1 '25's gross margin of 44.3% was 360 basis points lower than last year, when including last year's 300 basis point out-of-period adjustment. Without last year's out-of-period adjustment, our gross margin was 60 basis points lower than last year. There were three main drivers behind the 60 basis point decline: merchandise margins, supply chain efficiencies, and occupancy. First, merchandise margins declined 220 basis points due to higher year-over-year input costs, including higher ocean freight and tariff mitigation costs. Second, supply chain efficiencies delivered 120 basis points of savings in Q1. We continue to realize expense savings across manufacturing, warehousing, and delivery from our focus on customer experience and efficiency. Key metrics, including returns, accommodations, damages, replacements, and outbound shipping expense continued to improve year-over-year. And third, occupancy costs were essentially flat year-over-year in dollars and leveraged 40 basis points from our revenue growth. Overall, our gross margin this quarter was in line with our expectations. Turning now to SG&A. Our Q1 SG&A ran at 27.5% of revenues, 130 basis points lower than last year, as we kept a tight lid on expenses. Employment expense levered 60 basis points due to higher revenues and lower incentive compensation. Q1 advertising expense was 60 basis points lower year-over-year. Our in-house marketing team is finding ways to drive more with less spend and is delivering a strong impact while leveraging ad cost. Moving to the bottom line. We delivered earnings exceeding expectations. Including last year's 300 basis point out-of-period adjustment, Q1's operating margin of 16.8% came in 230 basis points below last year, with EPS of $1.85, $0.14 lower than last year. Without last year's out-of-period adjustment, Q1's 16.8% operating margin finished 70 basis points higher than last year, with earnings per share of 8.8% year-over-year. On the balance sheet, we ended the quarter with a cash balance of $1 billion with no outstanding debt. This was after we invested $58 million in capital expenditures supporting our long-term growth and returned $165 million to our shareholders through share repurchases and quarterly dividends. Merchandise inventories stood at $1.3 billion, up 10% to last year. Included in our inventory levels is a strategic pull forward of receipts to reduce the potential impact of higher tariffs in fiscal year '25. Without this pull forward, our inventory levels would have been materially in line with revenue growth. Summing up our Q1 results: We've once again delivered strong earnings for our shareholders. I'd like to thank our talented, dedicated, and nimble team at Williams-Sonoma Inc. for delivering the outstanding results in a remarkably uncertain environment. Now let's turn to our '25 outlook. First, some housekeeping. 2024 was a 53-week year for Williams-Sonoma, Inc. In fiscal year '25, we will report comps on a 52-week versus 52-week comparable basis. All other year-over-year compares will be 52 weeks versus 53 weeks. The additional week contributed 150 basis points to revenue growth and 20 basis points to operating margin for full year '24 results. Additionally, in the first quarter of fiscal year '24, we recorded a $49 million out-of-period adjustment related to prior year's freight accruals. This benefited operating margin results by approximately 300 basis points in Q1 and 70 basis points for the full year. Our guidance for fiscal year '25 will use fiscal year '24 results without the out-of-period adjustment as a comparable basis. As we turn to guidance for fiscal year '25, our message is the same as last quarter. The tariff policy and macroeconomic environment is uncertain. Our focus is on what we can control, executing our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. We're confident in our growth strategies, and we see opportunity to drive earnings from additional supply chain efficiencies and savings across SG&A. Our guidance assumes no meaningful changes in the macroeconomic environment or interest rates, or housing turnover. As a result, we are reiterating our guidance for fiscal year '25. We expect 2025 net revenue comps to be in the range of flat to positive 3%, with total net revenues in a range of down 1.5% to positive 1.5% due to the 53rd week impact from '24. We anticipate operating margins will be between 17.4% and 17.8%, which is materially flat, excluding the 20 basis points impact from the 53rd week in fiscal year '24. Regarding tariffs, we are reiterating our guidance even with absorbing incremental costs from the existing tariff environment. Season costs include the new tariffs in China of 30% and the reciprocal tariffs of 10%, along with the tariffs we spoke about in March, including a 25% tariff on steel and aluminum and the 25% tariffs in Mexico and Canada. It did not assume any other tariffs. The strength of our operating model, combined with our six-point tariff mitigation plan, enables us to maintain our guidance despite the addition of the reciprocal tariffs. Our guidance reflects our best estimates of the tariff impact based upon the tariff outlook as of this call. The current tariff policy is uncertain and has been subject to multiple surprises and revisions. If tariff policy changes, we may need to revisit our guidance estimates. Turning now to capital allocation. Our plans for '25 prioritize funding our business operations and investing in long-term growth. We expect to spend between $250 million and $275 million in capital expenditures in fiscal year '25. This represents a decrease of approximately 10% from prior guidance, as we keep a tight range on all expenditures due to the tariff and macroeconomic uncertainty. We intend to invest 85% of this capital spend in our e-commerce channel, retail optimization, and supply chain efficiency. We remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, we will continue to pay our quarterly dividend of $0.56 per share, which is a 16% increase year-over-year. We are proud to say that fiscal year '25 is the 16th consecutive year of increased dividend payouts. For share repurchases, we have $1.1 billion available under our share repurchase authorization through which we will opportunistically repurchase our stock to deliver returns to our shareholders. Looking further into the future beyond '25, we are reiterating our long-term guidance of mid- to high single-digit revenue growth, with operating margins in the mid-to high teens. Wrapping up Laura’s and my comments: we're proud to have delivered another quarter of strong results for our shareholders that exceeded expectations. While tariff policy has produced uncertainty, we are encouraged by the momentum we see in our business. Our focus remains on our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. We are confident we will continue to outperform our peers and deliver shareholder growth for these five reasons that I've articulated before: our ability to gain market share in the fragmented home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital-first, but not digital-only channel strategy, the ongoing strength of our growth initiatives, and the resilience of our fortress balance sheet, with that, I'll open the call for questions.

Our first question comes from Brad Thomas from KeyBanc Capital Markets. Please go ahead. Your line is open.

I wanted to ask about merchandise margins, and I was hoping you could just address the decline from last year. And for one, just clarify that there has been no change in your high-level promotional strategy? And then perhaps talk a little bit more about how you think about promotions and clearance going forward? Thanks so much.

Thanks, Brad.

Thank you, Brad. Yes, let's do not, I'm going to talk about MMU, and really gross margin as a whole, and I'll do that, and then I'll turn it over to Laura to talk about pricing. Our gross margin in Q1 was 60 basis points lower than last year, but it was in line with our expectations. Our MMU itself was lower from higher input costs, but was largely offset by supply chain savings and occupancy leverage. Two things I'd like to point out regarding the merchandise margin this quarter. First, we continue to see a very high level of full-price selling. Our promotional stance has not changed. We do not do site-wide promotions. In fact, our penetration of full-price selling slightly increased in the quarter. Second, our input costs were higher year-over-year from higher ocean freight and tariff mitigation costs. On ocean freight, we did not see a quarter-over-quarter increase in those costs. Q1 costs were basically the same as Q4, but what we were up against was lapping a very low period in Q1 of '24. On tariff mitigation costs, when the reciprocal tariffs were announced on quarter two, we took extremely aggressive action to get ahead of the tariff impact, and those actions impacted us in the quarter. We will start to see the impact of our six-point mitigation plan later this year. Offsetting this merchandise margin pressure were supply chain efficiencies and occupancy leverage. Supply chain efficiencies delivered 120 basis points of savings in Q1. We continue to realize expense savings across manufacturing, warehousing, and delivery. As I mentioned in my prepared remarks, key metrics, including returns, accommodations, damages, replacements, and outbound shipping expenses continued to improve year-over-year. Occupancy costs of $198 million were essentially flat and leveraged 40 basis points from our revenue growth. Overall, our gross margin this quarter was in line with our expectations. Turning now to SG&A. Our Q1 SG&A ran at 27.5% of revenues, 130 basis points lower than last year, as we kept a tight lid on expenses. Employment expense levered 60 basis points due to higher revenues and lower incentive compensation. Q1 advertising expense was 60 basis points lower year-over-year. Our in-house marketing team is finding ways to drive more with less spend and is delivering a strong impact, while leveraging ad costs. Moving to the bottom line. We delivered earnings exceeding expectations. Including last year's 300 basis point out-of-period adjustment, Q1's operating margin of 16.8% came in 230 basis points below last year, with EPS of $1.85, $0.14 lower than last year. Without last year's out-of-period adjustment, Q1's 16.8% operating margin finished 70 basis points higher than last year, with earnings per share of 8.8% year-over-year. On the balance sheet, we ended the quarter with a cash balance of $1 billion with no outstanding debt. This was after we invested $58 million in capital expenditures supporting our long-term growth and returned $165 million to our shareholders through share repurchases and quarterly dividends. Merchandise inventories stood at $1.3 billion, up 10% to last year. Included in our inventory levels is a strategic pull forward of receipts to reduce the potential impact of higher tariffs in fiscal year '25. Without this pull forward, our inventory levels would have been materially in line with revenue growth. Summing up our Q1 results: We've once again delivered strong earnings for our shareholders. I'd like to thank our talented, dedicated, and nimble team at Williams-Sonoma Inc., for delivering the outstanding results in a remarkably uncertain environment. Now let's turn to our '25 outlook. First, some housekeeping. 2024 was a 53-week year for Williams-Sonoma, Inc. In fiscal year '25, we will report comps on a 52-week versus 52-week comparable basis. All other year-over-year compares will be 52 weeks versus 53 weeks. The additional week contributed 150 basis points to revenue growth and 20 basis points to operating margin for full year '24 results. Additionally, in the first quarter of fiscal year '24, we recorded a $49 million out-of-period adjustment related to prior year's freight accruals. This benefited operating margin results by approximately 300 basis points in Q1 and 70 basis points for the full year. Our guidance for fiscal year '25 will use fiscal year '24 results without the out-of-period adjustment as a comparable basis. As we turn to guidance for fiscal year '25, our message is the same as last quarter. The tariff policy and macroeconomic environment is uncertain. Our focus is on what we can control, executing our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. We're confident in our growth strategies, and we see opportunity to drive earnings from additional supply chain efficiencies and savings across SG&A. Our guidance assumes no meaningful changes in the macroeconomic environment or interest rates, or housing turnover. As a result, we are reiterating our guidance for fiscal year '25. We expect 2025 net revenue comps to be in the range of flat to positive 3%, with total net revenues in a range of down 1.5% to positive 1.5% due to the 53rd week impact from '24. We anticipate operating margins will be between 17.4% and 17.8%, which is materially flat, excluding the 20 basis points impact from the 53rd week in fiscal year '24. Regarding tariffs, we are reiterating our guidance even with absorbing incremental costs from the existing tariff environment. Season costs include the new tariffs in China of 30% and the reciprocal tariffs of 10%, along with the tariffs we spoke about in March, including a 25% tariff on steel and aluminum and the 25% tariffs in Mexico and Canada. It did not assume any other tariffs. The strength of our operating model, combined with our six-point tariff mitigation plan, enables us to maintain our guidance despite the addition of the reciprocal tariffs. Our guidance reflects our best estimates of the tariff impact based upon the tariff outlook as of this call. The current tariff policy is uncertain and has been subject to multiple surprises and revisions. If tariff policy changes, we may need to revisit our guidance estimates. Turning now to capital allocation. Our plans for '25 prioritize funding our business operations and investing in long-term growth. We expect to spend between $250 million and $275 million in capital expenditures in fiscal year '25. This represents a decrease of approximately 10% from prior guidance, as we keep a tight range on all expenditures due to the tariff and macroeconomic uncertainty. We intend to invest 85% of this capital spend in our e-commerce channel, retail optimization, and supply chain efficiency. We remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, we will continue to pay our quarterly dividend of $0.56 per share, which is a 16% increase year-over-year. We are proud to say that fiscal year '25 is the 16th consecutive year of increased dividend payouts. For share repurchases, we have $1.1 billion available under our share repurchase authorization through which we will opportunistically repurchase our stock to deliver returns to our shareholders. Looking further into the future beyond '25, we are reiterating our long-term guidance of mid- to high single-digit revenue growth with operating margins in the mid- to high teens. Wrapping up Laura’s and my comments: we're proud to have delivered another quarter of strong results for our shareholders that exceeded expectations. While tariff policy has produced uncertainty, we are encouraged by the momentum we see in our business. Our focus remains on our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. We are confident we will continue to outperform our peers and deliver shareholder growth for these five reasons that I've articulated before: our ability to gain market share in the fragmented home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital-first, but not digital-only channel strategy, the ongoing strength of our growth initiatives, and the resilience of our fortress balance sheet, with that, I'll open the call for questions.

Our next question comes from Peter Benedict from Baird. Please proceed; your line is open.

My first question is about your pricing strategy. I understand that raising prices is a last resort, but can you explain the philosophy behind maintaining growth in profit dollars for your products? What is your perspective on gross margin rates? I'm trying to grasp how you plan to address tariffs through your pricing approach.

Yes, when we consider pricing, it's not solely focused on tariffs. Over the past five years, our approach to pricing has significantly evolved, leading us to reduce commercial activities within the company. This reduction has benefited our margins and provided customers with stable pricing, allowing them to make purchases without worrying about fluctuating seasonal promotions. Value for consumers is not just about pricing; it also encompasses design, quality, branding, and customer service. While price plays a role, it is not the sole consideration. Thanks to our capability for innovation, strong design skills, and vertical integration, we can introduce unique and exclusive products that competitors do not offer. Additionally, we can negotiate better pricing with our suppliers because we bypass agents and typically purchase in larger volumes. Currently, our pricing strategies are in line with last year's practices as we continually review our product assortment to identify any pricing discrepancies. Adjustments are made on a case-by-case basis rather than implementing sweeping changes to our margin targets or pricing based on costs. Instead, we set prices according to market conditions. Our new products, which form a central part of our strategy, are performing well with favorable margins. In some instances, we’ve identified pricing that may be too low, leading to overselling, prompting carefully considered price increases. We also see room for margin improvement over time by enhancing our markdown rates and clearance margin. Essentially, we're looking to boost regular price sales while improving margins on promotional sales. As we move into this year, I’m optimistic about starting with a clean slate on seasonal inventory, which positions us well.

Our next question comes from Maksim Rakhlenko from TD Cowen. Please go ahead. Your line is open.

So, can you just provide more color on how we should think about merch margins for the rest of the year? Should we assume that the 220 basis point headwind was a high watermark, then it should ease as some of these tailwinds get going? Or is it a rise run rate for us to consider ahead?

As you know, we do not provide specific guidance on revenue lines; instead, we guide the overall revenue and net income. This approach allows us to adapt to changes in the business effectively. We are reaffirming our guidance for fiscal year '25, which indicates that operating margins will remain largely flat for the year, excluding the effect of the additional week from last year. I have previously mentioned that we expect some reduction in gross margin due to tariff pressures, but this will be mitigated by our selling, general and administrative expenses. Importantly, we have various strategies we can employ, including an effective tariff mitigation plan. We are confident in our ability to counteract the impact of tariffs as we implement this plan, which is why we are reaffirming our guidance today. This includes anticipating the additional tariffs we discussed in March, such as the 30% tariff on China and the 10% global reciprocal tariffs affecting many countries. Based on our first-quarter results, where we improved EBIT margin by 70 basis points, we feel assured about our business outlook and believe we can uphold our guidance while managing the increased tariff costs.

Our next question comes from Jonathan Matuszewski from Jefferies. Please go ahead. Your line is open.

I was hoping if you could add some more context to how demand trended throughout the quarter? I think demand for some peers in the industry was down as much as double digits in April. So, curious how your exit rate looked and if you're willing to share any color in terms of how the first few weeks of May are shaping up?

Yes, Jonathan, while we don't typically discuss the specifics of our comparable sales trends, I can say that we experienced strong results across all our brands during the quarter. Every brand reported a positive comparison, and notably, our Furniture segment showed a positive comp for the first time since the fourth quarter of 2022, marking nine quarters of decline. This indicates that consumers are responding favorably to our products, assortments, marketing, and strategies, allowing us to gain market share. Despite various uncertainties in the market, at Williams-Sonoma Inc., we're concentrating on what we can control, focusing on executing our three key priorities. These priorities have enabled us to achieve excellent results and exceed expectations. They include: first, returning to growth, as evidenced by our top-line performance this quarter; second, enhancing our world-class customer service, which is reflected in our supply chain efficiencies; and third, driving earnings through effective management of selling, general, and administrative expenses.

Our next question comes from Cristina Fernandez from Telsey Advisory Group. Please go ahead. Your line is open.

I wanted to see if you can talk about resourcing. So, China was 23% of your goods last year. How are you thinking about reducing that exposure? Is there any targets you have by year-end or by next year? Can you share where that product’s going? And do you expect any changes to your assortment as a result of resourcing?

Thanks, Cristina. We have always prioritized being proactive and adapting to changes in the trade environment. Even before the tariffs, we significantly reduced our sourcing from China from 50% to 23% over the past few years, and we have made further reductions since then. While certain product categories are still strong in China, the future of the trade environment is uncertain. The good news is that we now have the flexibility to adjust our sourcing since we source from multiple suppliers for many of our products, allowing us to respond to whatever the long-term tariff situation may become. There are still many uncertainties, but we have already reduced our reliance on China significantly from 23%, and where we ultimately settle will depend on upcoming announcements.

Our next question comes from Seth Sigman from Barclays. Please go ahead. Your line is open.

So, I wanted to ask again about inventory position up 10%. It sounds like some of that is strategic, pulling some of the orders in early. Can you talk a little more about the complexion of that today? And I guess, more importantly, to what extent do you think that may be helping drive conversion and sales, obviously, in-stock can be pretty important to the consumer here, given typical lag time? So, just any color on that would be helpful.

Our inventory at the end of the quarter was $1.3 billion, reflecting a 10% increase from last year. As I mentioned earlier, this includes a strategic decision to pull forward some receipts to mitigate the potential effects of higher tariffs in fiscal year '25, which amounts to about $60 million to $70 million. Excluding this advance, our inventory would align closely with revenue growth. We acted decisively upon recognizing the tariff impacts, especially following reciprocal tariffs, empowering our inventory teams to secure available goods aggressively, both internationally and domestically. We expedited shipments from overseas that were ready but planned for later, and we actively sought out domestic products. We expect this approach to benefit us later in the year as those goods are now accounted for. It’s worth noting that despite the 10% increase, our inventory levels are only up 23% compared to 2019, while our revenue grew by 40% during that period. Unlike fashion and apparel brands, most of our products are core items rather than seasonal, which reduces our markdown risks. If sales decline, we can adjust our strategy elsewhere. We believe this proactive inventory management will be advantageous throughout the year and help offset tariff impacts; it could be considered a key element of our tariff mitigation strategy.

So, Seth, you nailed it. Being in stock is really important to the consumer right now. People don't want to wait, they don't have to wait. Our in-stocks are great and even more importantly, our on-time deliveries are great. So, when you have the right inventory in the right place, you're able to reduce costs; it's all part of the supply chain excellence that we're driving through the P&L that you see in the margin line is part of because the inventory is in much better shape and is in the right places, and we're able to deliver full orders; customers are happy. In fact, the on-time numbers are at an all-time high right now, which is wonderful. It's a customer metric, but customer metrics are the most important metrics to us. On-time delivery is a key part. And then as it relates to in-store, we've been stocking more take-at-home-today products in all of our brands, and it's driving substantial comp. So we're very pleased with that initiative; we thought it would work, it's working even better than expected. And as we said earlier, at the same time, our regular price business is strong, and our clearance inventory as well. So, we're sitting in a good place from an inventory perspective as a summary.

Our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead. Your line is open.

I will split my question into two parts. First, what is your outlook for the year considering that the comparison is currently at 3.4%? Did you anticipate an improvement as the year progresses? Second, regarding tariff mitigation costs, can you clarify if you are currently paying more for products due to tariffs? Have those products been sold, or is it just a capitalized cost that impacts the cost of goods, meaning it may not worsen from this point depending on the tariff situation? Please explain.

Yes. Let's discuss our growth strategy. We have been focused on strengthening our brands, developing new ones, expanding our B2B business, enhancing our design services, and improving our customer service operations because we recognize the importance of growth. Our brands enjoy strong loyalty and are well-loved, but the housing market has affected the furniture industry. This year, our primary goal is to return to growth. We outlined this last year, and we are committed to driving positive momentum. Customer response has been encouraging, particularly to new products, innovations, and collaborations. I believe that few are matching our design quality and value relationship. Our expectations are to outperform the market and gain market share this year, despite the challenging economic environment. We are focusing less on short-term quarterly results and more on long-term growth potential, with the ambition to significantly increase our total company size over time.

To address your second question regarding the tariff mitigation costs, these were specific expenses incurred during the quarter due to actions we took after the announcement of reciprocal tariffs in the second quarter. As I previously mentioned, we implemented aggressive measures that resulted in short-term expenses. We stopped shipments from China, which incurred costs, and we expanded our product assortments, which also added to expenses. All the various steps we took to prepare for the anticipated impact resulted in expenses. However, we believe these actions will yield benefits in future quarters. As discussed regarding inventory, we've proactively brought in a significant amount of goods that are now free of tariffs, allowing us to enjoy that advantage throughout the year. These proactive measures contribute to our confidence in absorbing the additional tariffs, specifically the 30% tariff on China and the 10% global reciprocal tariffs, without altering our guidance. This is why we are reaffirming our guidance today.

Our next question comes from Christopher Horvers from JPMorgan. Please go ahead. Your line is open.

So, can you talk a little bit about how you think about the quarter in terms of all the puts and takes at a later spring? You have a consumer that does react to the stock market, which went through a tough period, but then furniture turned positive, and maybe there were some pull forward in some categories where the consumer got concerned about tariff pricing. So, to what extent do you think the strong comp that you posted was affected directionally to the positive or to the negative? And what do you think is driving furniture that flipped furniture turning positive finally?

There's a lot in there. I'm going to let Jeff start.

Yes. So, my simple answer to the question is what we saw in the quarter is our consumer responding to our strategies, our product assortments, our marketing. We outperformed the industry and gained market share, and that trend has been consistent for several quarters. We don't necessarily think there's pull forward. I mean, there could be, but there's no way for us to quantify that. So, we don't necessarily think that's a big factor here. We are executing on our priorities. We are executing on what we said we have to do. We saw that in the performance across all our brands. Newness and innovation is driving performance in our core brands. Our emerging brands delivered double-digit growth. B2B had a very strong quarter as well. It's our continuing execution on our initiatives and the consumer is responding to it.

Our next question comes from Kate McShane from Goldman Sachs. Please go ahead. Your line is open.

Hi, this is Emily Gosh on for Kate. I wanted to ask about supply chain efficiencies. It looks like the benefit from supply chain efficiencies this quarter was greater than that of the fourth quarter. Could you guys provide detail around what drove this acceleration and then how should we think about the impact for the remainder of the year?

Yes. I mean, supply chain efficiency is, in other words, for customer service. And if you think about Williams-Sonoma, the first thing that comes to mind is service and product, right? That's what you see is smell of amazing aromas in our stores and the incredible displays, and that's who we are. Supply chain efficiencies means that we're able to execute that dream all the way from the inspiration in the store to the product in your home, and we're seeing lower returns and replacements. We're seeing better on-time delivery, less out-of-market share, all the things that have cost to them, and we've been after this for years; we're making great progress. The supply chain team continues to outperform to their expectations, our expectations and there's still more to go because we all know that delivering furniture is very difficult. It's much easier to deliver bathing suits, and those who are going to continue to do it the best will own this category, and I think that people really now trust us and they can count on this, and it’s not only a cost saver, it’s a sales driver.

Our next question comes from Robby Ohmes from Bank of America. Please go ahead. Your line is open.

This is Maddie Zschech on for Robby Ohmes. I was just curious if you could share how much B2B is expected to contribute to comp this year? And maybe any potential update on how you view the size of your B2B opportunity long-term as you expand your book?

Sure. Yes. B2B had nice momentum. We're continuing to build our pipeline with new customers and give our existing customers great new things to buy. We're always developing great new projects, and we see this as a $2 billion opportunity. Thank you for the question.

We are out of time for questions today. I'd like to turn the call back over to Laura Alber for any closing remarks.

Yes. Thank you all so much. Really appreciate your support and being here today, and I hope you have a great Memorial Day weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.