Williams-Sonoma (WSM) Q2 2026 earnings call transcript

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 2nd 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 our updated annual guidance for Fiscal 26 and our long-term outlook.

We believe these statements reflect our best estimates, however, we cannot make any assurances that 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 our Q2 results on a non-gap basis, which excludes the recognition of income from tariff refunds and other tariff-related adjustments.

The amounts in detail of these adjustments, along with a reconciliation of our gap to non-gap results, appears in Exhibit 1 to the press release we issued earlier this morning. Our non-gap results should not be considered replacements for and should be bred together with our gap 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 Elber, our President and Chief Executive Officer.

Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. We had a very strong second quarter. Our comp for Q2 came in at 6.2%, with total revenue growth of 6.7%. This performance reflects strong execution by all of our brands across all of our channels and the hard work of our dedicated teams. I'd like to thank everyone at the company for their commitment to our continued success.

We are pleased that our strategies are continuing to gain momentum. Every brand delivered strong results in Q2. We saw significant improvement in Potter Barn, which had a 5.1% comp. Our William Sonoma brand had a 7.6% comp, and West Elm continued its strong performance with a 6.4% comp. Our children's businesses delivered 3.5% and our powerful emerging brands contributed double-digit growth, and B2B grew 14.5% in Q2 with record breaking demand in the quarter.

As you can tell, these results were broad based. We had strengthened both DTC and retail and positive comps in both furniture and non-furniture with an even stronger furniture comp than in Q1. NUNIS and innovation delivered, supported by our product pipeline strategy.

Collaborations were again a key contributor, and as a result, we gained market share in the quarter and we continued to outperform the industry. Our strategies are driving our success, and they continue to differentiate us from the competition.

Across all of our brands, we have prioritized incremental NUNIS, innovative, higher quality product lines, and more inspiring photography, floor sets, and storytelling, all of which drive full price selling. In terms of profitability, we delivered an operating margin of 17.3%. Earnings per share were $2.10 cents. We delivered this profitability while continuing to manage through a volatile environment, which includes war, ever-changing tariffs, rising interest rates, and broader macro uncertainty.

We continued to compound results quarter after quarter, despite the stagnant housing market and the other uncertain macroeconomic events of today. We believe our strong grants, our execution, and our focus on customer service is why we are delivering and while we will continue to deliver in the balance of 2026 and over the long term. We have always been known for our high-touch customer service model, and we're excited that technology that we are using can take it to the next level. We are improving the customer journey.

We are strengthening product discovery, and we are scaling personalization. We're also continuing to advance our design tools and improve the checkout experience to drive conversion.

And we have recently launched our next AI-powered shopping assistant, Otto, across the Potter Barn family. Otto begins to bring the Adgentic Discovery experience we're building with William Sonoma's Olive to the furniture brands. Both Olive and Otto are helping our customers with product recommendations, and they are increasing consumer engagement with our content design tools and free design service offerings.

AI is an accelerator to our strategy and our productivity. We're using it to drive sales, improve service, and make our teams more effective. So many aspects of our tactile and taste-driven business cannot be replaced by AI. But our processes can certainly be enhanced by it, especially in supply chain and inventory management, and therefore customer service. On the supply chain front, we are pleased to see improvements in our metrics.

Our transportation team has done a very good job at mitigating increasing supply chain costs. There is never a dull moment in the logistics world today, and the whole team has been committed to minimizing the costs of war and fuel pressures by finding offsets, all whilst maintaining our high level of service. Now, before we turn to the guidance, let's talk about tariff refunds.

We're pleased to have received a refund of $200 million. I want to thank the William Sonoma Inc team and our vendor community for all of their hard work navigating the tariff environment. The results that we have discussed so far exclude income of $174 million that we recognized in Q2 from tariff refunds. We are excited to be able to reimburse a total of $47 million to many of our vendors for the discounts they gave us to mitigate the tariff pressures, and another $10 million to our associates to their 401ks for all their work during this difficult time.

Now, let's discuss guidance. We are proud to be raising our annual outlook on both the top and bottom lines. We now expect comparable brand revenue growth of 4% to 6.5%. An operating margin in the range of 17.8% to 18.2%. Our raised guidance reflects the success of our current initiatives and our confidence and our ability to execute and also what we know today about the environment.

Now, let's review our brands. Potter Barn delivered another quarter of significant improvement with a 5.1 comp in Q2. We're encouraged by the continued acceleration in the brand. Customers responding to our merchandising strategy in the brand saw strength across key categories, including furniture, lighting, and textiles. The quarter reflected Potter Barn's continued focus on newness, product innovation, and improving the customer experience across channels.

Customers responded to expanded assortment, new product introductions, and compelling collaborations. At the channel level, DTC continued to gain traction as we enhanced the digital shopping experience and made it easier for customers to discover and shop the assortment. Retail remained strong with customers to continue to engage with our stores, design services, and the in-person shopping experience.

Looking ahead, we're excited about Potter Barn's fall collection and the pipeline of differentiated new products the brand will introduce throughout the back half of the year. We believe Potter Barn's focus on compelling product, strong storytelling, and discipline, execution, positions, the brand for growth.

Now let's turn to our Potter Barn children's business, which delivered another strong quarter with a 3.5% comp in Q2. Growth was driven by product innovation, life stage leadership, and differentiated collaborations.

Love Shack Fancy and Chris Love's Julia remains strong drivers, and newer partnerships, including Pink Palm Puff, an exclusive Nuna, and Love Shack Fancy Collection, generated a very strong customer response. The brand also saw Continuum Momentum and Baby, supported by product innovation, and expanded nursery assortments. Across categories, furniture built on its momentum from earlier in the year, and textiles delivered continued strength.

In Durham, the customer response has also been strong with complete room solutions, exclusive collaborations, and enhanced shopping experience. And we are very pleased with our Relaunch of Dormothi. This new brand is extending our reach with differentiated, functional, style-driven solutions.

Now let's review West Elm. West Elm delivered a positive 6.4% comp in Q2. The brand continued to make progress across products, brand heat, and channel excellence, and the results are compounding. New introductions in both furniture and non-furniture fueled growth with summer and fall Nuna's each delivering double-digit comps. The strength of Nuna's combined with promotional discipline drove full-price selling.

And the strong performance was broad-based across both retail and direct customer. Collaborations continue to be a big part of the West Elm strategy. In Q2, West Elm launched its second Pearson Ward collection with an expanded assortment following the success of last year's debut. Strategic marketing targeted both repeat and new customers drove higher social engagement and earned strong press coverage.

The Emma Chamberlain collection also continues to be one of the brand's most successful collaborations, exceeding expectations, and attracting younger customers. Overall, we are thrilled with the momentum at West Elm. The brand is executing, and we feel good about the opportunity to build on this progress.

Now let's review the William Sonoma brand. William Sonoma continued its strong performance delivering a 7.6% comp in Q2. The brand saw strength throughout the assortment across categories and price points. Our summer assortment was strong with exciting, exclusive collaborations, including Aaron, Sanderson, and the newly launched collaboration with Hail House for both William Sonoma and William Sonoma Home.

Beyond product, our team remains committed to bringing the William Sonoma brand to life through experiences that deepen customer engagement and extend our reach.

We continue to engage customers through culinary events, book signings, and our skill series classes, all of which create meaningful ways for customers to experience our brands and our products in person. Q2 also marked the launch of our 2026 No Kid Hungry campaign featuring celebrity design spatulas from Cher, Shania Twain, and leading food creators.

The annual campaign increases awareness of childhood hunger in America. And together, our customers, vendors, and associates have helped us raise almost 23 million in support of the cause from its inception of the program in 2010.

The William Sonoma brand continues to demonstrate its strength and relevance with sustained momentum across the business through differentiated and exclusive products, compelling collaborations, engaging brand experience, and continued investment in stores and marketing. We are creating more reasons for customers to shop with William Sonoma than ever before. Now I'd like to update you on B2B. B2B had another record breaking quarter growing 14.5% with strength in both contract and trade. The team had an active quarter participating in many new marketing events and trade shows.

We continue to expand into underserved by high growth markets, including cruise ships, senior living and student housing. Notable projects that closed during the quarter included the Virgin Hotel in New York City, Signature Aviation's Miami Executive Airport, the Hardin House at the University of Texas at Austin, the family, apartment and restaurant projects throughout the country. We're encouraged by the strength of our project pipeline across industry segments and remain confident in the momentum our B2B team is building as we head into the second half of the year.

And I'd like to update you on our emerging brands. Let's start with rejuvenation. Rejuvenation delivered another outstanding quarter with a double-digit comp and strong profitability. We saw continued strength across project led categories, including cabinet hardware, bath, lighting, utility and mirrors. Customer acquisition accelerated and we had strong engagement from both consumer and trade customers. And we saw continued momentum across DTC and retail.

High quality and product innovation continues to differentiate this brand. Cab hardware, bath and lighting all reached record levels in the quarter, with customers responding to innovative finishes, expanded assortment, and designed forward collections across the home. Rejuvenation continues to strengthen its leadership in a whole home renovation by combining premium craftsmanship, customizable solutions, timeless design and meaningful product innovation.

Mark and Graham also delivered another strong quarter of double-digit growth with momentum across their key categories. Our new product offerings and corporate gifting strategies were strong. The brand built upon its reputation for beautiful personalized gifts for important occasions. And we saw strong growth in wedding and a successful launch of Mark and Graham dorm.

And last but not least, green row. We continued to be excited by the growth in green row, which also delivered double-digit growth in the quarter. And in May, the brand launched its first collaboration with the New York Botanical Garden, a beautiful collection of textiles to core and furniture, which was inspired by the archives of this historic garden.

Finally, I'd like to talk about our global business. In Q2, we delivered growth across our priority markets, led by Canada, Mexico, and the UK. Performance was supported by continued DTC momentum, expansion of our brands in the UK, and further growth in our design and trade businesses abroad.

In summary, we delivered a very strong second quarter. We drove strong top-line growth, including 6.2 comp, and total revenue growth of 6.7%, with every brand positive comping. We gained market share, and we continued to outperform the industry. We delivered operating margin ahead of expectations, while managing through a volatile environment. And finally, we raised our annual outlook. This quarter reflected the power of our strategy and execution.

We saw strength across brands, channels, furniture, and non-furniture, B2B, and emerging brands. We saw significant improvement in Potterburn, continued strength in West Stone, and the Williams Cinema brand, and strong momentum across our children's business. Our business is broad and diverse. A strong national real estate market, with more turnover, would certainly be a tailwind for us. But I believe that we have now proven that our business can succeed regardless of the housing market. Our goal is to continue to execute and build on the current strength of our business, quarter after quarter, and year after year.

We're also continuing to invest in the customer experience using technology and AI to support our strong teams. We feel good about the first half of the year, and we remain confident in our priorities and strategies for the remainder of 2026. And while the external environment can shift quickly, we are prepared to navigate volatility and keep delivering. And with that, I want to thank our teams again for their hard work and their commitment.

And I also want to thank our vendors and our shareholders for their partnership and support. And finally, a huge thank you to all of our customers for shopping our brands. And now, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail.

Thank you, Laura. And good morning, everyone. Q2 was a quarter of acceleration. Our comp accelerated to 6.2%. We grew earnings per share to the peak of the tariff impact, and we are raising our outlook for the year on both the top and the bottom lines. I'll cover three things this morning.

First, the IEPA tariff refunds. Second, our Q2 results. And third, our raised guidance. I'll start with the IEPA tariff refunds, because they are the largest driver in our GAAP results and need the most explanation.

First, what we received. As disclosed in our first quarter 10Q, we filed for $198 million of IEPA tariff refunds. In the second quarter, we received $200 million, including interest. As of this call, we have received substantially all of our refunds.

Second, we have ran through the income statement this quarter. We recognized $174 million into income. $168 million of that was recorded as a reduction in costs of goods sold, and $6 million was booked as interest income. Against that, we are using $47 million to reimburse many of our vendor partners for discounts that gave us to mitigate the IEPA tariffs.

We also recorded $10 million in SG&A for a one-time contribution to all eligible employees 401K accounts in recognition of their efforts navigating the IEPA tariffs.

So net net, approximately $117 million of benefit to second quarter GAAP pre-tax results. Third, what is still to come? An unrecognized benefit of $29 million was recorded as a reduction of inventory on the balance sheet, and will flow through gross margin in the third quarter as the related inventory is sold.

Finally, the presentation in our financial statements. These refunds are one-time and material, so we have excluded them from our second quarter non-GAAP results, and we plan to do the same in the third quarter. That will give investors a clean, comparable view of the operating business across fiscal 25, 26, and 27.

The full gap to non-GAAP reconciliation is in our press release. The second quarter operating results and guidance I discussed from here are all on a non-GAAP basis. Turning now to our second quarter results.

Second quarter net revenues were $1.96 billion, up 6.7% year over year. Comparable brand revenue accelerated to 6.2% from 4.8% in the first quarter. The growth was broad-based.

Furniture led the quarter, and both furniture and non-furniture posted positive comps. All brands posted positive comps, including double-digit comps across all our emerging brands, as well as business to business. By channel, e-commerce comped up 6.5% and retail up 5.5%. Here's the thing I would highlight.

The home furnishings industry was essentially flat in the quarter, so effectively all our growth was market share gain. And we took that share while increasing our penetration of full price selling.

We are driving growth and market share gains without discounting. Moving down the income statement, Q2 gross margin was 45.5% down approximately 160 basis points versus last year. Merchandise margins declined approximately 230 basis points, as tariffs impacted our weighted average cost of goods sold. As we've guided, Q2 was the peak of the tariff impact on our gross margin.

From here, we expect the pressure to moderate. Offsetting this tariff pressure were 70 basis points of supply chain efficiencies and occupancy leverage. Supply chain efficiencies, including a lower shrink accrual, delivered approximately 30 basis points of benefit, despite the headwinds from higher fuel prices on transportation costs. An occupancy leverage approximately 40 basis points, with our top line growth more than offsetting a 3% increase in occupancy dollars.

Overall, our gross margin landed in line with our expectations because our accelerating growth and supply chain efficiencies absorbed roughly a third of the hit from tariffs.

Turning to SG&A, Q2 SG&A ran at 28.2% of revenues, approximately 100 basis points of leverage versus last year. Employment expense leveraged 120 basis points. Roughly half of that is due to our discipline payroll management and the balance from incentive compensation.

Advertising expense was 7.4% of revenues, 10 basis points higher year over year. Strong returns on our advertising spend throughout the quarter gave us confidence to continue investing, especially in more content-length channels, like social, collaborations, and influencer partnerships.

General expense delivered approximately 10 basis points. On the bottom line, operating income was $338 million, up 3% year over year, with operating margin at 17.3%. Deluded earnings per share was $2.10, up 5% year over year. I want to underline what that means.

We grew operating income, and we grew earnings per share through the peak quarter of tariff pressure. On the balance sheet, merchandise inventories were $1.45 billion, up 1% to last year. Revenue was up 6.7% on inventory up 1%. We are chasing inventory in our bestsellers, across both core and newness. During the quarter, we invested $58 million in capital expenditures to support our long-term growth, and we paid $90 million in dividends, a 15% increase year over year.

We did not repurchase shares in the quarter. Year to date, we have repurchased $288 million of stock, or approximately 1.4% of shares outstanding, and we have approximately $1.1 billion remaining under our authorizations.

Summing up the quarter, we accelerated the top line. We took share in a flat industry, and we grew earnings through peak tariff pressure. I want to thank our team for their execution this quarter. They are the ones making these results happen, and they deserve the credit.

Now to our outlook. Based on our results and the momentum in our business, we are raising our foliar guidance on both the top and the bottom lines.

On the top line, we now expect comparable brand revenue growth of 4% to 6.5%. With total net revenue growth of 4.7% to 7.2%. On the bottom line, we now expect operating margin of 17.8% to 18.2%. Note that with both the top line and bottom line guidance, we have raised both ends of the range. Our guidance continues to assume no material changes in the macroeconomic environment, housing turnover, or interest rates.

We are still not building in a housing recovery. Now I'd like to update you on three topics related to guidance that I know are top of mine. Tariffs, oil, and diaper refunds.

First, tariffs. Our guidance reflects all tariffs in place as of this call. The Section 232 tariffs. The existing Section 301 tariffs. The new Section 301 tariffs announced on July 23rd and the latest round of tariffs between Canada and the US. As I said earlier, Q2 was the peak. We continue to expect the impact to moderate across the back half as we begin to comp the tariffs we paid last year.

Second, oil. Higher oil prices continue to pressure transportation and supplier costs. Fuel prices near today's levels are embedded in our guidance. And we continue to work with our suppliers to offset and reduce costs. The direction of oil prices is difficult to predict. Our guidance reflects our best estimate of the impact.

And third, IEPA refunds. To be explicit, our guidance is non-gap and does not contemplate any benefit from the IEPA refunds or the related interest. The raise you see is operational. Below operating income, we are guiding full-year interest income of approximately $25 million in a full-year effective tax rate of approximately 26%.

On capital expenditures, our guidance is unchanged. We expect to spend approximately $275 million on capital expenditures for the year. About 95% of that investment goes to retail, e-commerce, and supply chain. We continue to expect year-end store count to be essentially flat to last year, after which we anticipate 1 to 3% store count growth each year, beginning in fiscal 27.

Embedded in our fiscal 26 guidance continues to be approximately 70 basis points of non-comp growth from our retail investment. On returning cash, we will continue to pay our quarterly dividend of 76 cents per share, a 15% increase year over year. That marks our 17th consecutive year of increased dividend payouts. And we plan to continue to repurchase shares opportunistically against the $1.1 billion remaining under our authorizations.

Looking beyond fiscal 26, we are reiterating our long-term outlook. Mid to high single-digit revenue growth with operating margins in the mid to high teens.

This quarter, we operated at that algorithm while absorbing the peak tariff impact. Wrapping up, the five reasons we are confident we will continue to outperform our peers have not changed. But this quarter gave you fresh evidence for each of them. One, our ability to gain share in a fragmented industry. The industry was flat, and we comped 6.2%. Two, the strength of our in-house proprietary design.

Full price penetration went up with all brands driving positive comps. Three, the advantage of our digital first, but not digital only channel strategy. E-commerce was up 6.5%, retail up 5.5%. Four, the ongoing strength of our growth initiatives. Business to business, emerging brands, and our retail investment are driving growth.

And five, the resiliency of our fortress balance sheet. No debt, inventory up 1% on revenue up 6.7% and 1.1 billion of repurchase capacity in reserve.

With that, I'll open the call for questions.

Great questions. Thanks, Kate. In terms of our brand strategies, we're very pleased to see all brands making progress and driving growth. And I really believe that's because we're approaching them similarly in terms of the initiatives to drive growth. So, you know, as you mentioned, one of the key ones is product. We're also going after the other things that I'll talk about in a second, but back to product, every category, every brand we look at constantly and are looking at how do we improve vis-a-vis what we had last year and vis-a-vis the competition and bring innovative, relevant products to market.

And we've really been focused on making sure that the quality is higher than our competition and that we are at better and competitive pricing to our competition. And that also is, you know, part of the strategy that we've been firing on all year and that has been working. But in terms of specifically innovation and newness, there's still a lot of opportunity, frankly. I mean, we're happy with the numbers, but there's still a lot of categories that we think we can do a lot better in. We're very self-critical and we can see the white space very clearly. So, as much as we've done well and we're thrilled to see the broad base results across brands and particularly furniture coming around, there's still categories where I'm quite critical and the teams are working hard to improve and bring even better product to market.

As we look at the back half, we get after some of those categories more than we did in the front half. And then also we do have some very exciting collaborations coming that I can't talk about, as you said. But what we try to do is make sure by brand we have exciting collaborations every season. We are quite aware of what we had last year. And also it's interesting to watch some of the names we've had for a long time continue to outperform. And those collaborators work hard with us to bring new and exciting things to the customers that they already attracted. And in many cases, with these collaborations, whether it's Emma Chamberlain or Love Shack Fancy, we tend to sell out quickly.

So it becomes an opportunity with the next season to bring in and have more stock again for those customers. But the other thing that's important is the work that we're doing on the storytelling and the channel execution is helping not only, it's not just the newness, it's the core. So the core product is being lifted by the newness strategy, but also by the channel strategies and the storytelling strategy. So we're seeing it not in just one category. We look at newness year on year. We look at non-comped newness that was not new this season, but new last season. We look at core, we age the core, and we call that our layer cake.

And we're thrilled to see strength and improvements across the layer cake. And when you have newness like we do that's working, it's also exciting because in the home furnishings business, you know, different than fashion business, you can really build on it. So you start to see a new trend. You run out of some of the key things that, you know, sold quickly, and then you can continue to chase the inventory, but also develop products in the aesthetic, the new aesthetic that's working.

And I'm really excited to tell everybody that we're seeing that what we that was going to work is working and we're excited to build on it for years to come.

Thank you.

And I know you've spoken to initiatives in the past running improving DTC and even some of the imaging, but maybe you could unpack what you saw in Q2 specifically that that allowed for some of that healthy acceleration. I'd love to. We are seeing improvement across both channels, but in particular DTC, which was lagging a bit, as you mentioned, and we've been very focused on product discovery, inspiration and storytelling there. We've improved the photographic layer, both with AI in our own, you know, in real life shots and have really, you know, if you've looked at the fall assortment, the fall photography, you can see a warmth to pottery barn that is very dreamy and very relevant and very much what you think about when you think of the best pottery barn in your, you know, your mind's eye.

What does it look like? And I think you start to see that in the film that we're showing the customers. The furniture category has really improved, which is a big part of the business and we're thrilled to see that. We have worked on multi-step finishes on our woods and authentic materials and bringing back some more quirky deck hack and patterns and, you know, I think when you go and you go to the stores right now and you go online, you see a brand that has incredible design and quality and the prices are better than the competition.

It really, right now, in my opinion, you start to see what we've been talking about when we say, you know, going back to our heritage aesthetic. And, you know, the other thing that's exciting is that, you know, we mentioned the collaborations. We're launching them all the time. So we launched fall and then a couple of weeks later, we just launched our new Cravit. Please go look at it, especially if you look at it on social.

You'll see the depth of color and, you know, fabrication across categories that Cravit, the Cravit product offers. And then in terms of stores, you know, the other thing that's exciting is our new stores are really performing. Our remodeled, our reposition stores are really performing and that's another part of the flywheel. So in total between iconic product introductions and better storytelling and better DTC, you know, I think that's why we're starting to see the better results.

And as I said earlier, as much as we're pleased with it, there's a lot of, there's a lot more work to do. We look at this stack on a multi-year basis. We expect more. So that's what we're focused on. We are not, you know, doing round off saying we've hit it. We're saying we're on the right path and we expect more.

Okay. That's great. Thank you.

Second, follow up question for, uh, for Jeff, within the, the guidance, the, um, the, uh, even margin guidance that you've raised, um, both at the bottom end and the top end, could you give us the puts and takes around that increases? It's simply a function of the sales increase in the corresponding leverage or other, uh, good guys and bad guys back in there.

Yeah. Good morning. Um, you know, we raise our operating margin guidance to 17.8 to 18.2% reflecting the strength and momentum in our business. And it's not just about the top line. Like you said, there's a lot of puts and takes underneath. There's three points I want to make on gross margin for everybody to consider, um, for the back half. Uh, one is Q two was the peak impact of tariffs on our margins.

We expect the pressure to moderate over the back half as we begin to comp the tariffs we paid last year. Remember, they go comp mid Q three and are essentially comp in Q four. Second thing is higher oil prices. Fuel costs, um, are impacting our overall gross margin. We absorb those in both Q one and in Q two. Uh, and our guidance embeds those higher fuel costs all through the back half.

And finally, I want to remind everyone of the impact the shrink accrual benefit from last year to be a good guy in Q three, but we come up against about 150 basis points in Q four that we have to anniversary that will eat up some of the good guy from from lapping the tariffs. But here's the thing.

We're not including any benefit from the IPA tariff refunds in our guidance. This is purely an operational guide, a purely an operational raise on our guide.

Very good. Thank you so much.

Thank you for the question. You know, I want to say first of all, um, we're so appreciative to have the money back and to be able to reward our employees with part of it. They have done such an amazing job. It was a very chaotic year moving products all over the world and trying to resource them. And teams did a great job also in supply chain offsetting some of these costs that the tariffs, you know, forced upon us.

So we're thrilled about that. It means a lot to the people who have done the work. The second piece is our vendor community has always been our, they've been our key partners and they have been there for us. We have known them for years. We've built our business together and we thought it was really the right thing to do. They gave us discounts.

And when we got the money back, we gave them their money back. And that is a big deal that I think is going to really just continue to further solidify the special partnership we have with them versus our competitors.

In terms of the rest, you know, we're always investing in our business. We look at ROI. You know, we have a very high ROIC and we're always investing where we see returns. And it's not as if we have felt starved in doing so. We have, we have been able to fund the initiatives that we see are important.

And so there's not like some big step up thing that we haven't done already. It more gives us more flexibility. We love cash. So why not have some more? And who knows, we may decide to do something, but right now there has been no other decisions made to deploy any of it in any other way than we would normally, which is just looking at the best returning initiatives that we have to address.

And I'm going to start with just the future. We are not here to give guidance next year. You know that. But I will tell you that we're very confident because our growth strategies are working and so are operational strategies and there's still a lot of runway. When we think about the world of home furnishings and the TAM that's out there, the reality is that no one owns much share.

We are not that big. There's a lot more room. If we have 2% point more market share gains, it's 16 billion more. Right? 8 billion today. So imagine if we continue to gain share, which is what we're doing now, how much there is for us to gain out there with our amazing brands. I don't think anybody else has a better portfolio of brands, you know, aesthetically and across price points and strength and multi channel. And we have enough new brands also that are growing double digits we said earlier to keep feeling the growth. So we'll come back to you on what that growth number looks like for next year, but let's just hold off on a specific range.

On the bottom line, as I said, there's still a lot of room and supply chain. We're seeing opportunity also with, you know, AI implementation in service. And when I think about maybe the biggest opportunity at all of all, it's something that we haven't really put enough. We haven't really deployed much against at all, which is our inventory accuracy.

So as we think about the future, there's, you know, we told you we're going to improve our customer metrics. We've been at it for years. We told you we are going to reduce our promotional selling. We have. That's really been a huge driver of margin. But as I look to the future, I see even, I see very big buckets, including inventory, actually more supply chain, more rag price selling. And then of course leverage on the base with sales.

Okay. So Jeff, back to the back half. The back half and the question about modeling the back half. As you know, Michael, we don't guide the specific ones and we guide operating margin guidance, which we've raised both ends with our higher guidance today.

And I think something I would point out is there's a lot of puts and takes between gross margin. Certainly the tariff impact will lessen over the back half of the year. We still have fuel prices, a way to shrink benefit. But we also know the levers of pulling SG&A to make results happen. The thing I would point out is if you take a look at the midpoint of a higher guide, you'll notice it's actually slightly above last year's operating margin for the back half.

Understood. Good luck. Thank you. Thanks.

Good morning, Chuck. So on cadence, I think everyone knows that we don't provide specific cadence by month. The factors are comps accelerated from Q1 to Q2 on both the one and to your basis. And if you zoom out, we've been positive comp for six years, I mean, sorry, six straight quarters.

And, you know, it's been, it's been pretty steady performance. So it's less about the month to month cadence of the comp and more about the consistency of the comps over time on both the one and two year basis. Pivoting to the store count question, the store count overall will end this year essentially flat, but we will see as we've mentioned enough prepared remarks, 70 basis points of growth from new stores throughout the year. Minded everyone that most of our leases terminate at the end of every fiscal year. So there will be a number of closures at the end of this year.

And then the store count starting in fiscal year 27 and for each year after that, we anticipate growing our store count by one to 3% per year in units. And we see this across all our banners. We have a lot of opportunity. There's opportunity in our big brands like Party Barn. There's still markets that we are not in as well as West Elm.

There's places that we can infill stores, major markets that would be natural for these stores, even the Sonoma brand. And some of the smaller brands like kids and team, there's still places that were underrepresented. And in terms of rejuvenation, we will slowly and methodically build out the rejuvenation brand. It's important to us to get the right location and to build over time. We still believe that that brand can grow into a billion dollar opportunity.

And we believe retail is one piece of that puzzle to get them to a billion dollars, but we'll do so very strategically and methodically.

Yeah. Thanks, Jonathan, for noticing the great results in Sonoma teams been really delivering really across all categories, all kitchen divisions, positive food showing some nice improvement from Q1. And then the other thing that is very small but exciting is we're finally seeing some fantastic results from Liam Sonoma home. Meaningful results, this quarter with both furniture improving, but also the littles improving which drives customer acquisition.

So in terms of product and innovation, we have a lot more exciting launches to come. We have some key launches that we're building upon. And we've had these collaborations. Hill House was was great. You know, we have Oakville grocery. We've done some really great stuff with La Cruze recently. And you know, we've also been very involved with community and showing up in places where the tastemakers are.

And, you know, one of the collaborations that I love that's not new but has a new layer on it is Sanderson that you should look at. It's really beautiful.

You know, and so as you look across the product and innovation, you see a lot of wins. And then when you look at the customer and brand initiatives, whether it was bottle rock or, you know, what we did at Nantucket by Design or no kid hungry, we're very involved in being where our customers and where the chefs are. And there's a lot of good vibes going with the Williams Cinema brand that I think you can't put a price on in terms of how people see the brand and their excitement in coming into our stores.

Thank you.

I wanted to go back to the collaborations which seem, you know, the driver of market share gains with along with everything else, but is there a way you could size for us the impact of collaborations in the business? I guess that how that has changed over the past couple of years or year of a year, whether it's the number of collaborations you're doing or the percentage of sales just trying to get a sense of their business on the brand. Thank you. Yeah, I would say it's the icing on the cake.

You know, it's not, it's not going to make the comp in and of itself, but it certainly brings, it's a noticing value. It brings new customers in when done right, you know, they get to, we get to attract their customer base because the collaborators have their own following that may not necessarily be our following. So that's good, both short term and long term. Emma Chamberlain, for example, has brought younger customers to the West Elm brand, which is fantastic.

And not to mention, you know, she had such great clever product that sold at multiple price points from furniture. It's a deck act that everyone could come in and get a piece of it. And so, you know, you see it hit on new customer acquisition. You see it be a traffic driver at a social buzz. And it is sales, you know, I mean, but it's, it's not, you know, as I talked about that layer cake and the way it breaks down.

It's, it's not, it's not the bulk of, of the comp. It is in some businesses bigger. So in kids and teen, which have been at it the longest, they have some mega collaborations that do very well. Roller bat rabbit and well, Shaq Fancy and Harry Potter, which just came back. You know, these are, these are big long term developed collaborations, but the other brands are just getting going.

And it's so fun also for our internal teams to be able to think about a different aesthetic for the brand or something they might not have designed. It's just, it's exactly what it sounds like it is, which is, it's fun. It's fun for us and it's fun for the customer and it's, it's resulting in good numbers.

Yeah, sure Steve. So, you know, we raise our top line guidance from comps of two to six percent to comps of four to six percent. We have a strong product lineup as Laura's been talking about, exciting collaborations that drive buzz and a lot of momentum and growth initiatives. And as you know, we don't guide the specific quarters. I would just point to the framework as I usually do. The midpoint of our range reflects a continuation of our current one into your trends.

The high point of the range reflects some continued acceleration, those trends driven by strong traction in our initiatives. And if we have a really strong holiday, we would wind up there alone to the guide, kind of paints just less traction in our initiatives and maybe a softer holiday. But overall, I think the punch line is our business is strong. It accelerated from Q one to Q two. And as a result, we've raised our guide.

Thanks. As I think everyone knows, B2B has been one of our key initiatives. And I just want to recognize the B2B team for their outstanding contributions, particularly this quarter. They delivered overall double digit growth of 14 and a half percent. In fact, it was our largest quarter, largest volume quarter to date. To answer your question, contract grew 20% and trade grew 12%.

So we're seeing both spectrums growing. I think everyone knows our focus is on the contract side of the business. It accounted for 36% of the B2B business and we're just getting started. We continue to gain momentum across hotels, restaurants, multifamily, residential, education, sports and entertainment. We do continue to see a clear path to grow to two billion over the next several years. We haven't given a timeline to that. We just continue to capture market share in the 80 billion dollar fragmented B2B market.

Okay. Thank you. Before we end the call, I thought I'm going to ask a question to Samir who's in the room and because he's doing so many exciting things to support both the sales and the profits. What are you excited on technology for Williamson in the back half?

Yeah. Thank you, Laura. Let's talk about AI because the acceleration and results that we saw this quarter, frankly, it's pretty incredible. And I think it's a testament and proof that our strategy is working. And we've talked about this before, but what we're doing is we're taking our advantages, category authority, decades of expertise, proprietary tech platforms and our secret sauce, which is rich first party data that nobody else has. We're connecting it with AI and we're starting to drive some really, really impactful results.

I'll give you a few examples from the quarter. So all of our William Sonoma assistant is a great example. So we've expanded her capabilities. We brought her AI intelligence to customers while they're shopping. This is not just a chatbot. We're bringing this AI intelligence. We're connecting with the customers where they are in the shopping experience. And the results are starting to show since the beginning of the year, engagement with all of is up 700%. Revenue is up 620%.

And customers who engage with all of convert at three times a higher rate. We took the same approach with the potty bar and brands with auto, which we're very excited to say we launched this month. Auto will help you narrow down the right piece for your space. It'll coordinate items that go together, so put a rug. It works room by room. It knows rug sizing, outdoor materials, the way that our associates do. And when the conversation calls for it, it'll book you a design appointment or hand you straight to a potty bar designer.

Exciting capabilities and it's early, but the early results are following the same patterns as all of us. Almost, or actually over 70% of engagements with auto are able to be resolved without handing you over to a person. Similarly, excuse me, e-commerce site personalization is accelerating. A visit where we personalize the experience now generates roughly nine times the revenue of the visit of an average visit.

Last year, that was 2x. So you're seeing that acceleration again. And everything I've talked about so far is customer facing. We're seeing similarly compelling results across supply chain, inventory, merchandising, corporate operations, really, really exciting stuff. And we'll keep building on all this in the back after the year.

Thank you, Samir. Okay. Well, we are now headed off to our favorite season, which is the holiday season. And we are looking forward to having a strong holiday and talking to you guys on the other side of it. Thank you so much for your continued support. It means the world to us and please go shop our stores.