Williams-Sonoma Inc (WSM) 2019 Q4 法說會逐字稿

Welcome to the Williams-Sonoma, Inc.

Fourth Quarter 2019 Earnings Conference Call.

(Operator Instructions) This call is being recorded.

I would now like to turn the call over to Elise Wang, Vice President of Investor Relations, to discuss non-GAAP financial measures and forward-looking statements.

Please go ahead.

Thank you.

Good afternoon.

This call should be considered in conjunction with the press release that we issued earlier today.

Unless indicated otherwise, our discussion today will relate to results and guidance based on certain non-GAAP measures.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the non-GAAP financial measures may be useful are discussed in Exhibit 1 of our press release.

This call also contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which address the financial condition, results of operations, business initiatives, trends, growth plans and prospects of the company in fiscal year 2020 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company's current press release and SEC filings, including the most recent 10-K for more information on these risks and uncertainties.

The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

I will now turn the conference call over to Laura Alber, our President and Chief Executive Officer.

Thank you, Elise, and good afternoon, everyone.

Also on the call with me today are Julie Whalen, our Chief Financial Officer; Felix Carbullido, our Chief Marketing Officer; and Yasir Anwar, our Chief Technology Officer.

Before I discuss our financial results from 2019, I want to start by addressing the rapidly evolving and unprecedented time we are in and the actions that we are taking at Williams-Sonoma, Inc.

From the day this company was started over 60 years ago, taking care of our customers and our employees has been our top priority.

Over the past few weeks, all of our lives have been impacted by the spread of the coronavirus, and as the situation continues to evolve, we are following the recommendations of public health officials and government agencies to ensure that we are doing all that is possible for our employees and communities to remain protected while continuing to serve our customers in creating a comfortable and functional home as they spend more time in their homes.

I'm so moved by our strong experience and agile teams who are working in new ways to accomplish this.

I'm sure by now you've read that our corporate associates in the San Francisco Bay Area are working from home until April 7 as mandated by the shelter-in-place order that went into effect.

And across our other corporate offices and distribution centers, we are following the CDC guidelines and, of course, increased sanitation measures and cleaning frequency, and we've implemented a voluntary work-from-home option where situations allow.

As you know, we also made the difficult decision to temporarily close our stores in North America with a plan -- and Canada, with a plan to reopen on April 2.

It also goes without saying that are we extremely focused on our financial health.

We believe we are in a strong position with our resilient balance sheet and strong liquidity, a flexible supply chain, a large DTC business at over 56% of total revenues and an experienced team, we're actively planning for multiple scenarios and taking aggressive action to manage our business as this situation evolve.

In our assumptions, we are factoring in the possibility of extended nationwide store closures.

And while we haven't seen a sizable impact on our e-commerce business, and we believe that we will continue to stay strong, we are modeling near-term softness that takes into account an overall decline in consumer demand.

To preserve liquidity, we are suspending all capital expenditures that are non business-critical and substantially reducing our inventory, both immediately and throughout the year.

We are also aggressively cutting operating expenses throughout the company.

These measures will allow us to self-fund our business, support our associates and continue to serve our customers during this time of immense change and uncertainty.

We are also planning flexibility, so we are ready when this pandemic passes.

Given the highly dynamic nature of this outbreak, we've made the decision to suspend our fiscal year guidance.

We are operating in a highly unpredictable environment, which makes it difficult to accurately quantify the financial impact of the coronavirus on our fiscal year expectations at this moment.

We are following the developments very closely and we will promise to update you when we have more information.

The encouraging news is the supply chain disruption we saw as a result of the factory closures in China is abating, and our Asia team are resuming operations.

Now, I'd like to turn back to our financial results for the fourth quarter and fiscal year 2019.

It is important to celebrate our strong year and holiday season, as our success demonstrates the power of our digital-first, design-led platform of strong brands and our high level of execution.

We outpaced the industry with comparable brand revenue growth of 7.6% in the fourth quarter.

West Elm outperformed with a comp of 13.9%; the Pottery Barn brands' resurgence continued with a combined comp of 7.1%; and the Williams-Sonoma brand returned to a growth with a comp of 3.3%.

The drivers of our outperformance included an expanded, more relevant product assortment, new customer acquisitions and further innovations in our customer experience across e-commerce, stores and the supply chain.

Our cross-brand initiatives, business-to-business, The Key and in-home Design Crew also continue to scale and became more impactful accelerators of our growth.

For the full year, we achieved our goal of maximizing growth and maintaining high profitability with top line and EPS growth at the high end or above expectations and operating margin expansion.

It is clear from these results that our continued evolution and innovation set us apart from the competition and that we have a winning combination.

I would now like to discuss our brand performance in more detail, including our longer-term growth strategies.

West Elm, our biggest growth opportunity, continued to deliver standout results driven by strong execution.

We ended the year with double-digit comp growth at 13.9%.

Longer term, we remain hyper-focused on driving incremental growth as we make progress towards our goal of $3 billion in revenues for the brand.

We'll continue to execute on our proven growth strategies across 4 key axis: highlighting our design and values leadership as a competitive differentiator; expanding into product whitespace; driving brand awareness; and scaling growth opportunities across all customers, all channels, including business to business.

In Pottery Barn, into the fourth quarter, we delivered comp growth of 6.7%, with strength across multiple product categories.

Our digital transformation and brand revitalization strategies continued to gain traction, and we had accelerated growth and new customer acquisition growth.

E-commerce led our performance with improving KPIs, including increases in traffic, conversion and product engagement, resulting in double-digit revenue growth.

Our growth initiatives also drove our strong top line performance.

The curated marketplace assortments provide our guests with more choice and our apartment assortment of smaller space solutions has converted new younger customers.

We're also laying the foundation with an increased assortment of contract grade furniture, contributing towards our business-to-business growth initiatives.

Our Pottery Barn children's business also delivered its strongest performance in recent years, with a 7.9% comp in the fourth quarter.

We saw excellent results across our expanded offering of Green Gold (sic) [GREENGUARD Gold] certified furniture and organic cotton bedding, further solidifying our leadership in sustainable home products for kids.

And our expansion across life stages and aesthetics continue to be key drivers of growth.

We are confident that over the longer term, our strategies across product leadership, digital growth and customer acquisitions will continue to differentiate our children's home furnishings in the marketplace and drive accelerated growth in the brand.

In Williams-Sonoma, we are so proud of our results in the fourth quarter, we drove a positive comp of 3.3%, reversing the trend of the first 3 quarters.

We saw particular strength in electrics, cutlery tools and food, and our Williams-Sonoma branded and exclusive products continue to resonate with customers will remain a key growth initiative in the years ahead.

We are encouraged the execution against our transformation plan, including the introduction of new content-rich experiences online as well as further reductions in inventory levels and low-volume SKUs drive profitable sales growth.

Our focus has been on implementing changes in the brand that drive profitability, such as inventory optimization, expense management and evolution of our real estate strategy.

We're also focused on relevant, inspiring content-driven experiences.

Our emerging brands, Rejuvenation and Mark and Graham ended the year with another quarter, also, of double-digit comp growth as they continue to scale and attract new customers.

In our global business, we continue to see strength in our company-owned Canada e-commerce and U.K. operations.

In addition to the success of our individual brands, our cross-brand programs also continue to scale.

We ended the year with over 9 million customers enrolled in our cross-brand loyalty program, The Key, while our complementary design service, Design Crew continued to be a significant revenue driver, representing approximately half of our sales in our stores.

Together with our increasing efficiency in our digital advertising spend, we drove double-digit growth in e-commerce traffic, revenues and new customers for the fourth quarter.

And for the year, our e-commerce revenues reached in the -- all-time high at more than 56% of annual revenues.

This reflects our ability to innovate, adapt and lead in a retail landscape that's increasingly digitally-led.

Our business-to-business division also delivered another quarter of accelerating double-digit growth.

In 2019, we had several key wins that established an important foundation for our future growth and show the appeal of our differentiated value proposition to corporate clients.

Looking ahead, we'll continue to work towards realizing a $2 billion revenue opportunity we see in the B2B market.

Critical to the success of our growth initiatives is our continued focus on delivering a best-in-class experience for our customers.

In the fourth quarter, we improved our digital experience with more storytelling and selling content on our product information pages and further optimization of our site navigation.

Also in the quarter, we implemented more functional improvements to our Outward-powered Design Crew Room Planner, as we continue to see strong correlation between Room Planner usage and sales.

Looking ahead, we will continue to push forward a growth-focused technology portfolio that further differentiates us in the market.

Our data and experimentation platform will enable us to be more agile in identifying and executing opportunities.

And our fast maturing machine learning capabilities will drive hyper optimization and automation for our business.

In the supply chain, we drove more operational improvements, which contributed to another year of strong profitable growth and very importantly, better customer service.

Within our in-home furniture delivery network, we made important strides in increasing customer visibility, which led to another year of improvement in our home delivery service rating to an average of 4.86 out of 5 stars.

In the years ahead, we will continue to find opportunities across the supply chain to reduce costs and further improve the customer experience.

And now I'd like to update you on our sustainability initiatives, which are more important now than ever.

During the past year, we're proud to be recognized for the third year running as one of Barron's 100 Most Sustainable Companies.

We also made important progress in our social impact supply chain programs across our brands.

In the fourth quarter, we launched a new Fair Trade Certified factory, bringing our total to 16 factories and expanded our worker well-being programs offering vision screening and glasses for factory workers in Vietnam.

And Pottery Barn Kids became our third brand to launch products with the Nest Seal Ethical Handcraft.

We will continue to build sustainability into every corner of our company so our continued financial success will enhance the lives of our many stakeholders, the communities where we have a business presence and the natural environment upon which we all rely.

In closing, I would like to thank our associates for all their hard work and for their continued commitment to serving our customers as we navigate the challenging year ahead.

Times like these remind us that community comes first.

As our lives change in remarkable ways, we are focused on maintaining the financial health of our business to support our associates, customers and communities during this unprecedented time.

For now, we hope you and your families stay safe and healthy, and we'll keep you updated as we know more.

I'd now like to pass the call over to Julie Whalen.

Thank you, Laura, and good afternoon, everyone.

I want to start by discussing what our team is doing to navigate the challenges in the wake of the coronavirus outbreak.

As Laura said, we are making changes to the way we operate to ensure that we maintain our strong financial health to continue to support our associates and customers during this time of heightened uncertainty.

We are preparing all aspects of our business for a number of macro scenarios.

We are cutting all nonessential operating expenses, for example, in advertising, we are focusing only on high ROI initiatives that drive e-commerce traffic and conversion.

In technology, we are prioritizing business-critical projects and deferring all other spend in the short term.

And in real estate, we are delaying store remodels and relocations and working with our landlord partners to reduce rents and other expenses.

We have also eliminated all business travel and other discretionary spend for the foreseeable future.

To preserve our strong liquidity, we are working with our vendor partners to substantially cut and push out our inventory purchases on the year.

We are also suspending all capital expenditures that are non business-critical in the short term, with our current plan being to cut our CapEx by approximately half of what it was last year.

During this time of increasing volatility, it is hard to overstate the importance of our strong cash position, resilient balance sheet and proven cost discipline.

With over $430 million in cash at year-end on our balance sheet and our $500 million line of credit, we believe we are in a strong position to address the short-term challenges ahead.

At the same time, our financial strength and flexibility enable us to opportunistically invest during a market recovery and emerge as a stronger and more resilient business, just like we did in 2009.

Although we are faced with short-term challenges, we believe that with our e-commerce-led business, that's more than 56% of total revenues, and our strong value proposition in the home furnishings category, we will continue to outperform in the longer term.

Now, turning back to our performance last year.

2019 was an outstanding year for our company.

We ended the year on a high note as our growth strategies and strong execution, combined with our multi-brand, digital-first model, continued to drive our outperformance over the holiday season.

For the full year, our results were at or above expectation, with strong top line growth, operating margin expansion and EPS growth above the high end of our guidance range.

Before reviewing our fiscal year 2019 results in more detail, I would like to remind you that our fiscal 2018 results included the financial impact of a 53rd week, which we estimated last year, added approximately $85 million in net revenues and approximately $0.10 in earnings per share for the fourth quarter and the year.

For the fourth quarter, we generated net revenues of $1.844 billion and accelerated comparable brand revenue growth of 7.6%, our highest comp since 2014, driven by strong positive comp growth across all brands and strength in e-commerce, which grew double digits and reached a record high of over 57% of total revenues during the quarter.

By brand, we saw another quarter of breakout performance in the West Elm brand with a comp of 13.9% on top of 11.1% last year.

The Pottery Barn brands continued to gain momentum, accelerating significantly from last quarter with both Pottery Barn and the Kids and Teen businesses close to doubling their comp growth at 6.7% and 7.9%, respectively.

We were also encouraged to see the Williams-Sonoma brand returned to growth in their biggest quarter of the year with a comp of 3.3%, and our emerging brands, Rejuvenation and Mark and Graham, combined, drove another quarter of double-digit comp growth.

Gross margin for the fourth quarter was 37.6% compared to 38.7% last year.

The gross margin deleverage of 110 basis points was primarily driven by lower year-over-year occupancy leverage of approximately 60 basis points, resulting from 1 less week of sales this year.

Occupancy costs were essentially flat to last year at $181 million and 9.8% of revenues.

Excluding this occupancy impact, the remaining deleverage is due to selling margins, which were impacted by higher shipping costs from a greater mix of furniture and dropship sales that are more expensive to ship as well as the impact from the incremental list for China tariffs in the fourth quarter.

We were, however, pleased to see that as a result of higher merchandise margins this quarter, we were able to hold year-over-year selling margin deleverage essentially flat to the third quarter despite absorbing incremental China tariffs.

We also saw another quarter of strong SG&A leverage despite the impact from 1 less week of sales this year.

SG&A leveraged 80 basis points to 26.1% of net revenues compared to 26.9% of revenues last year, primarily driven by employment and advertising leverage from higher sales and our continued cost savings initiatives across the business as well as our overall expense discipline.

We saw lower employment costs primarily as a result of the reduction in force earlier this year as well as from other employment-related cost savings.

We have also continued to shift our advertising spend from catalogs to more efficient digital advertising, which led to another quarter of advertising leverage.

This resulted in an operating margin of 11.6% and diluted earnings per share of $2.13.

On the balance sheet, we ended the quarter with a cash balance of $432 million versus $339 million last year.

We generated $517 million in operating cash flow during the fourth quarter, which we utilized to invest $65 million in the business, and to return capital to shareholders in the amount of $74 million through share repurchases of approximately $36 million and dividend payments of approximately $38 million.

Moving down the balance sheet.

Merchandise inventories were $1.101 billion for a decrease of over 2% compared to last year.

This reflects the ongoing success of our inventory initiatives, which include the expansion of our omni-channel inventory fulfillment capabilities, more in-time frequent flow of inventory from our overseas vendors as well as the continued shift of our business to more dropship and made-to-order inventory.

As a result of these initiatives, our backorder crate rates at inventory turns also reached the best levels we've ever seen.

Now, moving on to some of our financial accomplishments for the full year.

We delivered net revenues of almost $6 billion, driven by comparable brand revenue growth of 6%, which was a significant acceleration on last year's growth of 3.7% and our highest comp since 2014.

As a digital-led company, our e-commerce revenues reached another all-time high at 56.2% of total revenues, with growth accelerating 300 basis points to a 10.2% comp for the year.

Retail comp performance was also positive and accelerated over last year despite an approximate 500 basis point decline in national retail traffic.

By brand, we drove another year of positive comps across all brands, led by a significant acceleration in the West Elm and Pottery Barn businesses.

West Elm, our biggest growth initiative, continued its strong momentum, driving its 10th consecutive year of double-digit revenue growth, while comp growth accelerated nearly 500 basis points to 14.4%, the highest comp for the brand in several years.

Pottery Barn delivered a comp of 4.1%, which is more than 3x higher than their comp last year and their highest comp since 2014.

The Pottery Barn children's business accelerated 170 basis points from last year, with a comp of 4.5%.

Our brand transformation initiatives in the Williams-Sonoma brand are gaining traction, driving a positive comp of 0.4% for the year despite negative comps for the brand in the first 3 quarters.

And our emerging brands, Rejuvenation and Mark and Graham combined delivered another year of double-digit growth.

Our global business grew 5.4% to over $365 million, driven by a double-digit increase in our franchise operations and strength in our Canadian e-commerce business and company-owned U.K. operations.

This strong top line performance, along with the operational efficiencies we drove across the business all year, enabled us to generate operating income of over $500 million and operating margin expansion to 8.6% from 8.5% last year.

As a result, our earnings per share outperformed the high end of our fiscal year guidance at $4.84, growing 8.5% or over 11%, excluding the $0.10 impact from the 53rd week last year.

Furthermore, we are pleased to be able to increase our return on invested capital to 22.4%, which continues to be significantly above the industry average.

We also delivered another year of robust operating cash flow of $607 million, which allowed us to provide strong returns to shareholders of approximately $300 million, including $151 million in dividends and $149 million in share repurchases.

Moving on to our fiscal year 2020 outlook.

Given our outperformance in 2019 and our strong start to 2020, whereby prior to the escalation of the coronavirus for March 11 onwards, we were generating high single-digit comps, including February at 9.7%.

We had planned to provide guidance in line with our long-term outlook.

Unfortunately, given the unpredictable effects of the coronavirus on consumer behavior and economic activity in general, we have made the decision to temporarily suspend our full year guidance.

We believe this is the prudent thing to do given the duration of the outbreak remains largely unknown.

Longer term, based on our strong performance throughout 2019 and at the beginning of this year, we remain confident in our strategies to drive long-term accelerated growth.

Therefore, we are maintaining our longer-term financial outlook with revenue growth expected to be in the mid to high single digits and operating income growth in line with revenue growth.

Before I turn the call over for questions, I want to thank our associates for their drive, their commitment and their hard work.

We are proud of what we've accomplished and the powerful platform that we have built to drive our future growth.

As we look ahead, we are confident that with our multi-brand digital-first model, generating more than 56% in e-commerce revenues, our strong operating cash flow and resilient balance sheet and a proven track record of strong financial discipline, we have a strong platform to address the challenges from the coronavirus outbreak in the short-term and to deliver upon our long-term growth road map.

I would now like to open the call for questions.

Thank you.

(Operator Instructions) We will take our first question from Adrienne Yih from Barclays.

And let me say, great performance in the fourth quarter.

The momentum has been tremendous coming into this year.

Laura, my question is on the e-commerce versus the store channel.

So 56% is in e-commerce and you talk about not yet seeing any impact to that.

Does that include sort of -- I know in the past sort of 5 to 10 days when people have started to actually see demand impact in the impacted regions, if you can talk about that regionally?

And then Julie, very quickly, would you be able to give us any color on sort of the merchandise margin flow-through of perhaps the lost sales?

And the way I'm taking a look at it as we looked at your rent occupancy depreciation as reported in your 10-K that was about 12%.

So I just want to make sure we have that correct.

That's total rent occupancy and depreciation and then sort of adding that back to your gross margin.

So we're getting to about 50% for merch margins.

Just wondering if we're in the ballpark.

Thanks, Adrienne.

So let me clarify my comment about e-commerce.

So we had a great Q4 and then February was just strong.

And pre corona comp was what, 9.6%, Julie?

I mean...

It was, 9.7%.

Yes, 9.7%.

So when you look at it post corona, it came down, but it's still mid-single-digits positive.

And I'm sure that the teams have the information by market, but it's -- regardless of how you slice it, it's holding up.

And there's been some categories people have wondered about our type of business in times like this.

And we're selling stuff for people's homes.

Our food business, obviously, is way up, our cleaning business, our baby business.

And it's, I think, much more resilient than other types of industries, and we happen to have a lot online.

So it's not -- who knows what's going to happen in terms of where that consumer demand goes, but I think we're in a pretty good position with a channel split that we have and also the categories of business that we're in.

And then from a -- to answer your question on the merchandise margins, yes, that's the right way to look at it, take out the occupancy cost, which does include rents and depreciation and all of those costs you list.

Then you get to the selling margin, which we've talked about in the past.

But one thing I would caveat there, however, is the selling margin includes shipping costs.

So you have to come up -- we have not disclosed our actual shipping cost amount, but that would be the one assumption you'd have to pull out which would get you to a higher merch margin.

We'll take our next question from Chuck Grom with Gordon Haskett.

Just a follow-up on the P&L geography.

Just can you remind us how much of your SG&A cost structure is fixed versus variable?

I don't think we've given that in the past.

Obviously, you could probably take a look at the trajectory in the fourth quarter when we have a lot more of the variable costs come into play and come up with an assumption on that.

But certainly, there's the labor associated with retail sales, there's the advertising dollars that are variable.

And so those are probably the biggest buckets that I would say.

Just make sure, though, is that the assumption that we're going to have retail payroll, even if we don't have retail sales.

So it's not -- you can't look at you can't use everything in the past as a proxy for that.

And we haven't made any decisions past the 2 weeks of what we're going to do.

But just -- you can think about that -- and what -- in different models based on extended closure.

That's what we're doing.

Okay.

And just to clarify, you said February was up 9.6%, but to date, you're running up mid-single digits, and that includes both your store business and online?

I said -- no, no, no, I didn't say.

I said that for e-commerce -- so total comp with stores and e-commerce was 9.7%.

And then what I said is e-commerce post corona has been strong and in the mid-single digits.

And in my remarks, I said high single digits pre March 11.

We normally don't give all that detail.

But we figured we'll give it to you because it's real, and I think it helps eliminate what's going on with our business at least.

No, your business is very solid.

So I was just coming over from 5 below.

So I'm a little bit late.

And then just, Laura, just stepping back, I mean, you've been at the company for a long time.

I mean, when you take a step back and think about the consumer's ability to recover from here, how are you thinking about it?

How quickly do you think the consumer will come back?

Or do you think the damage is going to take some time here?

Just curious, when you think about 9/11, when you think about '08, how do you think about today?

So I mean, ask me next hour, I might have a different opinion.

So therefore, we're running multiple scenarios.

So we have scenario one, which was what our budget was going to be, what our guidance was going to be, in that beautiful scenario.

That's unlikely now, but that would be full recovery.

And the question then becomes, when does that happen?

Does it happen this year, next year?

Then you look at a very severe short-term scenario, and then you can make a decision about that recovery after that.

And then you look at prolonged recession.

And so we're looking at all of them.

We're cutting the cost to the most serious scenario immediately, so that we can be ready for the worst and then have the flexibility if things are better.

And we'll take our next question from Kate McShane with Goldman Sachs.

I just was curious if you could give any more insight into the supply chain.

If you knew how much was disrupted when the virus was more prevalent in that area of the world?

What you are still seeing?

And how much of an impact do you think it has to your inventory in Q1 and maybe into Q2?

Yes.

It's amazing, I think, how quickly they recovered.

The teams were very focused.

They had worked out, worked from home very quickly.

And we're very committed to our business, and we're seeing almost regular operations there now.

We had a couple of weeks of delayed products.

And at one point, it was really scary about how long the delay would happen and how would it affect back-to-school.

But a lot of that has abated now.

And we'll take our next question from Peter Benedict with Baird.

Good to hear business great in 4Q and holding up reasonably well here.

As you are starting to see some of the slowing, any concentration regionally or by brand or product category to the extent that you're seeing this start to set in?

What kind of color can you give us on where it's showing up?

Yes.

So I think we're still early days.

Remember, we just closed all of our stores.

So one thing you can bet is we have no store sales.

So that's real.

We are going to -- where the stores where people can operate, we're going to do some service to our customers because they may have to pick something up in-store that was already previously shipped.

So we want to be careful.

We're going to do that in a very sanitary way to keep everyone safe, but that is something that we're going to provide through this time because people need things in our stores, and so we can get them out in some areas right now.

So that's the biggest impact.

Everything else, what I would tell you today could change tomorrow.

So I'd say that and it's been moving so quickly.

I could -- if I had told you what happened 2 days ago, it might not be the same for what happened yesterday.

But there are some categories that are extremely strong.

The ones I mentioned earlier are -- I'm hesitant to go much further with details just because of competition.

So I hope you can respect that, but we are seeing some very interesting trends, and they're not surprising trends, when you think about what's going on there -- it's relevant stuff.

People are -- they're eating at home.

So they're going to be thinking about that space and how to have that be as pleasurable as possible during these times.

We'll take our next question from Brian Nagel with Oppenheimer.

First of all, I'd like to congratulate -- add my congratulations.

Great last year, great start to this year.

So congrats, nice job.

The question I have, as we look at this period now with the store closures -- the stores closed and not knowing really how long it could last, maybe a 2-part question.

How much -- if you look at the capacity or maybe operations of your online business, which are obviously very powerful, how much could that flex up to sort of say, offset what are likely to be very weak sales in stores?

And then the second part is to what extent could you shift your marketing just to almost advertise to consumers that this new, hopefully very temporary, the new operating structure of your company, which is much more online focused?

Yes, sure.

So the stores are closed, right?

So I just want to make sure, when you're modeling that they're closed, you can make assumptions based on your crystal ball and when they'll open.

And that's what we've done.

We've done a few scenarios there.

And so, of course, online is really important, and it's our key channel, and I'm going to let Felix, who's actually on the call, answer the marketing question.

Sure.

So to your question, as Laura mentioned, we are aggressively cutting nonessential expenses throughout the company, including a number of marketing line items.

That said, some are more obvious than others.

That said, we are still continuing to invest in our D2C business, where we see strong results.

How flexible are we?

As a reminder, over the past few years, we've built our own in-house advertising team, which allows us to react quickly to changing dynamics in the market and consumer behavior and even during these times.

So we feel very confident of cutting back where we understand, it's not business-critical and for investing where we see an efficient ROI.

We'll take our next question from Michael Lasser with UBS.

First for Laura.

What signposts are you going to be looking for to reopen your stores?

And second for Julie, it looks like in 2008, you experienced about a 45% decremental margin on the comp declines that you experienced.

Should we be using a similar run rate for decremental margins as we model your business this year?

Signpost to reopen.

I think the obvious ones, are we -- how do we feel about the safety in running stores and how do our people feel?

What are the malls doing?

You just saw that Simon announced mall closures today.

So it's also not totally in our control.

It also could be that the government makes the decision.

So this -- it is my opinion, but I think a lot of this is out of our control.

And I think for modeling and obviously, this is a difficult time to do models.

This is not necessarily exactly like '08 and '09.

We have a situation, obviously, where we've got closed stores here, which is relatively unique.

However, we also have a situation.

We've got strong e-commerce, and we're much bigger on the e-commerce side.

And you've got people that are staying at home.

So again, there could be many different scenarios that come out.

I wouldn't simply model what '08 and '09 had from a flow-through perspective.

So are you saying it should be better or worse than that?

I mean...

We're not -- that's exactly why we're not giving guidance at this time.

And we'll take our next question from Curtis Nagle with Bank of America.

Just a quick first one, I guess, on capital.

So you're cutting the CapEx a little bit, at least for the time being or, I guess, by half, which makes sense.

Have you made any decisions on the buyback?

Would that be suspended or perhaps pulled back?

At this time, we're continually monitoring the situation to determine our best use of cash.

Obviously, in light of the increasing uncertainty from the coronavirus, our priority in the short-term is to maintain our strong liquidity for the needs of our business operations.

However, given the significant dislocation of our stock price relative to our outperformance pre-coronavirus, and our expected accelerated long-term growth outlook of our business, we are prepared to opportunistically buy back our shares under our remaining $575 million share repurchase authorization, when appropriate and when we have more certainty.

All right.

That makes sense.

And then just a quick one on the business.

Specifically looking at the Sonoma brand, we saw a really nice turn in the business, and 4Q seemed to happen fairly quick just looking the past few quarters.

I know you guys have had a bunch of initiatives kind of in place to reaccelerate the business.

But could you maybe parse a little bit more what drove that?

Was it predominantly, again, internal measures?

Was it fallback in competition, strong gifting season, anything you could point to?

Yes, I think we really -- the big difference is we really clarified our messaging and focused on few or more important things and improved our content stories and made them very relevant for the holiday season.

I think we had a strong lineup of exclusive products this holiday season and people respond well to strong merchandising.

So they also had a nice start to the year.

And although they have a larger percent in-store than online than the other brands, we expect to see resilience in Sonoma.

We saw a lot of resilience in Sonoma in '08.

So it's an interesting dynamic for that brand as well.

We'll take our next question from Marni Shapiro with Retail Tracker.

Congratulations.

It was an outstanding holiday and a really strong start to spring, and glad to hear about the people eating at home and hopefully, then they're going to bed and making babies, and will buy Pottery Barn Kids stuff in the future.

Could you talk a little bit about -- I know it's hard to think about store openings and closings for next year, but the landlords seem to be very, I would say, understanding at the moment is the best word.

There seems to be a lot of leverage here.

And could you remind us what percentage of your stores are in malls?

And what your plan is for openings and closings next year as of today?

Yes.

I do think in this time of heightened uncertainty, it's important for us to work together with our business partners and we're fortunate.

We have a portfolio of very high-quality brands and the landlords, I think they realize that not one person can shoulder the burden of this.

And so we'll be looking and working aggressively with them to mitigate this retail store closure.

Because we will be back.

And we're in great malls, and we have great stores.

I'd say that we are delaying remodels as much we can, and we are also delaying our relocations so that we are also not doing that right now.

Were there any stores that were on -- that were scheduled to open, say, in the first quarter that you're still moving ahead with during the second quarter because they're pretty complete?

Or are all openings and closures for the year kind of on hold for now?

There are some that are almost done.

They're not opening, but they're complete.

And then we're moving out as much as we can, say the least, dynamic situation.

Yes, say the least.

We'll take our next question from Jonathan Matuszewski with Jefferies.

Nice quarter.

Appreciate the color on the February performance.

I imagine traffic was the primary driver of the comp slowdown, probably for the first few weeks of March, but any color in terms of average ticket or units per transaction or anything like that?

Basically trying to get a sense of whether the slowdown for when the stores were open, was traffic driven or maybe basket related with the consumer uncertainty?

Yes, sure.

So pre-corona, everything was strong, right?

So I'm talking about when the outbreak really became clearly a crisis, which is about 3/11, to some extent, and then you have the store closure that happened after that.

We saw pretty serious reductions in store traffic.

But in talking to other retailers, our total sales were still -- there's a lot of value there, there was a lot more than you would expect.

It certainly wasn't positive or even close, but it wasn't nothing either.

That's why it was such a hard decision to close because we were holding up pretty well.

Got you.

Helpful.

And then just on the B2B business, that's been a nice contribution to comps recently.

Just update us on kind of your outreach efforts.

And kind of how that may be impacted in an environment with some of those channels experiencing struggles in terms of hospitality or sporting venues and things like that?

Just any update there would be helpful.

People are still proceeding with projects, and we have a lot of things in the pipeline, haven't heard much displacement there yet.

I mean, new quote requests are actually way up.

And we're actively staying connected.

But if you look at the last recession actually, the impact on the B2B market was minimal.

It was down less than 1% over 2008 to 2010 because some of their businesses, they have their needs.

The needs remain to buy furniture and we have an aggressive plan to adapt and continue to accelerate growth and gain market share in this market.

We'll take our next question from Seth Basham with Wedbush.

The question is around your ability to cut costs.

You talked about planning to cut a lot of costs, but if you could provide a little bit more clarity, that would be helpful.

First of all, in terms of your retail employees.

I think I understood that you're paying them for these 2 weeks and you haven't decided what to do thereafter if your stores closed.

And secondly, if you look at the rest of your major SG&A buckets beyond advertising, how much cost do you think you can take out near term?

Sure.

I'm going to pass the plan over to Yasir Anwar to talk about how he's approaching our tech spend.

So I think the good news is that we have been -- proactively, we had some time to be able to plan some scenarios for our capital and expense reduction across the technology works throughout the company.

And as an immediate step, we are aggressively reducing all the capital and expense, which is nonessential.

And focusing on our customers, on primarily e-commerce websites, care centers, supply chain, to keep the things flowing and the business running.

And at the same time, we are going to be balancing.

So that when we come out of this scenario and the community is back up, we are going back to our gear of growth.

So that's the plan -- technology is doing.

We have created a very agile project and financial model to be able to respond by week, by month as needed to be able to work with our flexible workforce we have in technology.

Thank you, Yasir.

In terms of other areas, I think we've talked about the ad costs already.

We talked about our real estate approach.

The other area is inventory.

And while that's capital, you have to receive it when you have to spend money on that, when you bring it in and put it away.

And we're working with our vendor partners to delay a lot of the shipments that haven't left yet.

So we could have a little break and have the appropriate amount for the sales demand that we think we'll see.

We're making good progress there.

We'll take our next question from Oliver Wintermantel with Evercore ISI.

Just a question regarding the fourth quarter again.

If you could maybe give us the comp trends throughout the quarter, if it accelerated into the holidays?

And then secondly, on your Buy Online Pickup In Store or buy online ship from store, where are we in that rollout?

And how has that impacted now that the stores are closed?

Is that completely going away?

Or do you still ship from some of the stores or people can pick it up?

As far as the comp trends, they're actually pretty strong for every month during the quarter.

So it was a really, really strong Q4 for us.

And then in terms of BOPUS, we're still working this out.

We made the decision very recently, but our intention is to keep this running for as long as we can, the BOPUS, Buy Online Pickup In Store, unless there's regulations that you can't operate.

It'll be picked up, as you would imagine, outside curbside.

We'll take our next question from Steven Forbes with Guggenheim Securities.

I wanted to revisit a prior question, right, regarding the potential sales transfer between the channels, you think about stores, the e-commerce during the next couple of weeks.

So I think we spoke about it in the past, but can you remind us what the sales transfer has been when you permanently closed a location in the past in a particular region?

And whether that's sort of a good baseline expectation for us, right, as we begin to conceptualize and model out this year?

So I think that -- I'll give you the information in the past, which is not much transversed, but I don't know that that's as relevant now because it's a totally different situation.

So we'll see if we become the best option to buy those products and there's no other store online.

I mean, there's no other store to go to.

The difference was, there was probably a store in the market, another store you could go to.

And then there's convenience play of stores.

But if all stores are closed, it totally changes the game.

So we'll see how well the consumer holds up.

I mean, my guess is we're going to get a lot of market share out of this, because of our strong e-commerce platform and our brands and our cross-brand work and the relationship we have with our customers.

I think it's times like these where a lot of loyalty is built and people remember how you treated them during tough times.

And that's what we're really focused on.

That concludes today's question and answer session.

Well, thank you.

I appreciate the good questions and your support and your care.

And I really wish you the best with your families and your communities to stay healthy and strong, and strong for everybody around you.

We know these are very difficult times, and I promise you we'll get through this.

And we will come out the other side learning a lot of things about how to run the business even better than before.

Thank you.

That concludes today's presentation.

Thank you for your participation.

You may now disconnect.