Williams-Sonoma, Inc.
Q4 2021 Earnings Call Transcript

Published: 16 Mar 2022

[Operator:]

Welcome to the Williams-Sonoma, Inc. Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

[Jeremy Brooks:]

Good afternoon, and thank you for joining our fourth quarter and fiscal '21 earnings call. 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 guidance for fiscal '22 and our long-term outlook. Although we believe these statements reflect our best estimates and all available information, 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 certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure, along with an explanation of how and why we use these measures appears in Exhibit 1 to the press release we issued earlier today. This call should also be considered in conjunction with our periodic and annual filings with the SEC. Finally, the call is being recorded, and a replay will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura Alber, our President and Chief Executive Officer.

[Laura Alber:]

Thank you, Jeremy. Good afternoon, everyone, and thank you all for joining us. We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points. These results reflect the resilience in our business model as we successfully navigated unprecedented challenges within the supply chain, material and labor shortages and capacity limitations from our incredible consumer demand. This resilience, coupled with continued execution in our growth initiatives fueled an annual comp of 22%, operating margin expansion of 350 basis points and EPS growth of 64% to $14.85 per share. Our 3 key differentiators are in-house design, our digital-first channel strategy and our values continue to provide the framework for execution, both in our core business and in our growth areas like B2B, marketplace, cross-brands and our global business, which excitingly have all gained traction faster than predicted and demonstrate to us that we are well positioned to continue to take share in this industry. First, let's spend some time on our top line performance in the fourth quarter. Throughout fiscal 2021, we continued a deliberate reduction in our site-wide promotional cadence in all of our brands. Instead, we shifted our focus on delivering aspirational and inspirational content, and our customers clearly responded. This pricing power is entirely a function of our differentiated and sustainable product offering that our customers know and love. And further, despite the highly promotional environment in the fourth quarter, we made a conscious decision to maintain this pricing integrity and not pursue incremental top line at the cost of our merchandise margins. In fact, we delivered gross margin expansion of 290 basis points in the quarter. Further, this pricing power has allowed us the flexibility to absorb supply chain costs and aggressively fund marketing efforts. Our bottom line performance in the fourth quarter speaks for itself. We drove operating margin of 21% and a 37% increase in EPS, both of which demonstrate the durability of our earnings power through execution in our core and growth initiatives, which I'm excited to update you on now. Our B2B business continues to outperform, building its book of business to $753 million in 2021. B2B is an underserved and fractured industry. As we continue to take share in this white space, servicing businesses that need high-quality, sustainable furnishings at good price points. Furthermore, our in-house design capabilities offering the wide breadth of aesthetics across our brands, coupled with our industry-leading global sourcing and supply chain operations allows us to take this service to the next level. Our B2B business has tremendous potential to contribute to our results. Our growth targets continue to climb as we unlock new opportunities. And not only is our B2B business model accretive to our gross margin, but even more accretive to op margin as a result of its fixed operating costs. We continue to exceed our own expectations for this business. And longer term, we believe this is one of our biggest opportunities. Another contributor to our success has been our global strategy. We're franchise first with strong retail and digital execution. During 2021, global achieved record revenue up 23% over last year with strong earnings growth. Core company-owned markets of Canada and UK achieved record results for the year and the quarter. Franchise continues to be a growth vehicle with the critical markets of the Middle East, Mexico and India providing a large diverse growth base. With our systems investment in our new digital platform and large cost reductions in warehousing, transportation and delivery, we expect to exceed our record results in 2022. Marketing is another component that sets us apart and drove results in FY '21. Customers who shop across our brands generate 3x to 4x more revenue than the single brand customer. And we've seen incredible results this past year due to our continued marketing efforts. In fiscal '21, approximately 60% of our sales came from cross-brand customers, a record high in terms of percent to total. And our cross-brand customer counts grew faster than those of the single-brand customer. While new customer acquisition is always a priority and continues to grow, we believe we have even more upside by increasing our share of wallet with our existing customer base. Core to this strategy are 3 things

[Julie Whalen:]

Thank you, Laura, and good afternoon, everyone. We are pleased to report another quarter and fiscal year of outstanding financial results with revenues and profits at the highest levels we have seen. The demand for our proprietary products remains strong. Our growth strategies continue to thrive. Our operating model, which is difficult to replicate, continues to set us apart from the competition. And all of these, plus our proven ability to dynamically operate in a complex macro environment, continues to demonstrate that we are well positioned to succeed long term in this industry. Moving to our fourth quarter results in more detail. Net revenues surpassed $2.5 billion with another quarter of double-digit comparable brand revenue growth at 10.8%. These strong top line results were across both channels, including retail at a 20% comp and e-commerce at a 7.2% comp on top of last year's 47.9% for a 55.1% 2-year stack. By brand, West Elm delivered an 18.3% comp on top of 25.2% last year. Pottery Barn accelerated from the third quarter to a 16.2% comp. Williams-Sonoma drove a 4.5% comp on top of last year's 26.2%. And our emerging brands accelerated to a 30.3% comp. In the children's home furnishings businesses, Pottery Barn Kids and Teen, comps were a negative 6.1%. This is below their third quarter year-to-date trend of approximately 20% as these brands were the most impacted during the fourth quarter by the supply chain issues from the COVID-related closure of Vietnam. Moving down the income statement. Gross margin came in at a record 45.0%, a 290 basis point expansion over last year. The strength of our merchandise margins drove almost all or 270 basis points of this expansion. Our strategic decision to preserve our pricing integrity by eliminating site-wide promotions was once again a clear success. This pricing power enabled us to absorb increased freight and product costs, while still delivering strong, profitable merchandise sales. Occupancy costs at 7.7% of net revenues leveraged approximately 20 basis points, resulting from another quarter of higher sales and lower occupancy dollar growth. Occupancy dollars increased 6.7% to approximately $193 million, which includes a full quarter of incremental costs from our new East Coast distribution center to further support our customer demand, partially offset by our ongoing retail optimization efforts from additional store closures and reduced rent. In fiscal year '21, we closed an additional 37 stores and are on track to close approximately 25% of our total retail fleet. SG&A, also leveraged 20 basis points, to a historical low of 24% despite absorbing higher year-over-year advertising costs from our reduced spend last year. Leverage was driven by employment and general expenses, which includes lower incentive compensation during the quarter due to timing and the year-over-year benefit from our ongoing retail recovery, various operational efficiencies during the holiday season and overall strong financial discipline throughout. As a result, we delivered another quarter of record profitability with operating income growth of 28% to $525 million, and our highest ever operating margin at 21%, expanding 310 basis points over last year and approximately 500 basis points higher than our last 3 quarters this year. This resulted in diluted earnings per share of $5.42, up 37% from last year's record fourth quarter earnings per share of $3.95. These fourth quarter results, combined with our outperformance we have seen throughout 2021, allowed us to deliver another year of substantial growth and outperformance. On the top line, these full year highlights include

[Operator:]

. And our first question comes from Max Rakhlenko of Cowen & Co.

[Max Rakhlenko:]

Just curious, on the new businesses, what can you share about how much higher margins those businesses are? And then as they continue to grow over time, how much do you think that they'll contribute to the business longer term and offset any normalization that we'll see otherwise?

[Julie Whalen:]

Yes, these businesses are incredibly accretive to op margin. We haven't disclosed the amount, but it's something that we're super excited about because as you can see, for example, with B2B and the volume that, that is driving. And the bigger piece that is becoming of our comp, it has a significant benefit to the operating margin at the same time into our earnings. And so we're very excited about that growth trajectory.

[Laura Alber:]

I thought, Max, that you were asking the question about some of our smaller brands. And in the case of those brands, they're still so small that there's actually runway for improvement in their profit profiles because we still aren't big enough to get the great sourcing leverage that we do in our larger brands. So they're very profitable as you would imagine, they are today, but they can be -- we see a really strong opportunity to improve these margins further as they grow.

[Operator:]

Our next question comes from Anthony Chukumba of Loop Capital Markets.

[Anthony Chukumba:]

My first question, you talked about the cross brand and you've got, The Key, cross-brand loyalty program. Can you just give us an update in terms of the number of members that you have? If I recall it correctly, last time -- last number that I know it's about 12 million members.

[Felix Carbullido:]

Yes. Anthony, it's Felix. I can tell you, I don't believe we're sharing the numbers, I could tell you that's significantly up. And as Laura said, program to date, life to date were at an all-time high. And with the introduction of the credit card this year, this past August, we're starting to see our dividends pay off in a big way in terms of cross shopping. We believe this is one of our biggest opportunities as a company is increasing our share of wallet and The Key, both from a multi-tender loyalty perspective and the credit card are key drivers for that initiative.

[Anthony Chukumba:]

Got it. And then just if I can get one quick follow-up. Is there any way you can kind of dimensionalize the, I guess, lost sales in kids and teen, given the global supply chain issues? I mean, it's just such a stark slowdown as you pointed out.

[Julie Whalen:]

Yes. I mean I think if you did the math, what I had said on in my script that their year-to-date run rate was about 20%. And -- but for sort of these supply chain issues, we had no reason to believe that their business will remain as strong. So you can do the math on that and come up with how much immense in the fourth quarter. And certainly, had they delivered where they had come in, we would have been at the higher end of our implied guidance. So it was a decent impact to the fourth quarter, unfortunately.

[Operator:]

Our next question comes from Cristina Fernandez of Telsey Advisory Group.

[Cristina Fernandez:]

I wanted to ask, when you think about mid- to high single-digit growth in 2022, how are you thinking about industry growth, if any? Demand for the home furnishings industry versus market share gains?

[Laura Alber:]

Sure. No, we all acknowledge there's a great deal of uncertainty in the world we live in today, from rising interest rates to global conflicts. But what gives me confidence is that we operate in an industry that is really large and fragmented and still more than half of the sales are generated from smaller brick-and-mortar retailers. And this provides us a huge opportunity. And as we enter the endemic, 2 things are clear to us

[Cristina Fernandez:]

And then as a follow-up, but perhaps for Julie, in your -- the ability to maintain the operating margin this year, should we think about the gross margin and expenses, both being in line with 2021? Or will one be better improvement year-over-year versus 2021?

[Julie Whalen:]

Yes, I mean obviously we are not providing guidance on the line items. We're focused on maintaining our operating margin at these incredibly allocated levels. As I think I said, there are more than 2x where we were in 2019. And so our commitment is to be able to maintain these levels. And so through all the different line items that I went we have that opportunity to do it. Some may go up, some may go down. But at the end of the day, because we have the ability to leverage the P&L with the higher sales, we've got the accelerating growth initiatives that I just answered a question about that as those continue to move forward like with B2B, we have the opportunity to drive that operating margin to maintain at the same levels. We've got our merchandise margins that are incredibly strong. And given our proprietary product and vertical integration, we can maintain those despite higher prices on product and freight and supply chain efficiencies and on and on. There's many things, many levers that we're using to continue to maintain these elevated op margins. And so it will depend which line it lands on. But I would say for modeling purposes, I would hold them flat at this point.

[Operator:]

And our next question comes from Chuck Grom of Gordon Haskett.

[Unidentified Analyst:]

This is on for Chuck Grom. My first question is just if you could maybe give us some color on the cadence of demand throughout the quarter? And along those lines, if you've seen any indicators of trade down or fatigue by the customer? And then I have a quick follow-up.

[Julie Whalen:]

Yes. I mean we did see a really strong start to the fourth quarter. We saw a little bit of a dip during the holiday selling weekend where I think that was pretty common amongst most retailers. And then we came out of that even stronger in January and as we've entered into the first quarter, we made a strategic decision to not chase the sales, and that's the reality we could have been much more promotional and we didn't do any site-wide promo. And so at the end of the day, we still delivered, whatever, 10.8 double-digit comps with incredible operating margins and earnings. And so that is what we remain committed to continue to do. And we're just excited to see that, that strength is continuing.

[Unidentified Analyst:]

Okay. And then just a quick follow-up. Did you guys provide a demand comp for 4Q?

[Julie Whalen:]

We didn't, but it's relatively in line. So -- and again, on that, that doesn't mean that we don't have elevated back orders. We still have elevated back orders. We're still encouraged incurring supply chain challenges as Laura alluded to, but the reality is that we haven't been able to bring down those backwards to the level that we'd like. And so therefore, we're continuing to hold those and continue to hold demand in line with net, which obviously, we're always paying attention to. We want the most important thing is our customer and making sure they get the product in a timely fashion. But from a financial perspective, certainly, it's opportunity as those products come in for delivery.

[Operator:]

Our next question comes from Simeon Gutman of Morgan Stanley.

[Michael Kessler:]

This is Michael Kessler on for Simeon. First question, for many retailers because the expectation for 2022 was the transactions or units are probably not growing, but you have price as an offset and a driver. We're hearing anywhere 5%, 10%, 15%, 20% year-over-year price growth. So your sales guy is quite good guiding to growth we're assuming there's maybe a potential for some real price inflation within that, which means units could be down. I guess is that the right framework? And if it is, how should we feel about that? Does it mean there's more risk or more upside to the guide? And doesn't mean if that's true that growth could slow in '23 if pricing normalizes. So I guess what does that tell you? How does that -- how do you frame that?

[Laura Alber:]

Very good question. So as you know, it's really important to us that we provide our customers a product that is well designed, sustainable and the best value in the market, and that's where we've won. Of course, costs have gone up. And so we not only did we stop site-wide promotions, but we've strategically taken price increases carefully where we could. And if prices to us come down, we would give our customers a break on some products because we always want to offer them the best value. Right now, I will tell you that I believe that we are doing that, and that's why our sales growth is higher than our industry and versus our peers. But it's something we're going to stay very humble about and we check it all the time. We're constantly checking our products and our prices versus our competition and innovating to ensure that we have products that our customers can't buy at the competitors. This is a really key part of our strategy. As it relates to units versus AUR growth, I expect, even though we saw increase in units last year to see it to be more flat this year. On the unit growth, that's my expectation. That's what's implied in this guidance. But we are very confident in this guidance for all the factors that we've gone through already, both our differentiator and our growth initiatives and the reality that we have a big back order log that needs to come in sometimes. It hasn't come in yet, but it should come in. And we're thinking unfortunately, and I hate to move the state out constantly, but the supply chain issues continue to be many, varied that we think it's going to be the back half of this year now because you can -- everyone I know, is reading the same news and there's all sorts of things that continue to go on. And so our focus continues to be to really give our customers a great service. And to that point, I have the floor, I'll just also make the comment that we are seeing our customer calls to be reduced and less escalations from our customers. So I think despite these disruptions that we all know are occurring we are still competitively offering faster lead times, and we are doing a good job communicating with our customers or a better job, I should say, communicating with our customers about the push out.

[Michael Kessler:]

Okay. Great. That was all really helpful. If I could just ask one quick follow-up. This is maybe more of a technicality type of question. I think your prior language had been talking about the long-term operating margin guidance being at least levels of 2021. I think now we're saying we're relatively in line, at least for 2022. Obviously, the base is now higher than where it was a quarter ago or you guided a quarter ago. Is there anything on to read into that? Or just kind of basic language?

[Laura Alber:]

No. You got it.

[Felix Carbullido:]

Yes, you got it.

[Operator:]

Now we can go to Jason Haas of Bank of America.

[Jason Haas:]

The first one is just on the B2B business. I'm curious just what trends you're seeing there? And how you're thinking about that in 2022?

[Julie Whalen:]

Awesome. So as we said, B2B grew over 100%, and it just continues to go. I think I've revised my estimates every time I've gotten on this call, I decided not to give estimates anymore because I keep undershooting it. That's embarrassing as well. The market for B2B is enormous. And as I said earlier, no one is really doing a very good job. And so because we have in-house design products, which allow us to do specific product development for our clients and also our supply chain, we can deliver it together and give them a great experience. And just a couple on fund different projects, pipeline book of business. So our stadium and arena work continues to build momentum. We had big projects for the San Diego Padres and the New York Mets. In hospitality, we're seeing a promising and encouraging return of our large Marriott brand standard business. In health care, we're building a strong relationship with a big account. I don't think we can say the name yet, but we're excited about that. We are doing large residential -- working with large residential developers like related companies. And a fun one that I really think is great is Churchill Downs, and we're working with Woodford Reserve on that. And then the last, which is also awesome and really relevant is under Canvas, which is a premier luxury glamping company, and we're furnishing their camps across the country, adjacent to the leading national park. So that just gives you a sense of what we're doing. So there's a new book of business and then there's businesses that just continue to go because we have more units and there's also replacement.

[Jason Haas:]

That's great color. And then just as a follow-up, I wanted to ask about the inventory on the balance sheet being up. I know I think as Julie touched on it in the prepared remarks, but just curious if you could give any color in terms of how much of that is just inventory being stuck out in the ports versus what you have on hand? And just sort of overall how you feel about your inventory position?

[Julie Whalen:]

Yes. I said in my prepared remarks that about 14.8% of the 24% increase is on-hand inventory. So the delta is what's in transit of that 24%. So a sizable portion of it is still on the water. And obviously, there's been some delays in bringing that inventory in for a myriad of reasons that certainly with our scale and sophistication, we're much better at moving through that and getting it in a lot quicker, more effectively than others, but we're not immune to it. And so we're definitely working through those factors. But certainly, we're nowhere near where we want to be. We're not at optimal levels with a negative 13 of on-hand inventory on a 2-year basis. When you look at our sales growth at a 39 comp on a 2-year basis, we have a lot of room to go. And so it's a huge opportunity for the company. And hopefully, by the back half of the year, we'll be in a much better position.

[Operator:]

And the next question comes from Adrian Yih of Barclays.

[Adrienne Yih:]

Congratulations to the entire team, the year was fantastic, the quarter was fantastic. So Laura, I want to go back to the competitive landscape. And I'd like to hear your thoughts on how much of the industry was in sort of small chains, independents, pre-pandemic, where have they gone? And then other competitors, not just name like RH has moved higher pricing and maybe create some white space. So I really, I'm curious, when you say competitors, can you help us understand like who is the national chain that you compete against for West Elm, for Pottery Barn? Because when I think about kind of where people would go, it really comes down to those 2 names and not a lot of others. So that's my first one. Sorry, it's so long winded. And then, Julie, can you help us out with Q1 shaping? It seems like if you look at normal seasonality, there's more opportunity in Q1 from an op margin standpoint.

[Laura Alber:]

Thanks, Adrienne. So I wish there was better market data, frankly. I mean we try to piece it together. But the -- before the pandemic, we saw even higher amount being done on the street with brick-and-mortar retailers, and it was part of a, I think, an Investor Day like 3 years ago that we said it's not going to be 80% done brick-and-mortar. It's going to be moving online. And so even before the pandemic happened, we were talking about the opportunity as people move online to be one of the clear winners online. And so that is about as much data as I have. I mean you can see it in your local towns where it's changed a lot on the street. Now in terms of head-to-head competition, it's really hard to find somebody who does what we do, which is great. But there's a lot of people selling pieces in part. And the big ones that we -- people talk about the specialty people, but truly, we're thinking about the really big ones who tend to have value-priced products that are not anything like our products nor do they put the whole house together. I'm resisting the temptation to call them by name, but you know who they are. And then the specialty retailers, a lot of the specialty retailers first of all, they don't have the same digital capabilities. They don't have multiple brands. They don't have multiple aesthetics. And then also, they don't design their own products, which may appear that they do. They do a lot of other things, I think well. But they don't necessarily have products that you can't find elsewhere, if you try hard enough. And so that's really one of the most important competitive differentiators. And then add to it that there's nobody else who that makes that Baron's list who's in home furnishing, not a one. We're the only home furnishings retailer on the Barron's list of top sustainable companies. And we know our customers care about that. And they'd rather buy from someone who is also sustainable and frankly, they're happy to spend a little bit more because it's important to them to know how their products are made and what chemicals are used and all those things. And we -- you saw us, I hope everybody saw the new impact report that we put out and all the pieces and parts of improving our footprint, and we're certainly not done, but we're going to continue to step it up and announce even bigger goals when we get up to Earth Day, and I'm excited about those goals. So there's a lot of work to be done there, but we're ahead. We're in a leadership position already and we intend to stay there on sustainability and high-quality durable products.

[Julie Whalen:]

Adrienne, on the Q1 question. I mean, obviously, you know we don't provide guidance on a quarter basis, I'm sure you're asking from a directional standpoint. I don't think there's anything that's really noteworthy to call out that's different than sort of the normal run rate. So I don't think there's anything to highlight at that point. We're super excited, obviously, about the incredible guidance we gave on the year and the fact that here we are committed to holding operating margins on the year. So I think that's our focus.

[Adrienne Yih:]

And then, Julie, just one short follow-up. What is the criteria for closing stores? Because clearly, you are closing 4-wall profitable stores, which is for a retailer, a very, very difficult decision to having a hurdle rate for profitability, and that's how you keep driving the profits up. So when you're looking at that 25% of square footage your stores, how are you making that decision each year?

[Julie Whalen:]

Yes. I mean I think one of the first things that makes us different, obviously, is the size of our e-commerce business. When you look at other retailers, they don't have that choice. And so we're making decisions. One of the decisions we're looking at is the profitability on our e-commerce business and comparing that to the retail stores. And so do we want that sale in retailer? Do we want it on the e-commerce side? But that's 1 factor. We're also looking at the store, and is it brand enhancing? Is there other reasons to have the store? Because certainly, stores are incredibly important to us from a service aspect for our customers. And so -- but we haven't given out the exact metric, but I would say that's one way to think about it. You know what our operating margins have been historically in e-commerce, and I think that's sort of an interesting spot to think about. We definitely want to make sure that the sale is profitable.

[Laura Alber:]

And we're really happy to see that, as I said, specific to Williams-Sonoma, but really across the board, our retail optimization strategy is really working. We're seeing the new stores, the remodeled stores, beat our expectations, and we're seeing better transfer from the closed stores. And then our fantastic real estate team has, last year, I mean, we renegotiated 90% of our leases that came up for renewal. So there's a lot of good stuff going on with the retail profitability. And our teams at retail continue to innovate. I mean, we've talked about how strong they were during the pandemic and helping us do design chat, design services, even though our stores were closed, we kept them employed, and they have paid us back in space with loyalty and passion and creativity and they continue to be really the face of our brands. And so much of our business is done with these design appointments, and we're doing it now virtually too. And that's something that -- I mean, we're not just dabbling, it's a big piece of our business, and it's supported by ever improving tech capabilities so that people can really imagine how things will look in their home when they're making the purchasing decision and eliminate mistakes that so many of us make when we do a whole room or a whole house.

[Operator:]

And our next question comes from Brian Nagel of Oppenheimer.

[Brian Nagel:]

So my question, already, but I want to just talk about it more. As you look at the supply chain dynamic that's impacting Williams-Sonoma, is it -- do you think -- again, recognizing how fluid the situation is out there, are dynamics getting worse? Or are they staying the same? And then as you think about the duration of this, and we talk to you now about the issues persisting pretty far into '22, are there levers that Williams-Sonoma could pull or have not pulled yet that from an internal standpoint could help to mitigate some of these pressures?

[Laura Alber:]

So I mean it's so funny, our dynamic's worse. We are talking about this the other day and our perspective is that this year is going to be about the same as last year, and we thought nothing could be worse than last year. So I would say it's as bad as last year. Is that -- it's a horrible comment. But I mean we're realist about this. We're expecting it to be stops and starts. We see all sorts of things, COVID stop and surge, we see material labor shortages. Now the terrible war will have some impact. And so these are all things that are happening to everyone in the industry in all consumer businesses. But the reason we are so confident is that we have an incredible team and scale, we're the 13th largest container importer. We have great relationships with our vendors and our shippers that allows us to expedite production and inventory flow. And we're going to -- we tend to be very worried about what could happen and create contingency plans for these things as much as we can. And so we're also, at the same time, looking at how do we control what we can control better, i.e., time to process an order and to get it to our customer. And that is why we're continuing to regionalize our distribution network. So we're closer to our customers, and we give them incredible service with even fewer damages. There's a lot. I think, Julie, gave a great summary of all the operating margin levers that we have in our company. And as well as we've done, we believe there's still a lot of room to improve, particularly in the supply chain. And I don't think that we have to -- we can do -- there's many of them that I expect to happen this year. But we also know that there's some things that we haven't predicted yet that are likely to come our way as well.

[Brian Nagel:]

That's helpful. And then as a quick follow-up, and I guess somewhat related to that, you talked about the, I guess, I would say, lack of promotions, lack of widespread promotions is a driver of upside to the margins here in the quarter. And I think we've discussed this before, but how do you think about the sustainability? Is the ability of Williams-Sonoma now to drive better, say, full price sell-through, more a function of internal initiatives such as the merchandising? Or are you still really benefiting from the supply chain constraints in a way, this lack of product being within the channel?

[Laura Alber:]

No, it's really -- I'd say more than even either one of those things, it was a mindset shift that it wasn't a good idea to have a price go up and down on a product that you're selling on a regular basis. You will see us take markdowns. We will miss on fashion. We will have things that are overstocked. I know that you've seen us take markdowns. Those are not what I'm talking about, where we've been talking about not running site-wide promotions that you see others run you saw many people run during the holiday season. You can still pull them up and look at them now. And really, it's a measure. Our pricing power is a measure of our merchandise and product initiatives internally and the strength of our brands.

[Operator:]

And we can go to Seth Basham of Wedbush Securities.

[Matthew McCartney:]

This is Matthew McCartney on for Seth. Just real quick, just want to revisit the price volume sort of equation for this year. Is it fair to kind of think about volumes being down in the first half given the supply chain issues? And then sort of picking up in the back half, maybe even growing and then kind of coming out to that flattish balance for the full year?

[Laura Alber:]

Sorry, are you talking about units? Are you talking about -- what are you talking just trying to understand your question.

[Matthew McCartney:]

I'm taking about understanding just pricing aside just -- yes, just units first half versus second half, given the supply chain issues.

[Laura Alber:]

No, I wouldn't assume that at all. I think it's just a function of we have incredibly strong sales that we've been chasing inventory on for a long period of time. And so we're continuing to chase that inventory, which is maintaining elevated back order levels, but we're still having strong sales going forward. There'll still be unit sales that occur as we move throughout the year. I don't think there's anything to tie the number of units to relative to inventory receipts with supply chain in the first half.

[Matthew McCartney:]

Okay. Thank you. That's helpful. And then just one last question here. Just wondering about your ability to sort of pass on price, and you're mentioning your pricing power. Is there any sort of a differentiation on a brand level where you're seeing perhaps more pricing power or maybe even less pricing power?

[Laura Alber:]

I wouldn't -- no, we've been very careful. And there's a fine line. We want to make sure, as I said, that we're giving our customers great value. So it's a judgment by product category. And we're doing a lot of testing in every single brand. And we are seeing success in the pricing increases that we've had to take because cost increases have gone up as well. But we also, at the same time, remember, because we care so much about keeping our range of customers, we continue to increase the amount of opening price point products. So even though something might have to go up in price, we also are bringing in a bunch of opening price point products, so we can really keep pushing our customer acquisition. And we have worked with our vendors to really value engineer and still build our same quality and sustainability profiles into these products so that we don't just become a very expensive set of brands.

[Operator:]

Ladies and gentlemen, that's all the time we had for questions today. I'd like to hand the call back to the management team for any additional or closing remarks.

[Laura Alber:]

Well, thank you all. Really appreciate your questions and your enthusiasm and your engagement and can't wait to see you all in person.

[Operator:]

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.