Williams-Sonoma, Inc.
Q3 2020 Earnings Call Transcript

Published: 19 Nov 2020

[Operator:]

Ladies and gentlemen, welcome to the Williams-Sonoma, Inc. Third Quarter 2020 Earnings Conference Call. . 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.

[Elise Wang:]

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.

[Laura Alber:]

Thanks, Elise. Good afternoon, everyone. Thank you all for joining us. Also on the call with me today are Julie Whalen, our Chief Financial Officer; Telis Carbullido, our Chief Marketing Officer; and Yasar Anwar, Chief Technology Officer. On today's call, I want to talk to you about our outstanding third quarter results and more importantly, our company's distinctive positioning and long-term growth prospects. In the third quarter, sales, again, outperformed expectations with demand comp up nearly 31% compared to a net comp of 24%, driven by strength across all of our brands. E-commerce accelerated sequentially to a record net comp of over 49%, and we were pleased to see our store performance improved throughout the quarter to a net negative 11% comp. Even more encouraging is the retail demand comp at negative 4%. And we delivered these sales more profitably with operating margins reaching record levels, expanding to 15.7% versus last year's 7.6%. All of our brands outperformed. Pottery Barn delivered a net comp of 24.1%, driven by double-digit comps in all divisions. Growth initiatives, including PB apartment and marketplace continue to build a momentum, growing more than 100% again this quarter to reach nearly $200 million in sales year-to-date. Our Pottery Barn Kids and Teen business grew at a net comp of 23.8%, with accelerated growth in all areas. We also saw a longer tail in our back-to-school business, with our GEAR and Study-at-Home Solutions, delivering a strong finish to the season. The Williams-Sonoma brand delivered another record quarter with a net comp of 30.4%. This is a business that has always had a smaller online percentage compared to our other brands, and this represents a big opportunity.

[Julie Whalen:]

Thank you, Laura, and good afternoon, everyone. We are pleased to report another quarter of record growth and profitability. It is clear our mission and value proposition are increasingly more relevant, and our growth strategies are continuing to gain traction. And this, combined with our world-class platform that we have been investing in over time, the agility and strong execution from our team and a culture of strong financial discipline, has enabled us to capture market share and expand profitably. We are so proud that our ongoing financial strength has allowed us to continue to take care of our stakeholders, our associates, our customers, our communities and our shareholders during this unprecedented time.

[Operator:]

. And first, we'll go to Oliver Wintermantel, Evercore ISI.

[Oliver Wintermantel:]

Congratulations on this performance this quarter, again. I had a question, Julie. You mentioned shipping costs are staying high because of the shift to e-commerce, but then also for the rates of shippers. Do you expect that to actually increase in the fourth quarter versus the third quarter? And how do you plan to offset that?

[Laura Alber:]

We do because there's peak charges that come in or charges that come in during the holiday selling season. But what I will say is that our supply chain has done an unbelievable job of coming up with alternative carriers that we can use to help take care of the capacity constraints we have as well as the higher prices. And so it won't be a full offset, but they certainly are doing everything they can to help mitigate it. And then, of course, along with the merchandise margin expansion, the occupancy leverage. We should still see gross margin expansion regardless of the shipping costs.

[Oliver Wintermantel:]

Got it. And in relation to that, if I may, your shipments from Asia, and I know you brought some of the production back into the U.S. Could you maybe update us how much of your sales are now coming from, or for your COGS coming from Asia? And how much is produced in the U.S.?

[Laura Alber:]

I don't think we've ever disclosed that. I think what we've said in the past is that we've been moving goods out of China to other locations, other Southeast Asian locations. And so our goal was to get the amount that we had produced in China down by about 50% by the end of this year, and we're still on target to do that.

[Operator:]

Next up is Kate McShane, Goldman Sachs.

[Katharine McShane:]

A big question last quarter was the difference between the demand comp and the comp that you reported. And just what the demand comp would look like over time? Or what it could contribute to comp over time? So now that we are a quarter in here, I wondered if there was a way to quantify what the gap or what the demand comp, what part of it was made up, if you will, during the third quarter? Was it a big contributor to the acceleration in the comp that you saw from Q2 to Q3? And if not, just what was the unlock for the meaningful acceleration in your comp in Q3 versus Q2?

[Laura Alber:]

The comp is driven by the strength across all brands. I mean the products are selling. Our performance is on fire from that perspective. When you look back to the last quarter, we had about -- I think it's an 800 basis point differential between demand and net, in this quarter, 700. So as products come in, as long as we're accelerating our performance on the top line, it's going to be a little bit of a leapfrog as we go through by each quarter. The teams have been working very aggressively on partnership with our vendors, and we have great relationships with our vendors to get back in stock as quickly as possible. But obviously, given this incredible demands that we're seeing from our customers, it's going to take a little while longer than we expected, mostly into Q2 of next year. But we haven't seen -- the customer has been we let them know of these delays. And so that's the great news that we expect this delta between demand and net to effectively come in future quarters.

[Katharine McShane:]

My follow-up question to that is, is there a potential for furniture mix to be higher in Q4? Just again, with some of these delays in the order as things get pulled are pushed back, could you see more furniture mix in Q4? And would that be any kind of headwind in addition to maybe the higher surcharges you would see in the fourth quarter?

[Laura Alber:]

It's not a -- this is Laura. Usually, when we're talking demand comp in Q4, the nonfurniture as percent of total comes up a bit as we do more gifting, and we have more William-Sonoma. However, you're right that we have a lot of net in furniture coming in, and hopefully, we'll fill a bunch of that. So it should not affect -- it shouldn't be a headwind. Furniture is a very profitable and great business for us. And we are just thrilled to be able to serve our customers and get the product into them. And it doesn't matter what quarter that is.

[Operator:]

. We'll go next to Chuck Grom, Gordon Haskett.

[Chuck Grom:]

Great quarter here. My question is on the margins and the outlook and the opportunity. You've got really 3 big buckets, reduced promotions, lower occupancy dollars and more efficient ad spend. So when you think ahead, and this isn't really about fourth quarter, but really more in the next couple of years. How would you rank those opportunities? What has you most excited? What categories do you think you have the most visibility on?

[Julie Whalen:]

Well, I mean, quite honestly, I think it's across the board. I mean the most -- the thing that we're excited about is this fundamental shift in our business going online, and I think that's a trend that's across the industry. And so as that shifts to e-commerce, and you combine that with the fact that we have many new customers in e-commerce, those 2 combined is going to allow our e-commerce business to thrive. And as that continues to happen, again, if you go back and look at our op margins from the last 10 years, they've averaged above 21%. So just that alone will drive significant op margin expansion going forward. Then you layer in the fact that we are feeling very good about our merchandise margins and our building to pull back on promotions with our content-lead marketing strategy, and we expect that to continue. If you layer on the occupancy leverage that we're going to have from all these leases that we're renegotiating, they're coming up for renewal over the next 3 years and the stores that we may close if they're unprofitable, or we're going to keep the great ones and make sure that they have the profitability levels that we want, which we've set a higher bar. And so occupancy leverage will continue. And then, again, with that shift to e-commerce, the rest of the SG&A just leverages beautifully. So we think it's a huge opportunity going forward to be able to drive this business profitably in the inflection point is the fact that we've shifted significantly to e-commerce, and we don't think that's going to change.

[Chuck Grom:]

That's helpful. And then just I just do one quick follow-up. One of the pushbacks on the story is just the sustainability of some of the trends that you're seeing today. So I guess I'm curious how you'd rank them in order of staying power over the next couple of years, the trends that are driving the strong demand you're seeing?

[Laura Alber:]

Sure. This is Laura. I want to remind everybody that pre pandemic, we are running close to a 10% comp. And we saw great opportunity in our business, and we're very bullish actually about what we had in front of us. And so we've benefited clearly from the stay-at-home trend. But the bigger even pre pandemic trends that were in our favor with industry consolidation away from brick-and-mortar. Previous to the pandemic, 80% was done in retail stores, and we knew that wasn't going to stay the same. And so as people shift to online and younger customers have a lot more purchasing power, we knew that we would be one of the people who would pick up that big market share. And then as I keep saying, we have such a competitive advantage with our distinctive positioning. There's a lot of people online, but we serve a wide variety of customers across esthetics and price points. And our brands, as you know, are loved by our consumers, and we design our own products. And that's a big difference between us and a lot of other big players who will also, by the way, be successful. It's not an either/or, but people are going to come to us because we have unique products that are accessible and that are sustainable and that are designed in-house and you can't buy elsewhere. And that is very powerful as our values really resonate with the consumers and the future consumers to be. So we're very optimistic about consumers shopping with us. And then, of course, from a financial profile, we've talked about the pieces of our business that are leverageable and that are real and substantive. And we've been investing in e-commerce for so long that our platform is able to hold a lot more volume without these huge step-up investments to other retailers who've had only 10% to 20% took us to invest. So we fully see ourselves in the digital-first business with great stores, more profitable stores than ever. We see us 70%, upwards to 70% e-commerce, and that is a big time for the financial profile of our company. Those are the things I'm excited about.

[Operator:]

Next from Morgan Stanley is Simeon Gutman.

[Simeon Gutman:]

Laura, and I'll ask this -- I'll ask this in two parts. First, can you -- you talked about acquiring customers, and that should help you going forward. Can you talk about what you're learning now from an operating perspective, whether it's inventory management maybe markdown management, movement of product that makes you stronger post pandemic. And then, Julie, you mentioned, I think, the demand versus actual comp but narrowed by 1 point should we look at that? First of all, is it just a nonevent? Or does this mean that the supply chain is catching up or the demand slow to tick?

[Laura Alber:]

That was the last thing you said, demand has slowed, what did you say?

[Simeon Gutman:]

So with the spread between the actual comp and the demand comp, if it narrowed by 1 point, it could just be a nonevent. But let's say, if we see that narrow by a few points going forward, can you attribute it more to the supply chain catching up to the demand? Or does that mean the demand slows a little?

[Laura Alber:]

Okay. I understand. Thank you. Okay. So it's always the toughest times that make you strongest. I think, and you have to really go back and look at what you're going to invest in. And what we've been doing is investing in the things that matter most to our customers and realizing the power of the people. You take care of people and they do amazing things for you. And that's -- it's an operating principle that we know. But it's been really brought home through this, and we made those decisions early on to keep paying our people, not furlough them. And we made that decision. I've never seen anything as powerful as that decision for our store associates. And you go into our stores now, and there's so -- there's -- it's such a different experience than so many other places in the malls because of that relationship with them and how close we are with supporting each other. In terms of inventory management, we -- look, who would have called what's going to happen when it first came down. And I'm just impressed with the flexibility of the team in chasing products and getting us back in stock. And also, what we're doing now is just trying to quote the customer the best date we can the first time. So they see the delay in the beginning and it doesn't push out again. There's a big difference between if I know I'm waiting certain lost times for sofa and if you push it out over and over, it's very different in how you feel about that delivering whether you, as a customer, considered on time. So we're building those delays as much as we can into our quote times now. I'll just, since I'm talking, take the last question. To me, the net comp has always been something we look at. It's -- we have never seen this kind of big gap between them. And that was because we had the slowed -- stores closed and then this huge spike and inventory low. And of course, that's what happens the first time and you catch up. As we continue to accelerate sales, you can continue to see this longer because you have to build the inventory back to be in better stock. So demand could go -- net coming in certainly may cut the amount. But this will -- this is a thing that will, on the P&L, be a benefit to the future. As much as we hate it. We'd rather have it in stock for the customer. That's the way we're trying to operate the business, and that's what we're going to go for when we get the inventory back in stock. But it will give us more sales in the future because the net will come in on the previously very high demand.

[Operator:]

Next up is Brian Nagel, Oppenheimer.

[Brian Nagel:]

First off, congrats on a really nice quarter. Nice work. So the question I want to ask, look, with regard to the gross margin expansion, you talked about the shift in marketing to more of a content strategy away from promotions. So just a couple of questions within that. I mean, one is, is there a way to kind of size the benefit of that to margins here in the quarter? And then more strategically, clearly here, while demand was accelerating pre pandemic, demand has turned even better here for the Williams-Sonoma family of companies through the crisis. Are you confident that the strategy of this content-driven strategy will yield the same type of results as demand trends potentially normalize back to what they may have been pre pandemic?

[Laura Alber:]

I have Felix on the phone. Let me start the question, and then I'll pass it over to Felix. We're -- if anything, was it, we learned that we have to be the most adaptable to our current situation. I think when something like this pandemic takes you off your feet, you try new things, and we really decided that we -- people needed relevancy. They needed content that was inspiring. We're all busy stating at the screen and that's much more exciting to hear about new things to cook at home with your family than it is to hear about the next 20% offer. And so we are always testing new things. We may find something else that's even better next year. But we're using our multiple brands to test different things in different brands and then roll them out. And so we don't take a huge risk with any given strategy. And so, we've been -- at the same time, as we've been pulling down our promotions, we have been also really working on our value. So, if you go back to scripts in the past, you'll hear me talking about value, everyday value as a key part of our strategy, opening price point in Pottery Barn. That Pottery Barn apartment strategy is exactly that, to make sure that we're getting the new customers in. And of course, West Elm is a growing brand. So, we're going to continue to push value. It's not about price increases. It's about less promotions, less markdown inventory. We've now cleared the markdown substantially from where they were a year ago. Julie, do you want -- can we give that numbers? You want to go ahead and talk.

[Julie Whalen:]

It's down 37%. Our clearance inventory.

[Laura Alber:]

And Felix, do you want to add anything to this ?

[Felix Carbullido:]

Yes. Sure. I think it's a great question. So a couple of proof points when we look at the business is, in terms of -- is the content-lead messaging cutting through. I look at the growth in our active 12-month customers. I see growth in customers who we haven't seen in over a year and that have returned to make a purchase. And our continued double-digit growth in new customers. So we like to see growth amongst all three cohorts. And then in terms of what it means for the future growth, the new -- the trends in new customers are incredibly encouraging. Number we really haven't seen before. And I'm talking about higher retention rates for new customers and higher rates of cross-brand purchasing. So, we believe those are strong indicators of their value over time. So those are some of the proof points I look at when, is the message resonating?

[Operator:]

Our next question is Brad Thomas, KeyBanc Capital Markets.

[Bradley Thomas:]

And let me add my congratulations on some great results here. I was hoping to follow-up on the topic of margins, and it does seem that there are some structural changes that support this breakout to new record highs for margins and a number of drivers for you going forward. I was hoping we could just talk maybe about some of the other side of the ledger here as we -- to keep us from maybe getting too far ahead of ourselves. Could you help us think about some of the dynamics like the record low clearance activity you're seeing, some of the increases in raw materials and transportation and labor costs? And maybe how we might think about factoring those in as we fine-tune our models for 2021.

[Laura Alber:]

Yes. I mean, as we've said before, we still expect to have strong gross margins regardless of some of those headwinds that you've laid out. Obviously, the team has been very aggressive at working through that and thinking through what those costs could be like. But obviously, because we design and engineer our product, that gives us a price point strength that we can then create the right price for any of those headwinds in the raw materials or transportation that you spoke to. Transportation, we do think, will continue to be a headwind. But as I mentioned earlier, the supply chain team has done a phenomenal job. Sort of navigating through this. They acted quickly, aggressively to come up with alternative carriers. And so we're managing through that to see how we can mitigate the cost on that go forward. So even with those, again, the substantial tailwind we get by shifting to e-commerce and the flow-through that, that provides, as you've seen, to your point, in this quarter, we think that's going to be very helpful, along with the merchandise margins, along with the occupancy leverage to be able to drive significant op margin expansion going forward.

[Operator:]

Adrian Yih from Barclays is up next.

[Adrian Yih:]

I will add my congratulations. Laura, I wanted to –

[Laura Alber:]

Thank you.

[Adrian Yih:]

You’re very welcome. Very well done, and the promotions, the content-lead marketing is actually really coming through. It's very obvious. So could have on that? But Laura, I wanted to ask you, as we go into kind of the big question of next year is how do you comp the comp? A lot of it comes from sort of new customers, new product lines, or customers -- same customers buying more of products. So one of the ones that really interested me here was your B2B comment. What is the size of that now? Can you give us some of the metrics of I mean -- and forgive me if I’m ignorant on this, but is it a wholesale transaction? Is it a discounted retail price point, but give us some metrics on that and how we see that unfolding over time? And then, Julie, on the long-term target, the mid- to high-single-digit top line, how should we think about that in EPS? And if I may, one last one, 70% e-commerce, stores will open again next year. So should we still think about that penetration as being 70%? And the ROIC aspect of it when you move to e-commerce truly is improving the cash flow. So, I totally agree in that regard.

[Laura Alber:]

Great. Thank you for the question on B2B. So we decided for the first time to give you guys the numbers do you might have missed it in the script, we're going to be over $300 million this year. And so it's been sizable. And we really are continuing to see even stronger strength. We passed our first $100 million on milestone in a single quarter for the first time. And our growth was really driven by B2B, our internal program improvements and execution on our key strategies with a continued push to diversify our business pipeline across various industry verticals. And we're acquiring new customers. Average order size is improving at double-digit rate, and we're also seeing consistent build in sales volume in each month. In terms of strategic initiatives, we're aggressively expanding our contract assortment. So really converting our products to be contract grade. And to build brand awareness, we have transitioned to a virtual digital marketing and engagement platform. And for example, this is fun. We partnered with Interior Design Magazine this quarter to take part in a series of live interviews as well as an Instagram takeover featuring all of our brands. We're also expanding our B2B offering with Comcast in virtual events such as cooking classes, which have been sell-out for us. We are charging for these virtual events. Very interesting business opportunity that we're thinking about in a big way for the future. So industry -- the industry, believe it or not, continues to show positive signs for recovery, and we're seeing the pipeline continue and there is a lot of -- the hotel occupancy rates, believe it or not, a rebounding from the industry lows. And the renovations were heavily impacted from COVID and then I'm moving forward again. So we're seeing good internal indicators that the pipeline is only going to get stronger, and we've built the foundation so that we can handle these big orders. It's depending on what it is it's a discount on retail, how big it is, and that's how we run it. So -- and as I mentioned earlier, usually, people have to go to 10 different suppliers to furnish these hotels or these projects, and they can just come to us and we can do the whole thing. And we can do -- made the size made-to-order products for them as well, which a lot of people can't do. So that's, I think, in addition to our great sales team, I think that's why we're winning. So I'll hand it over to Julie on the comps for the future and what that means for EPS, although we're not giving -- we're not giving you that. But on the latter comment about that.

[Julie Whalen:]

So we haven't disclosed that. But I think, obviously, you can translate from a mathematical perspective. Make your assumptions as to where we'll fall on the revenue side, clearly, we're leaning towards the higher end of that. And what kind of operating margin expansion could occur when you factor in the shift to e-commerce and you factor in the merch margin expansion and you also factor in the occupancy leverage continuing. And then clearly, I mean, it's kind of a nonanswer here, but it's -- then you do the math and you can come up with EPS. The bottom line is we expect strong growth in EPS. There's no reason from a translation from the op margin down to EPS at this time, that there would be any sort of reason that would cause it to be disconnected. If anything, interest expense would probably be coming down next year, since we would be in the line and things like that. So, sorry, it's kind of a nonanswer, but hopefully it does.

[Adrian Yih:]

No, no, that's all helpful. It's all helpful color.

[Operator:]

. We'll go next to Anthony Chukumba, Loop Capital Markets.

[Anthony Chukumba:]

Just had a quick question. So Joel, you mentioned fourth quarter surcharges for deliveries. And I know that's a seasonal thing, but I just want to make sure I understand. Is that are you seeing higher surcharges than you normally would in the fourth quarter? Or are you just sort of mentioning there are these surcharges you need to be aware of from a shipping cost perspective?

[Julie Whalen:]

Yes. No, it definitely will be higher. I think sure people saw the EPS release last quarter where they indicated that for all retailers, they're passing along the cost. So we're not alone. But I think the difference is, as I say over and over, our phenomenal supply chain team has really done a great job. They've acted quickly and aggressively and as you know, that's sort of our company culture. And so we moved on it immediately to be able to try to mitigate that as best we can, both from a capacity standpoint and from a pricing standpoint, and they have done a phenomenal job, coupled with the tech team to make it all possible. And so it doesn't mean we're not going to have these incremental costs or surcharges. But certainly, compared to others, we're going to be in a much better spot.

[Laura Alber:]

And UPS is a great partner of ours, and they've been a good partner. But the truth is there's a lot more cost with covered in the supply chain.

[Operator:]

Our next question is Stephen Forbes for Guggenheim Securities

[Steven Forbes:]

I wanted to follow-up on the customer cohorts, right, and maybe specifically focus on the active 12-month customer base I'm really just curious if you can expand on how that cohort has engaged with the portfolio brand during 2020, right, maybe relative to '19? Any context there? And whether you have seen any change in behavior, right? Whether it's opting out or any sort of behavioral change, right, as the business has migrated, right, more towards this content led and less promotional activity, right? As we think about your conviction behind ongoing growth and market share gains.

[Laura Alber:]

I'll let Fil take that.

[Felix Carbullido:]

Yes. Sure. Thank you for the question. I guess I'll start with -- it's a record high number of active customers. So -- and that's driven both by the existing customer base and new customers coming in, especially in the D2C channel. So I look at that number and I say, "Okay, well, the message that we're giving is clearly resonating." I think about e-mail metrics, including engagement, open rates. I look at our social engagement, those are record high numbers that we've seen. So the message is clearly cutting through. In terms of the makeup of the customers, I mean, Laura mentioned, we're starting to see more millennials into our customer base at a greater rate than we ever have before. And that -- as we all know, that's a huge generation. It's the biggest generation we've seen in our lifetime. So that gives us promise for all of 2021 and further on getting those customers now as they move into household formation. And then I think, lastly, the majority of our customers, our new customers are now members of the Key, our cross-brand loyalty program. So we've seen Key members have higher repeat rates and higher retention rates than non-Key members. So all of that means our active customer base is well suited for growth for next year. Does that answer your question?

[Steven Forbes:]

Yes, it did. And I don't know -- I don't think we've got an update on the key members in some time, and given that you mentioned. Is that something you can provide today as well?

[Felix Carbullido:]

Sure. Yes, we have over 11 million members, and as I mentioned, most of our new customers are now enrolled. And The Key, which is our loyalty program, as you know, it's very cost-efficient way for us to drive incremental sales. And I'm proud to say that, year-to-date, we now have more cross-brand customers than we ever had in our company. So that we know is an incremental opportunity for all of us. And clearly, much more efficient way to drive sales with existing customers than acquiring new ones. So again, gives us confidence in advertising efficiency going forward.

[Operator:]

Our next question is Marni Shapiro, Retail Tracker.

[Marni Shapiro:]

Congratulations. So I'm going to move on past Coat. I'm tired are talking about it to the post-COVID world. Laura, you've talked a lot about your point of differentiation and your brands and everything that you guys do internally. You've also, for quite some time now, focused your company on sustainability and organic products and things that, I think, millennials and Gen Z are very interested in. So can you think, in 2021 as everybody has discovered that home is a great business, how do you think about marketing sustainability and this part of the business to keep your positioning and kind of even better position you guys for the future?

[Laura Alber:]

Thank you so much for the question. It's so important to us, and we will continue to pursue sustainability programs that are strategic and material to our business and important to our customers. We're the lead here. We're going to lead in ethical production. We're going to lead in worker well-being, and we'll build out our environmental commitments. We put out our report in October. And for next year, we're going to -- for climate and energy. We're going to build on this year's scope 3 footprint and CDP disclosure to develop and set a science-based target for reduction. And responsibly materials and finishes, we're going to continue our leadership in cottonwood and green card. And we're going to expand our commitments around lower impact alternatives like recycled polyester. And in waste and circularity, we're going to build off of our scale and our successful circular pilots. And across all these ESG areas, we'll continue to disclose and measure and track our progress. For example, this year, in our corporate responsibility report, we made public our commitment to diversity inclusion with our equity action plan and our first ever data on gender and ethnicity representation. We are committed to our mantra of good by design and our pillars are people, planet and purpose.

[Marni Shapiro:]

I think it's going to be very important over the next couple of years. It's great.

[Laura Alber:]

Thank you, Marty.

[Operator:]

Next up is Seth Basham, Wedbush.

[Seth Basham:]

Congrats as well. My question is really a clarifying one. Julie, I think you mentioned that you expect operating margin expansion post pandemic. Should we take that to mean after we get a virus, you still expect operating margins to rise from whatever trailing 12-month level they're at for the next 12 months? After we get a vaccine, I should say. Yes.

[Laura Alber:]

Yes. We do expect ongoing operating margin expansion because our expectation is the top line is going to continue to thrive, especially the e-commerce, as I mentioned, and all the things that we're doing from an emerge margin expansion perspective and occupancy leverage, all of that will continue. And so we do expect it to expand above where we're landing on this year.

[Seth Basham:]

Fantastic. And then secondly, as we just think about some of the shipping dynamics one more time, what are you doing in terms of shipping fees that you're charging customers to mitigate some of the higher costs that you're incurring?

[Laura Alber:]

We haven't changed our model. It's the same shipping model that we have.

[Operator:]

Thank you and gentlemen, that is all the time we have for questions today. I'd like to hand the conference back to Laura for any additional or closing remarks.

[Laura Alber:]

Sure. Thank you all for joining us today, and I really, sincerely wish you a wonderful and safe Thanksgiving with your friends or probably just your family, but maybe your friends I assume. So we'll be talking to you soon and look forward to it.

[Operator:]

Once again, everyone, that does conclude today's conference. Thank you all for your participation. You may now disconnect.