Williams-Sonoma, Inc. (WSM) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

Source: Annual Report on Form 10-K for fiscal 2025, accession 0000719955-26-000059.

Williams-Sonoma is an omni-channel specialty retailer of home furnishings, kitchenware and décor. It describes itself as the world's largest digital-first, design-led and sustainable home retailer. In-house teams design its proprietary products, which it sells under its own brands to consumers and to commercial customers. Sales come through e-commerce websites, direct-mail catalogs, retail stores and a business-to-business division. E-commerce generated about 65% of net revenues in fiscal 2025 and retail stores about 35%. The brands share a loyalty and credit card program, The Key Rewards. Revenue also includes sales to franchisees, incentive payments from the issuers of its private-label and co-branded credit cards, and breakage income on stored-value cards. Fiscal 2025 net revenues were $7.81 billion.

The company runs each brand as an operating segment and aggregates them into a single reportable segment. Fiscal 2025 net revenues by brand (business-to-business sales included within each brand) were:

• Pottery Barn (furniture, bedding, lighting, rugs, tabletop and décor; the largest brand): $3.00 billion, against $3.04 billion in fiscal 2024.
• West Elm (modern, more affordable home décor and furniture): $1.86 billion, against $1.84 billion.
• Williams Sonoma, including Williams Sonoma Home (cookware, tools, electrics, cutlery, tabletop, food and cookbooks, plus premium home furnishings): $1.36 billion, against $1.30 billion.
• Pottery Barn Kids and Pottery Barn Teen (children's, baby, teen and dorm furnishings): $1.14 billion, against $1.11 billion.
• Other, mainly the emerging brands Rejuvenation (lighting and hardware, partly made in its own Portland, Oregon facility), Mark and Graham (monogrammed and personalized goods) and GreenRow (vintage-inspired pieces made from sustainable materials), plus international franchise sales: $447.6 million, against $421.1 million.

In 2025 the company acquired the intellectual property of Dormify and began launching it as a new brand. The filings do not disclose the terms. Starting with the first-quarter fiscal 2026 earnings release (accession 0000719955-26-000126), the company lists Dormify among its brands and reports its revenue within "Other".

Footprint. At February 1, 2026 the company operated 506 stores: 473 across 41 U.S. states, Washington, D.C. and Puerto Rico, 18 in Canada, 13 in Australia and 2 in the United Kingdom. Total leased store space was about 5.76 million square feet. Franchisees operate 90 locations in Mexico, South Korea, India and the Philippines, plus e-commerce sites in certain markets. International operations, including franchise businesses, contributed $321.3 million of fiscal 2025 net revenues. During fiscal 2025 the company opened 12 stores and closed 18. Leased distribution and manufacturing space is concentrated in New Jersey, California, Mississippi, Georgia, Texas and Arizona. The company owns 471,000 square feet, primarily in California, for its corporate headquarters and certain data center operations.

Sourcing. About 81% of fiscal 2025 merchandise purchases came from foreign suppliers: roughly 19% from China, 16% from Vietnam, 15% from India and 31% from the rest of the world. The other 19% was produced in the U.S. No single supplier accounted for more than about 3% of purchases, and substantially all purchases are negotiated and paid in U.S. dollars. The company makes upholstered furniture and lighting in its own facilities in Mississippi, North Carolina and Oregon.

Seasonality and people. A significant share of revenue and earnings is earned in the October-to-January peak season, and cash balances are seasonally highest in the fourth quarter. The company had about 19,800 associates at fiscal 2025 year-end, none covered by collective bargaining.

Strategy. Management's three priorities for 2026 are accelerating growth, delivering "world-class" customer service and driving earnings. Growth is to come from the Pottery Barn brand comp, continued momentum at Williams Sonoma, West Elm and Pottery Barn Kids and Teen, the emerging brands, and expansion of business-to-business. Specific levers are new furniture collections, the baby, dorm and West Elm Office categories, and more branded and exclusive assortments. The service goal is fewer out-of-market and split shipments, returns, damages, replacements and customer accommodations, supported by distribution-center automation and AI-driven analytics. Margin is to come from full-price selling, disciplined markdowns, vendor negotiations and re-sourcing, and AI-enabled efficiencies in engineering, customer care and creative work.

Risk factors

Source: Form 10-K for fiscal 2025, Item 1A, accession 0000719955-26-000059. The second-quarter 10-Q (accession 0000719955-26-000208) reports no material changes to these risk factors.

The risks that bear most directly on this business are:

• Tariffs and trade policy. Most of the company's merchandise is made abroad, so new or higher tariffs raise its cost of goods. The company is running what it calls an aggressive mitigation plan: vendor cost reductions, moving production to lower-cost countries, savings elsewhere and targeted price increases. It warns that it may not be able to fully offset tariffs or pass them on to customers. Tariffs flowing through cost of goods cut merchandise margins in fiscal 2025.
• Consumer spending and housing. Demand for home furnishings depends on discretionary spending, consumer credit, interest rates and home purchases. The company says periods of decreased home purchases, "such as in the current environment," have reduced demand for its products. Business-to-business revenue adds exposure to commercial and hospitality customers' budget cycles.
• Supply chain and inventory. Merchandise is often ordered up to twelve months and several seasons ahead, which limits how fast the company can react to changing trends. Instability in the Middle East has diverted vessels away from the Suez Canal and the Strait of Hormuz to the route around the Cape of Good Hope, lengthening transit times and raising costs. The conflict with Iran has also driven fuel-cost swings at the carriers the company depends on.
• E-commerce and digital marketing. With about 65% of revenue online, the company depends on a limited number of key digital platforms. Privacy rules, signal loss and platform algorithm or pricing changes could reduce the effectiveness of its targeted advertising. AI-enabled shopping tools such as agentic checkout are changing how customers buy.
• Competition. The company competes with department stores, furniture stores, specialty and direct-to-consumer retailers, and discount e-commerce sellers of similar goods. Some well-funded competitors are willing to cut prices to gain market share.
• Brand reputation. The brands' value depends on reputation. That reputation is exposed to social media, to the conduct of third-party collaboration partners, and to the company's sourcing and labor practices and those of its suppliers.
• New and acquired brands. New brands and brand extensions, including the Dormify launch, may underperform. Integrating them takes management time and could lead to impairment charges.
• Supplier quality and compliance. A supplier's quality failure or legal breach could force product recalls or damage the brands. Suppliers' failure to follow labor standards could hurt the company's reputation.
• Cybersecurity and data privacy. The company has experienced cyberattacks before; none has had a material impact so far. It handles customer payment and personal data under expanding regulation, including GDPR, Canada's CPPA, California's CCPA/CPRA and a growing number of other state privacy laws.
• Store real estate and labor. Store openings and closures depend on leases, permits and the health of nearby retail. Union organizing, minimum-wage increases and wage-and-hour litigation, particularly in California, could raise labor costs.
• Taxes. The company's effective tax rate can swing with its earnings mix, with limits on deducting executive compensation, and with new law, including the One Big Beautiful Bill Act signed in July 2025 and the OECD Pillar Two minimum tax. Its subsidiaries were not subject to Pillar Two in fiscal 2025.
• Capital returns and guidance. Large buybacks and dividends use cash that could otherwise fund growth. The stock price could fall if results miss published guidance; it has declined in the past when the company cut its guidance.
• Self-insurance. The company is self-insured, or primarily self-insured, for employment practices liability, associate health benefits, product recall and reputational risk.

Legal proceedings. The company faces ordinary-course lawsuits, including consumer-protection, advertising, data-breach, e-commerce patent and employment claims. It says these are increasing in number but does not consider any of them currently material.

Management's discussion: fiscal 2025

Source: Form 10-K for fiscal 2025, Item 7, accession 0000719955-26-000059; fiscal 2025 operating margin and fourth-quarter figures from the fourth-quarter earnings release furnished on Form 8-K, accession 0000719955-26-000030.

Fiscal 2025 had 52 weeks, against 53 in fiscal 2024. Net revenues rose $95.3 million, or 1.2%, to $7.81 billion. Company comparable brand revenue ("comp") added $258.4 million, or 3.5%. Against that, non-comparable revenue fell $45.9 million, on lower franchise sales and store closures, and the missing 53rd week cost $117.2 million. Retail comps grew 6.4%, outpacing e-commerce at 2.2%. Brand comps were:

• Williams Sonoma: +6.9%, led by kitchen, collaborations, exclusives and holiday gifting.
• Pottery Barn Kids and Teen: +4.4%.
• West Elm: +2.9%.
• Pottery Barn: +0.4%, where strength in retail was offset by non-furniture and seasonal categories.
• The emerging brands together grew at a double-digit rate.

Gross margin fell 30 basis points to 46.2%. The fiscal 2024 comparison included a one-time freight benefit: in fiscal 2024 the company booked a $49.0 million out-of-period credit for freight it had over-expensed in fiscal 2021–2023. That benefit not recurring cost 70 basis points. Tariffs flowing through cost of goods cut merchandise margins by 40 basis points, and occupancy deleverage cost 20. These were partly offset by 50 basis points of supply-chain efficiencies (lower shipping costs, fewer damages, returns and replacements) and 50 basis points from favorable physical inventory results. SG&A edged up to 28.0% of revenue from 27.9%. Prior-year one-time benefits from an indirect tax matter and an insurance settlement did not recur, and incentive compensation was higher; lower advertising spending partly offset both. Operating income was $1.42 billion, an 18.1% operating margin. The effective tax rate rose to 25.1% from 24.3%. Diluted EPS was a record $8.84, against $8.79 in fiscal 2024, which had included $0.29 from the freight adjustment. In the fourth quarter, comps rose 3.2%, operating margin was 20.3% and diluted EPS was $3.04.

Cash and capital allocation. Operating cash flow was $1.3 billion, compared with $1.4 billion in fiscal 2024. It came mainly from net earnings of $1.1 billion adjusted for non-cash items, partly offset by $125.9 million of higher spending on merchandise inventories, inclusive of tariffs. Capital expenditures were $259.4 million, of which technology was $103.5 million, retail stores $73.8 million and supply chain $51.5 million. The company repurchased 4,888,240 shares for $854.0 million, at an average of $174.70, and paid $316.5 million in dividends; declared dividends were $2.64 per share. Year-end cash was $1.0 billion and there was no debt. In November 2025 the board approved a new $1.0 billion repurchase authorization, which takes effect once the September 2024 authorization is used up. Total remaining authorization at year-end was about $1.3 billion. In March 2026 the board raised the quarterly dividend 15%, from $0.66 to $0.76 per share.

Liquidity. The unsecured revolving credit facility was enlarged to $600 million in June 2025 and extended to June 26, 2030. It has a $250 million accordion that can take it to $850 million. Nothing was drawn during fiscal 2025, and $14.1 million of standby letters of credit were outstanding against it. The company also has $35 million of letter-of-credit facilities. Its main contractual commitments are $1.7 billion of operating lease payments, plus $205.9 million on leases signed but not yet commenced, and about $1.1 billion of purchase obligations.

Current quarter: second quarter of fiscal 2026

Source: Quarterly Report on Form 10-Q for the quarter ended August 2, 2026, accession 0000719955-26-000208; non-GAAP figures and outlook from the second-quarter earnings release furnished on Form 8-K, accession 0000719955-26-000203; first-quarter figures from the earnings release furnished on Form 8-K, accession 0000719955-26-000126.

Tariff refunds drove the quarter's reported figures. The Supreme Court's February 2026 decision struck down the IEEPA tariffs (see Subsequent events below). In April 2026 the company filed for a $197.8 million refund of IEEPA tariffs it had paid in fiscal 2025 and fiscal 2026. In the second quarter it concluded the refund was probable and estimable. The quarter's tariff-refund items were:

• Income items:
  • $167.8 million reduction in cost of goods sold for refunded tariffs that had already been expensed.
  • $6.3 million of interest income on the refunds.
• Partial offsets:
  • $47.5 million provision to reimburse merchandise vendors that had granted tariff-related concessions.
  • $10.0 million one-time employee recognition cost, paid as a discretionary 401(k) contribution to all eligible employees.

The company collected $200.2 million in cash, including interest, during the quarter. That covers substantially all of the claim; a $3.2 million receivable remains. Another $29.3 million of refund income was deferred as a reduction of inventory, and the company expects to recognize it in cost of goods sold in the third quarter. The company presents all of these items as non-GAAP adjustments.

Revenue and comps. Net revenues rose $123.0 million, or 6.7%, to $1.96 billion. Comps rose 6.2%, compared with 3.7% a year earlier, with e-commerce comps at 6.5% and retail at 5.5%. Every brand posted a positive comp:

• Williams Sonoma: +7.6% (revenue $268.8 million), driven by its kitchen business.
• West Elm: +6.4% (revenue $496.3 million).
• Pottery Barn: +5.1% (revenue $770.8 million), with strength in furniture, textiles and lighting, compared with +1.1% a year earlier.
• Pottery Barn Kids and Teen: +3.5% (revenue $297.4 million).
• The emerging brands: double-digit growth on a combined basis.

Margins. GAAP gross margin rose 450 basis points to 51.6%. The net tariff refunds added 610 basis points, occupancy leverage 40 and supply-chain efficiencies, including a lower shrink accrual, 30. Tariffs flowing through cost of goods cut merchandise margins by 230 basis points. Excluding the refund items, non-GAAP gross margin was 45.5%, down 160 basis points. SG&A fell to 28.7% of revenue from 29.2% on employment-cost leverage; on a non-GAAP basis it was 28.2%. GAAP operating income was $448.8 million, a 22.9% margin and up 500 basis points. Non-GAAP operating income was $338.5 million, a 17.3% margin and down 60 basis points from 17.9%.

Earnings. Net earnings were $338.1 million, against $247.6 million a year earlier. GAAP diluted EPS was $2.84, against $2.00. The $2.84 includes $1.06 of tariff refund income and $0.04 of refund interest, less $0.30 of vendor reimbursements and $0.06 of employee recognition cost. Non-GAAP diluted EPS was $2.10, up 5.0%.

First half. Net revenues rose 5.6% to $3.77 billion on a 5.5% comp. GAAP gross margin was 47.9%, against 45.7% a year earlier. Diluted EPS was $4.77, against $3.86; non-GAAP diluted EPS was $4.03. The first quarter alone had a 4.8% comp, a 16.2% operating margin and $1.93 of diluted EPS. The effective tax rate for the half was 25.1%, against 24.9%.

Cash, inventory and capital returns.

• Cash flow. Operating cash flow for the half was $695.9 million, against $401.7 million a year earlier; the increase was mainly the $200.2 million in tariff-refund collections. Capital expenditures were $116.4 million.
• Inventory and cash balance. Merchandise inventories were $1.45 billion at quarter-end, up 1.0% from a year earlier, net of the $29.3 million deferral. Cash was $1.0 billion and the revolver was undrawn.
• Buybacks. The company repurchased 1,608,253 shares for $287.8 million, at an average of $178.96, all in the first quarter; it bought back no shares in the second quarter.
• Dividends. It paid $175.4 million in dividends, and the declared dividend was $0.76 per share in the quarter.
• Remaining authorization. About $1.1 billion is left: $50.8 million under the September 2024 authorization plus the $1.0 billion November 2025 authorization.

Stores. The quarter ended with 508 stores after 3 openings and 1 closing, against 509 a year earlier. Store leased square footage was 5.76 million.

Outlook. In the second-quarter release the company raised its fiscal 2026 guidance from the ranges it gave in March and reiterated in May. The table compares the two:

The raised guidance assumes three things:

• All tariffs now in place remain for the rest of fiscal 2026, including Section 232, the existing Section 301 tariffs, new Section 301 tariffs announced July 23, and the latest Canada–U.S. tariffs.
• Oil prices stay elevated.
• No further benefit from tariff refunds or related interest.

The long-term targets are unchanged: mid-to-high single-digit annual revenue growth and an operating margin in the mid-to-high teens.

Management lists the main headwinds as war, higher oil prices, an evolving tariff landscape, a stagnant housing market, elevated interest rates, layoffs and inflation. It expects tariff uncertainty to continue throughout fiscal 2026.

Subsequent events

Sources: Form 10-K for fiscal 2025, Note N and Item 7, accession 0000719955-26-000059; Form 10-Q for the quarter ended August 2, 2026, Note B and Note L, accession 0000719955-26-000208.

After the second quarter (August 2, 2026). The 10-Q does not contain a separate subsequent-events note, and it discloses no acquisitions, divestitures, borrowings or litigation outcomes after the quarter-end. The only post-period item it reports is:

• Letter-of-credit renewal. On August 6, 2026 the company renewed two letter-of-credit facilities totaling $30 million on substantially similar terms. They now mature on August 18, 2027, and letters of credit issued under them can run until January 15, 2028 at the latest. A third, $5 million facility matures June 26, 2030.

After fiscal 2025 year-end (February 1, 2026). On February 20, 2026 the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the President to impose tariffs during peacetime national emergencies. Collection of the IEEPA tariffs ended that day. A replacement 150-day tariff under Section 122 of the Trade Act of 1974 took effect on February 24, 2026. When the 10-K was filed, the company could not predict whether it would recover the IEEPA tariffs it had paid. It filed its $197.8 million refund claim in April 2026 and had collected substantially all of it by August 2, 2026, as described above.