# Williams Sonoma Inc: Form 10-Q for the period ended Apr 28, 2024

- Company: [Williams Sonoma Inc](/companies/wsm.md) (CIK 719955)
- Form: 10-Q
- Filed: 2024-05-24
- Accepted by EDGAR: May 24, 2024, 16:23 ET
- Period: 2024-04-28
- Accession: 0001628280-24-025227
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/719955/000162828024025227/wsm-20240428.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/719955/000162828024025227/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-04-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-29 to 2024-04-28 | $1.66bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-01-29 to 2024-04-28 | $802.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-01-29 to 2024-04-28 | $478.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-29 to 2024-04-28 | $323.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-29 to 2024-04-28 | $74.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-29 to 2024-04-28 | $265.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-29 to 2024-04-28 | $4.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-29 to 2024-04-28 | $4.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-29 to 2024-04-28 | 65,315,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-29 to 2024-04-28 | $226.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-29 to 2024-04-28 | $39.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-29 to 2024-04-28 | $62.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-29 to 2024-04-28 | $43.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-04-28 | $1.25bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-04-28 | $2.67bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-04-28 | $5.16bn | us-gaap:Assets |
| Current liabilities | at 2024-04-28 | $1.72bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-04-28 | $2.95bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-04-28 | $2.21bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,795 characters.

### FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements related to: continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; the continuing impact of inflation and measures to control inflation, including changing interest rates, on consumer spending; the continuing impact of global conflicts, such as the conflicts in Ukraine and the Middle East, and shortages of various raw materials on our global supply chain, retail store operations and customer demand; labor and material shortages; the outcome of our growth initiatives; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy, supply chain, product, transportation and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; the impact of current and potential future tariffs and our ability to mitigate impacts; the potential for increased corporate income taxes; and other risks and uncertainties, as well as statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in this document and our Annual Report on Form 10-K for the fiscal year ended January 28, 2024, and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

### OVERVIEW

Williams-Sonoma, Inc. ("Company", "we", or "us") is a specialty retailer of high-quality sustainable products for the home. Our products in our portfolio of nine brands – Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, Mark and Graham, and GreenRow – are marketed through e-commerce websites, direct-mail catalogs and our retail stores. These brands are also part of The Key Rewards, our loyalty and credit card program that offers members exclusive benefits across the Williams-Sonoma family of brands. We operate in the U.S., Puerto Rico, Canada, Australia, and the United Kingdom, offer international shipping to customers worldwide, and have unaffiliated franchisees that operate stores in the Middle East, the Philippines, Mexico, South Korea, and India as well as e-commerce websites in certain locations. We are also proud to be a leader in our industry with our values-based culture and commitment to achieving our sustainability goals.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources for the thirteen weeks ended April 28, 2024 (“first quarter of fiscal 2024”), as compared to the thirteen weeks ended April 30, 2023 (“first quarter of fiscal 2023”), should be read in conjunction with our Condensed Consolidated Financial Statements and the notes thereto. All explanations of changes in operational results are discussed in order of magnitude.

#### First Quarter of Fiscal 2024 Financial Results

Net revenues in the first quarter of fiscal 2024 decreased $95.1 million or 5.4%, with company comparable brand revenue ("company comp") decline of 4.9%. This was driven by continuing customer hesitancy towards furniture purchases, partially offset by strength in our emerging brands, children's home furnishings and kitchen business. Company comp declined 10.9% on a two-year basis and declined 1.4% on a three-year basis.

In the first quarter of fiscal 2024, Pottery Barn, our largest brand, saw 10.8% comparable brand revenue ("brand comp") decline, 11.2% brand comp decline on a two-year basis and 3.4% brand comp growth on a three-year basis. The first quarter decline was driven by reduced higher ticket furniture sales, partially offset by relative strength from our textile, easy decorating, and seasonal celebrations categories. The Pottery Barn Kids and Teen brands saw 2.8% brand comp growth in the first quarter of fiscal 2024, 0.5% brand comp decline on a two-year basis, and 3.6% brand comp decline on a three-year basis. The first quarter growth was driven by strength in our dorm and baby offerings.

West Elm saw 4.1% brand comp decline in the first quarter of fiscal 2024, 19.9% brand comp decline on a two-year basis, and 7.1% brand comp decline on a three-year basis. The first quarter decline was driven by West Elm continuing to be affected by the customer pull back in furniture as a result of the brand's high percentage of its assortment in the furniture category and our strategy to reduce promotional activity, partially offset by strength from new designs across categories including furniture, kids and decorative accessories.

The Williams Sonoma brand saw 0.9% brand comp growth in the first quarter of fiscal 2024, 3.5% brand comp decline on a two-year basis and 5.7% brand comp decline on a three-year basis. The first quarter growth was driven by the kitchen business, which included strength in Williams Sonoma branded products in the bakeware, cutlery and food categories.

Subsequent to the filing of our Form 10-K, in April 2024, the Company determined that it over-recognized freight expense in fiscal years 2021, 2022 and 2023 for a cumulative amount of $49.0 million. The Company evaluated the error, both qualitatively and quantitatively, and determined that no prior interim or annual periods were materially misstated. The Company then evaluated whether the cumulative amount of the over-accrual was material to its projected fiscal 2024 results, and determined the cumulative amount was not material. Therefore, the Condensed Consolidated Financial Statements for the thirteen weeks ended April 28, 2024 include an out-of-period adjustment of $49.0 million to reduce cost of goods sold and accounts payable, which corrected the cumulative error on the balance sheet as of January 28, 2024.

For the first quarter of fiscal 2024, diluted earnings per share was $4.07, which included the benefit of an out-of-period adjustment to diluted earnings per share of $0.59. For the first quarter of fiscal 2023, diluted earnings per share was $2.35, which included charges for (i) a $0.20 impact related to exit costs associated with the closure of our West Coast manufacturing facility and the exiting of Aperture, a division of our Outward, Inc subsidiary, and (ii) a $0.09 impact related to reduction-in-force initiatives, primarily in our corporate functions.

As of April 28, 2024, we had $1.3 billion in cash and cash equivalents and generated operating cash flow of $226.8 million in the first quarter of fiscal 2024. In addition to our cash balance, we also ended the quarter with no outstanding borrowings under our revolving line of credit. Our liquidity position allowed us to fund the operations of the business by investing $39.5 million in capital expenditures in the first quarter of fiscal 2024, and to provide stockholder returns of $106.6 million in the first quarter of fiscal 2024 through dividends and stock repurchases.

#### Looking Ahead

As we look forward to the year ahead, we are focused on three key priorities, which include (i) returning to growth, (ii) elevating our world-class customer service and (iii) driving earnings. We believe these key priorities will set us apart from our competition and allow us to drive long-term growth and profitability. We have a powerful portfolio of brands, serving a range of categories, aesthetics, and life stages and we have built a strong omni-channel platform and infrastructure, which positions us well for the next stage of growth. However, the current uncertain macroeconomic environment with the weak housing market, elevated interest rates, layoffs, inflationary pressure, political uncertainty and global geopolitical tension may continue to impact our results. For information on risks, please see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2024.

### NET REVENUES

Net revenues primarily consist of sales of merchandise to our customers through our e-commerce websites, retail stores and direct-mail catalogs, and include shipping fees received from customers for delivery of merchandise to their homes. Our revenues also include sales to our business-to-business customers and franchisees, incentives received from credit card issuers in connection with our private label and co-branded credit cards and breakage income related to our stored-value cards. Revenue from the sale of merchandise is reported net of sales returns.

#### First Quarter of Fiscal 2024 vs. First Quarter of Fiscal 2023

Net revenues in the first quarter of fiscal 2024 decreased $95.1 million or 5.4%, with company comp decline of 4.9%. This was driven by continuing customer hesitancy towards furniture purchases, partially offset by strength in our emerging brands, children's home furnishings and kitchen business. Company comp declined 10.9% on a two-year basis and declined 1.4% on a three-year basis.

#### Comparable Brand Revenue

Comparable brand revenue includes comparable e-commerce sales, including through our direct-mail catalog, and store sales, as well as shipping fees, sales returns and other discounts associated with current period sales. Comparable stores are defined as permanent stores where gross square footage did not change by more than 20% in the previous 12 months, and which have been open for at least 12 consecutive months without closure for more than seven days within the same fiscal month. Outlet comparable store revenues are included in their respective brands. Business-to-business revenues are included in comparable brand revenue for each of our brands. Sales to our international franchisees are excluded from comparable brand revenue as their stores and e-commerce websites are not operated by us. Sales from certain operations are also excluded until such time that we believe those sales are meaningful to evaluating their performance. Additionally, comparable brand revenue for newer concepts is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.

| Comparable brand revenue growth (decline) | For the Thirteen Weeks Ended 1 April 28, 2024 | April 30, 2023 |
| --- | ---: | ---: |
| Pottery Barn | (10.8)% | (0.4)% |
| West Elm | (4.1) | (15.8) |
| Williams Sonoma | 0.9 | (4.4) |
| Pottery Barn Kids and Teen | 2.8 | (3.3) |
| Total 2 | (4.9)% | (6.0)% |
| 1 Comparable brand revenue includes business-to-business revenues within each brand. |  |  |
| 2 Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham. |  |  |

### STORE DATA

| Store Count January 28, 2024 Openings Closings | April 28, 2024 | April 30, 2023 | Average Leased Square Footage Per Store April 28, 2024 | April 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Pottery Barn 184 1 (1) | 184 | 188 | 15,100 | 14,800 |
| Williams Sonoma 156 — — | 156 | 165 | 6,900 | 6,900 |
| West Elm 121 1 (1) | 121 | 123 | 13,300 | 13,200 |
| Pottery Barn Kids 46 — (1) | 45 | 46 | 7,900 | 7,700 |
| Rejuvenation 11 — — | 11 | 9 | 8,100 | 8,000 |
| Total 518 2 (3) | 517 | 531 | 11,400 | 11,300 |
| Store selling square footage at period-end |  |  | 3,815,000 | 3,816,000 |
| Store leased square footage at period-end |  |  | 5,901,000 | 5,974,000 |

### GROSS PROFIT

*(In thousands)*

|  | For the Thirteen Weeks Ended April 28, 2024 | % Net Revenues | April 30, 2023 | % Net Revenues | May 1, 2022 | % Net Revenues |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit 1 | $802,515 | 48.3% | $675,059 | 38.5% | $828,548 | 43.8% |

*1Includes occupancy expenses of $196.2 million, $202.6 million and $186.4 million for the first quarters of fiscal 2024, fiscal 2023 and fiscal 2022, respectively.*

Gross profit is equal to our net revenues less cost of goods sold. Cost of goods sold includes (i) cost of goods, which consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage; (ii) occupancy expenses, which consists of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation; and (iii) shipping costs, which consists of third-party delivery services and shipping materials.

Our classification of expenses in cost of goods sold may not be comparable to other public companies, as we do not include non-occupancy-related costs associated with our distribution network in cost of goods sold. These costs, which include distribution network employment, third-party warehouse management and other distribution-related administrative expenses, are recorded in selling, general and administrative expenses ("SG&A").

#### First Quarter of Fiscal 2024 vs. First Quarter of Fiscal 2023

Gross profit increased $127.5 million, or 18.9%, compared to the first quarter of fiscal 2023. Gross margin increased to 48.3% from 38.5% in the first quarter of fiscal 2023. The increase in gross margin of 980 basis points was primarily driven by (i) higher merchandise margins of 480 basis points, (ii) an out-of-period period freight adjustment of 290 basis points, (iii) supply chain efficiencies of 240 basis points, including reductions in returns, replacements, damages and accommodations as well as limiting out-of-market and multiple shipments, partially offset by (iv) the deleverage of occupancy costs of 30 basis points resulting from lower sales.

*First Quarter of Fiscal 2023 vs. First Quarter of Fiscal* 2022

Gross profit decreased $153.5 million or 18.5%, compared to the first quarter of fiscal 2022. Gross margin decreased to 38.5% from 43.8% in the first quarter of fiscal 2022. The decline in gross margin of 530 basis points was primarily driven by (i) higher input costs as we absorbed higher product costs, ocean freight, detention and demurrage due to the impact of supply chain disruption and global inflation pressures, (ii) higher outbound customer shipping costs due to out-of-market shipping and shipping multiple times for multi-unit orders, and (iii) higher occupancy costs resulting from incremental costs from our new distribution centers on the East and West Coasts to support our long-term growth, which was partially offset by (iv) the higher pricing power of our proprietary products, (v) our ongoing commitment to forgo site wide promotions and (vi) our retail store optimization initiatives.

### SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

*(In thousands)*

|  | For the Thirteen Weeks Ended April 28, 2024 | % Net Revenues | April 30, 2023 | % Net Revenues |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $478,687 | 28.8% | $475,582 | 27.1% |

SG&A consists of non-occupancy related costs associated with our retail stores, distribution and manufacturing facilities, customer care centers, supply chain operations (buying, receiving and inspection) and corporate administrative functions. These costs include employment, advertising, third party credit card processing, impairment and other general expenses.

#### First Quarter of Fiscal 2024 vs. First Quarter of Fiscal 2023

SG&A increased $3.1 million, or 0.7%, compared to the first quarter of fiscal 2023. SG&A as a percentage of net revenues increased to 28.8% from 27.1% in the first quarter of fiscal 2023. This increase in rate was primarily driven by (i) an increase in advertising expenses to drive sales at an efficient return and (ii) an increase in employment expense due to higher performance-based incentive compensation, which does not include any benefit from the out-of-period freight adjustment, partially offset by (iii) exit costs of $15.8 million and reduction-in-force initiatives of $8.3 million totaling $24.1 million in the first quarter of fiscal 2023 which did not recur in the first quarter of fiscal 2024.

### INCOME TAXES

The effective tax rate was 21.8% for the first quarter of fiscal 2024 compared to 23.6% for the first quarter of fiscal 2023. The decrease in the tax rate is primarily due to (i) higher excess tax benefit from stock-based compensation in the first quarter of 2024 and (ii) the tax effect of earnings mix change, partially offset by (iii) the expiration of the statues of limitations related to uncertain tax positions in fiscal 2023.

Since the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting ("Framework") in 2021, a number of countries have begun to enact legislation to implement the OECD international tax framework, including the Pillar Two minimum tax regime. To mitigate the administrative burden for Multinational Enterprises in complying with the OECD Global Anti-Base Erosion rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor” ("Safe Harbor"). This transitional Safe Harbor applies for fiscal years beginning on or before December 31, 2026, but not including a fiscal year that ends after June 30, 2028. Under the Safe Harbor, the top-up tax for such jurisdiction is deemed to be zero, provided that at least one of the Safe Harbor tests is met for the jurisdiction.

In the regions in which we operate, United Kingdom, Netherlands, Italy and Vietnam have implemented Pillar Two frameworks effective January 1, 2024. The Company's subsidiaries are not subject to Pillar Two minimum tax in the first quarter of fiscal 2024 under the Safe Harbor rules.

Pillar Two minimum tax will be treated as a period cost in future periods when it is applicable. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, and monitoring legislative developments by other countries, especially in the regions in which we operate.

### LIQUIDITY AND CAPITAL RESOURCES

### Material Cash Requirements

There were no material changes during the quarter to the Company’s material cash requirements, commitments and contingencies that are described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2024, which is incorporated herein by reference.

### Stock Repurchase Program and Dividends

See Note G to our Condensed Consolidated Financial Statements, *Stock Repurchase Program and Dividends,* within Item 1 of this Quarterly Report on Form 10-Q for further information.

### Liquidity Outlook

For the remainder of fiscal 2024, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment-related costs, advertising and marketing initiatives, the payment of income taxes, property and equipment purchases, rental payments on our leases, dividend payments and stock repurchases.

We believe our cash on hand, cash flows from operations, and our available credit facilities will provide adequate liquidity for our business operations as well as dividends, capital expenditures, stock repurchases and other liquidity requirements associated with our business operations over the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

### Sources of Liquidity

As of April 28, 2024, we held $1.3 billion in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which $83.3 million was held by our international subsidiaries. As is consistent within our industry, our cash balances are seasonal in nature, with the fourth quarter historically representing a significantly higher level of cash than other periods.

In addition to our cash balances on hand, we have a credit facility (the "Credit Facility") which provides for a $500 million unsecured revolving line of credit (the “Revolver”). Our Revolver may be used to borrow revolving loans or to request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders’ option, to increase the Revolver by up to $250 million to provide for a total of up to $750 million of unsecured revolving credit.

During the thirteen weeks ended April 28, 2024 and April 30, 2023, we had no borrowings under our Revolver. Additionally, as of April 28, 2024, issued but undrawn standby letters of credit of $10.9 million were outstanding under our Revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs.

Our Credit Facility contains certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for operating lease liabilities to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of April 28, 2024, we were in compliance with our financial covenants under our Credit Facility and, based on our current projections, we expect to remain in compliance throughout the next 12 months.

#### Letter of Credit Facilities

We have three unsecured letter of credit facilities for a total of $35 million. Our letter of credit facilities contain covenants that are consistent with our Credit Facility. Interest on unreimbursed amounts under our letter of credit facilities accrues at a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio. As of April 28, 2024, the aggregate amount outstanding under our letter of credit facilities was $0.4 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. Two of our letter of credit facilities totaling $30 million mature on August 18, 2024, and the latest expiration date possible for future letters of credit issued under these facilities is January 15,

2025\. One of the letter of credit facilities totaling $5 million matures on September 30, 2026, which is also the latest expiration date possible for future letters of credit issued under the facility.

#### Cash Flows from Operating Activities

For the first quarter of fiscal 2024, net cash provided by operating activities was $226.8 million compared to $342.5 million for the first quarter of fiscal 2023. For the first quarter of fiscal 2024, net cash provided by operating activities was primarily attributable to net earnings adjusted for non-cash items and an increase in income taxes payable, partially offset by accounts payable (as a result of supplier payment timing and the out-of-period adjustment) and accrued expenses and other liabilities. Net cash provided by operating activities compared to the first quarter of fiscal 2023 decreased primarily due to a decrease in accounts payable (as a result of supplier payment timing), partially offset by an increase in net earnings adjusted for non-cash items.

#### Cash Flows from Investing Activities

For the first quarter of fiscal 2024, net cash used in investing activities was $39.5 million compared to $49.9 million for the first quarter of fiscal 2023, and was primarily attributable to purchases of property and equipment related to technology, supply chain enhancements and store construction.

#### Cash Flows from Financing Activities

For the first quarter of fiscal 2024, net cash used in financing activities was $193.7 million compared to $362.4 million for the first quarter of fiscal 2023, primarily driven by tax withholdings remittance related to stock-based awards, payment of dividends and repurchases of common stock. Net cash used in financing activities for the first quarter of fiscal 2024 decreased compared to the first quarter of fiscal 2023, primarily due to a decrease in repurchases of common stock, partially offset by higher tax withholdings remittance related to stock-based awards (as a result of remittance timing).

### Seasonality

Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our revenues and net earnings have been realized during the period from October through January, and levels of net revenues and net earnings have typically been lower during the period from February through September. We believe this is the general pattern associated with the retail industry. In preparation for and during our holiday selling season, we hire a substantial number of additional temporary associates, primarily in our retail stores, distribution facilities and customer care centers.

### CRITICAL ACCOUNTING ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates. During the first quarter of fiscal 2024, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024.

## Market risk

As filed, 4,373 characters.

We are exposed to market risks, which include significant deterioration of the U.S. and foreign markets, changes in U.S. interest rates, foreign currency exchange rate fluctuations, and the effects of economic uncertainty which may affect the prices we pay our vendors in the foreign countries in which we do business. We do not engage in financial transactions for trading or speculative purposes.

#### Interest Rate Risk

Our Revolver has a variable interest rate which, when drawn upon, subjects us to risks associated with changes in that interest rate. During the first quarter of fiscal 2024, we had no borrowings under our Revolver.

In addition, we have fixed and variable income investments consisting of short-term investments classified as cash and cash equivalents, which are also affected by changes in market interest rates. As of April 28, 2024, our investments, made primarily in interest-bearing demand deposit accounts and money market funds, are stated at cost and approximate their fair values.

#### Foreign Currency Risks

We purchase the majority of our inventory from suppliers outside of the U.S. in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to these international purchase transactions was not significant to us during the first quarter of fiscal 2024 or the first quarter of fiscal 2023. Since we pay for the majority of our international purchases in U.S. dollars, however, a decline in the U.S. dollar relative to other foreign currencies would subject us to risks associated with increased purchasing costs from our suppliers in their effort to offset any lost profits associated with any currency devaluation. We cannot predict with certainty the effect these increased costs may have on our financial statements or results of operations.

In addition, our businesses in Canada, Australia and the United Kingdom, and our operations throughout Asia and Europe, expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a functional currency other than the U.S. dollar. While the impact of foreign currency exchange rate fluctuations was not material to us in the first quarter of fiscal 2024 or the first quarter of fiscal 2023, we have continued to see volatility in the exchange rates in the countries in which we do business. Additionally, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical or current Condensed Consolidated Financial Statements. As we continue to expand globally, the foreign currency exchange risk related to our foreign operations may increase. To mitigate this risk, we may hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies.

#### Inflation

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have experienced varying levels of inflation, resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased product costs, increased labor costs in the supply chain and other disruptions caused by the pandemic and the uncertain economic environment. We believe the effects of inflation, if any, on our financial statements and results of operations have been immaterial to date. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future, including by the heightened levels of inflation experienced globally during the first quarter of fiscal 2024 and the first quarter of fiscal 2023. Global trends, including inflationary pressures, are weakening customer sentiment, negatively impacting consumer spending behavior and slowing down consumer demand for our products. However, our unique operating model and pricing power helped mitigate these increased costs during the first quarter of fiscal 2024 and the first quarter of fiscal 2023. Our inability or failure to offset the impact of inflation could harm our business, financial condition and results of operations.

## Controls and procedures

As filed, 1,201 characters.

#### Evaluation of Disclosure Controls and Procedures

As of April 28, 2024, an evaluation was performed by management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely discussions regarding required disclosures, and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

#### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first quarter of fiscal 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 270 characters.

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2024 for a description of the risks and uncertainties associated with our business. There were no material changes to such risk factors in the current quarterly reporting period.

Filed May 24, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-025227. Last ingested by Listed: Nov 4, 2026, 20:02 ET. No prices; not investment advice.