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No other home furnishings company offers our digital-first but not digital-only channel strategy that's transforming the customer experience. With our proprietary e-commerce platform, we are one of the largest e-commerce players in the United States. Our in-house CRM and data analytic teams optimize our digital spend and customer connections. And our great stores not only deliver an outstanding customer experience, but also in 2022, we expanded our services with ship to store as we transition our stores to also service design centers in omni-fulfillment hubs. And no other home furnishings company has our strong record on value that many consumers want today. In Q4, we are proud to be named to Newsweek's list of America's most responsible companies.

The Morgan Stanley Capital International ESG Assessment gave us a AAA rating, the highest possible. And we were included on the 2022 S&P Dow Jones Sustainability Index for North America, the only new retailer added to the North America list in 2022. Along with our key differentiators, our success and profitability has been driven by our new growth initiatives that are cross brand and/or are outside of our core brands. Our largest cross-brand growth driver is business-to-business. Williams-Sonoma, Inc. is no longer just a home furnishings company. We furnish our customers everywhere from restaurants to hotels, from football stadiums to office spaces. We set the ambitious goal this year to reach $1 billion in demand in our B2B business, and we came very close, driving 27% year-over-year growth and 166% on a two-year basis.

And we continue to win B2B accounts due to our design capabilities and a wide range of products offered in our multi-brand portfolio. Another successful growth initiative is our expansion into global markets. In the massive market of India, our new partnership with the Reliance Group is off to a very strong start. With our exclusive and differentiated product line, our three stores and websites in India are outperforming our expectations in a market where we see tremendous opportunity. And in Canada, we relaunched our website and saw improvements in conversion and AUR across brands. In our new businesses, Rejuvenation and Mark and Graham, have also provided incremental growth. Together, in fiscal 2022, they represented nearly $270 million in revenues and drove nearly a 10% comp on the year.

These two brands service white space needs of customers. At Rejuvenation, we're expanding into remodel categories related to kitchen and bathroom, including vanities, cabinet hardware and custom wall lighting. And at Mark and Graham, our high-quality gift and personalization business is resonating with our customers, and we see outsized growth in the travel space, including luggage and accessories. Our core brands, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm and Williams-Sonoma are also key contributors to our strong fiscal 2022, together growing at 6.4%. Put it all together are key differentiators in our growth initiatives. And you see the results that we are reporting today. We're proud that we achieved our fiscal '22 annual guidance and delivered a 6.5% comp on the top line and an operating margin of 17.5%.

At the same time, we drove EPS growth of over 11% to $16.54 per share from $14.85 last year. As I said at the top, we continue to outperform our peers. In a year where the industry grew 1%, we grew more than 5%. All of this is particularly impressive given the declining macro backdrop in Q3 and Q4 of 2022 and the record demand that we are up against in 2021. Stepping back for a moment and looking at the last 12 years, it's clear that we've consistently delivered. And more recently, since 2019, we've grown our revenues more than 47%, adding $2.8 billion to the top line. We've also more than doubled our operating margin from 8.6% to 17.5%. Now let's talk specifically about Q4. Our Q4 results were achieved while the macro backdrop weakened. Our demand comps were in the negative mid-single-digit comp range and were inconsistent across our portfolio of brands, leading to a net revenue comp of negative 0.6% total company.

In addition, although supply chain cost increases pressured our margins, we were able to offset these headwinds with SG&A cost savings, producing an operating margin of 19.9% and earnings per share of $5.50 in Q4. Now let's talk about our brands for Q4 and for the full year. Pottery Barn ran a positive 5.8% comp in Q4 and a 14.9% on the full year. On a three-year basis, Pottery Barn generated a 54% comp. Pottery Barn's inspirational product offering and successful execution of its growth initiatives like the Accessible Home, Apartment and Marketplace drove the performance. Also, our holiday offering was successful. As we look to the year ahead, the brand has a strong lineup of product offerings, including new products with great design and sharp price points.

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The Pottery Barn Children's business ran a positive 4% comp in Q4 and a positive 0.4% on the year. On a three-year basis, the Children's business generated a 28.6% comp. Growth continued to be driven from baby and dorm. And another highlight is our successful introduction of our exclusive collaboration with the trending fashion brand, LoveShackFancy, which is outperforming our expectations. Also, in both Pottery Barn Kids and Pottery Barn Teen, we're excited to have launched a shopping app, which brings enhanced functionality and provides customers with an easy-to-use interface. We've only been live with the app for a short time, but we are seeing positive response, and we'll continue to read results to determine if we should launch apps for our other brands.

In Q4, the children's business benefited from an improved in-stock position, which is critical to this life stage business and will continue to benefit us this year. The West Elm brand was most affected by the tough macro environment. In Q4, West Elm ran a negative 10.7%, coming off very strong multiyear comps. On a full year basis, West Elm ran a 2.5% comp and very strong operating margins. On a three-year basis, the West Elm brand generated a 50.8% comp. Looking ahead, we're very excited about the recent announcement of Day Kornbluth as the new brand president effective April 3rd. Day has a proven track record and previous success growing home furnishings brands. She'll lead West Elm through its next chapter of growth with a focus on four areas: industry-leading design and value; increased brand awareness and customer acquisition; expanding into product white space; and leveraging channel growth opportunity.

Given the cautious consumer, we continue to see short-term softness. But with Day Kornbluth leading this brand, the total addressable market opportunity and the focus on those four areas, we continue to be very optimistic about the long-term growth trajectory of West Elm. Finally, the Williams-Sonoma brand had a successful holiday season, but ran a negative 2.5% comp in Q4, largely driven by softness in January. On the full year, the brand ran a negative 1.7% comp. On a three-year basis, Williams-Sonoma generated a 32.6% comp. And while the housewares market has become extremely promotional, the Williams-Sonoma team remains focused on increasing product exclusivity, innovation, relevant content and full price selling. We have a pipeline of innovative product launches and chef collaborations planned throughout the year, and we see new opportunities from the integration of the Williams-Sonoma home furnishings assortment into our kitchen business.

Looking ahead, we recognize that with the weak housing market, layoffs and a possible recession, there's a lot of uncertainty with the consumer. Nevertheless, we remain confident. With our key differentiators and our growth initiatives, we're confident in our top line. With our focus on reducing costs and managing inventory levels, we're confident on our bottom line. And with the home furnishings market remaining large and fragmented, including the B2B market at an estimated $80 billion TAM, we're confident that we will continue to gain market share. With our relentless focus on compelling products, customer service and profitable growth and its inflation and costs, including shipping come down, we're confident that will drive operating margins of more than 14%, as Jeff will discuss in more detail.

Looking even further out, we remain confident in our long-term growth algorithm. I believe we're going to get through the coming environment better than any of our peers. We are going to keep delivering profitable growth, and we believe we can deliver a mid- to high-single-digit top line growth and sustain our operating margin of at least 15% once the external environment improves. This is a great company with great brands. And with our culture of innovation and talent, our values and the strength of our team, we're moving ahead with our vision to furnish our customers everywhere. As we do, we're confident that we will continue to outperform our peers and deliver for all of our customers, employees and shareholders. And with that, I'll turn it over to Jeff.

Jeff Howie: Thank you, Laura, and good morning, everyone. As Laura said, because of our key differentiators and growth initiatives, 2022 was another record year of revenue and earnings. With our relentless focus on compelling products, customer service and profitable growth, we have outperformed our peers, and we continue to gain market share. Now, I will walk you through our fiscal 2022 results, our Q4 results and then 2023 guidance. More specifically, full year 2022 net revenues grew in line with our guidance of mid- to high-single-digit growth, finishing at $8.674 billion, a 6.5% comp on top of the 22% comp in 2021 and a 17% comp in 2020. With our digital first but not digital-only platform, we saw growth across both channels, with e-commerce growing 4.5% comp and retail 11.1%.

E-commerce now represents 66% of our total revenues. Gross margin at 42.4% of net revenues, deleveraged 160 basis points from last year. That happened as we absorbed the ongoing impact of COVID supply chain disruption and global inflationary pressure. With our strong financial discipline and cost control, we were able to materially offset these headwinds in gross margin as SG&A at 24.9% of net revenue, leveraged 140 basis points from last year. Operating margin of 17.5% was consistent with our full year guidance of being materially in line with our fiscal year '21 results and demonstrates the resiliency and profitability of our operating models. Diluted earnings per share of $16.54 grew 11% over last year's $14.85, another record year of earnings for our shareholders.

In fact, we're proud that 2022 constitutes the fourth consecutive year of EPS growth for our shareholders, another example of how we've consistently delivered. Likewise, our fortress balance sheet and consistent ability to generate free cash flow allowed us to fund our business operations, increase our capital investments to $354 million to support our long-term growth, and return over $1 billion in excess cash to our shareholders. Dividend payouts were approximately $217 million or $3.12 per share, represented the 13th consecutive year we have increased our dividend. Coupled with our share repurchases of $880 million, this shows our strong commitment to maximizing total returns for our shareholders. And here's another example of our financial discipline and commitment to driving long-term growth for our shareholders.

Our 49% return on invested capital. Inclusive of our higher capital investments and increased inventory levels, our ROIC is among the best in the retail industry. To sum our 2022 results, we're proud to have delivered another year of record revenues and earnings. I want to thank all our associates for their hard work and dedication in driving these great results. Turning to our Q4 results. As Laura said, we continue to outperform our peers. This was despite the quarter's ongoing demand choppiness and declining macroeconomic backdrop. With our ability to gain market share through the strength of our proprietary in-house design and our family of strong and stable brands, our top line outperformed the industry. Our resilient operating margin demonstrates the power of our operating model to sustain profitability.

Net revenues came in at $2.453 billion, with comparable brand revenue growth at negative 0.6%. Demand on the quarter was in the mid-single-digit negative comp range, decelerating from Q3's demand trends. We saw a strong holiday season book ended by a soft early November and a soft January. Our net revenues were driven by strong order fulfillment, ongoing momentum in our growth initiatives and our continued ability to take market share even as we continue to experience inconsistent demand. Moving down the income statement. Gross margin at 41.2% was in line with our expectations. Coming in 380 basis points below last year, it reflects the impact of the higher input costs flowing through our income statement, including higher product costs, ocean freight, detention and demurrage as well as our efforts to meet our customers' service expectations.

Merchandise margins decreased from last year as we started to absorb the capitalized costs from higher product costs, ocean freight, detention and demurrage into our income statement. This was partially offset by the higher pricing power, our proprietary products command and by our ongoing commitment to forgo site-wide promotions. The gross margin decline was also attributable to higher outbound customer shipping costs. We continue to incur these higher costs to best serve our customers by shipping from out-of-market distribution centers, and, in some cases, shipping multiple times for multiunit orders, which typically would have been fulfilled in a single shipment. We're working hard to rebalance our inventory composition and regional inventory location to improve our customer service.

We expect customer service to gradually improve over the next few quarters. Occupancy costs at 8.3% of net revenues were 60 basis points above last year, with occupancy dollars increasing 5% to approximately $204 million. Our ongoing retail store optimization initiatives partially offset incremental costs from our new distribution centers on both the East and West Coasts. These new distribution centers will support our long-term growth, improve service time for our customers and drive cost efficiencies over time. Our SG&A rate continues to be at a historic low at 21.3%, leveraging 270 basis points over last year, showcasing our financial discipline and ability to control costs, employment leverage to last year as we manage variable employment costs in accordance with our top line trends and adjusted incentive compensation with business performance.

Our advertising leverage reflects the agile, performance-driven proficiency of our marketing team. Our in-house capabilities, first-party data and multi-brand platform are an underappreciated competitive advantage that allows us to drive efficient advertising spend in near real time as we see trends evolve in the business. SG&A also includes recoveries from insurance in the fourth quarter. With regard to the bottom line, we delivered another solid quarter of earnings in a challenging environment. Q4 operating income of $487 million and operating margin at 19.9%, which is only 110 basis points below last year, reflects the durability of our profitability, despite significant macroeconomic headwinds and inflationary cost pressures. Our record diluted earnings per share of $5.50 was $0.08 or 1.5% above last year's record fourth quarter earnings per share of $5.42.

On the balance sheet, we ended the quarter with a cash balance of $367 million and no debt outstanding. This is inclusive of consistently paying our quarterly dividend and opportunistically repurchasing shares with our commitment to maximizing shareholder value. Merchandise inventories, which include in-transit inventory, at $1.456 billion, increased 17% over last year, while inventory on hand increased 40% over last year. There are three important points to emphasize here. First, our inventory on hand increase is skewed by last year's pandemic-related supply chain disruption, creating an artificially low base. An apples-to-apples comparison versus 2019 highlights how we've improved our inventory turnover as our on-hand inventory levels have increased only 21% against revenue growth of over 47% during that time.

Second, supply chain congestion eased earlier than anticipated in Q4. Like many retailers, we adjusted our transit times during the pandemic and received receipts substantially earlier than we expected in Q4 as transit times normalize. While this contributed to our increased inventory levels, it enabled us to substantially reduce our backlog to normalized levels. Third, our lower balance sheet inventory growth reflects a 40% reduction in merchandise in transit, as we've aligned our future on order with cautious forward-looking demand given the macroeconomic outlook. To sum up our Q4 results, we've outperformed our industry. Our top line proves our ability to take market share. Our operating margin demonstrates the resiliency of our profitability, and our record earnings per share is testimony to our commitment to maximize shareholder returns.

Now, let's look ahead to 2023. Due to the macroeconomic uncertainty, we are providing a wide range of guidance for '23. 2023 net revenues are expected to be in the range of down 3 comp to positive 3 comp, with operating margins between 14% and 15%. We expect the first half of the year will be materially tougher. On the top line, our year-over-year demand comparisons and last year's high back order fill, coupled with the declining macro will likely yield negative comps. On the bottom line, we continue to foresee gross margin pressure, as we saw in Q4. The higher input costs sitting on our balance sheet will continue to amortize into our income statement as well as ongoing incremental shipping costs to service our customers. In the back half of the year, these headwinds should turn into tailwinds as our top line year-over-year comparisons get easier and our gross margin pressures become tailwinds that support our profitability.

Our capital allocation plans for 2023 prioritize funding our business operations and investing in our long-term growth. We expect to spend $250 million in capital expenditures to invest in the long-term growth of our business. This constitutes a 30% decrease from 2022, with 80% of the spend dedicated to driving our e-commerce leadership through technology enhancements and supply chain efficiency initiatives. We expect to continue to return excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, today, we announced another double-digit increase in our quarterly dividend payout of 15% or $0.12 to $0.90 per share. Again, fiscal year '23 will be the 14th consecutive year of increased dividend payout, which we are both proud of and committed to.

For share repurchases, today, we also announced our Board has approved a new $1 billion share repurchase authorization, under which we will opportunistically repurchase our stock to deliver returns for our shareholders. Combined, our dividend increase and new share repurchase authorization continue our commitment to returning excess cash to our shareholders. In fact, we returned over $3.2 billion to our shareholders over the last five years, which is yet another example of how we've consistently delivered. As Laura said, we remain confident in the long-term fundamentals of our business as we look beyond 2023. Our long-term growth algorithm will continue to drive mid- to high-single-digit top line growth, with operating margins exceeding a floor of 15%.

As the world's largest digital-first, design-led sustainable home retailer, we're confident we'll continue to outperform our peers and deliver profitable growth for these reasons: our ability to gain market share in the fractured home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital first but not digital-only channel strategy, the strength of our growth initiatives, our ability to control costs, the durability of our profitability and the resiliency of our fortress balance sheet. With that, I'll open the call for questions.

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