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WILLIAMS SONOMA INC - Annual Report: 2024 (Form 10-K)

Net cash used in financing activities()()()Effect of exchange rates on cash and cash equivalents ()()Net increase (decrease) in cash and cash equivalents ()()Cash and cash equivalents at beginning of year   Cash and cash equivalents at end of year$ $ $ Supplemental disclosure of cash flow information:Cash paid during the year for interest$ $ $ Cash paid during the year for income taxes, net of refunds$ $ $ Non-cash investing activities:Purchases of property and equipment not yet paid for at end of year$ $ $ 

See Notes to Consolidated Financial Statements.

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Williams-Sonoma, Inc.
Notes to Consolidated Financial Statements
Note A:
 million and $ million as of January 28, 2024 and January 29, 2023, respectively. There was no change in total liabilities as a result of these reclassifications.
Additionally, certain amounts reported in our Consolidated Statement of Cash Flows for the fifty-two weeks ended January 29, 2023 and the fifty-two weeks ended January 30, 2022 have been reclassified in order to conform to the current period presentation. These reclassifications impacted amortization of deferred lease incentives and the line item for all other adjustments within operating activities. Other adjustments include amortization of deferred lease incentives of $ million, $ million and $ million for the fifty-two weeks ended January 28, 2024, January 29, 2023 and January 30, 2022, respectively. There was no change in net cash provided by operating activities as a result of these reclassifications.

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As of January 28, 2024, and January 29, 2023, our inventory obsolescence reserves were $ million and $ million, respectively.
– years)
Fixtures and equipment
– years
Buildings and building improvements
– years
Capitalized software
– years
We review the carrying value of all long-lived assets for impairment, primarily at an individual store level, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Our impairment analyses determine whether projected cash flows from operations are sufficient to recover the carrying value of these assets. The asset group is comprised of both property and equipment and operating lease right-of-use assets. Impairment may result when the carrying value of the asset or asset group exceeds the estimated undiscounted future cash flows over its remaining useful life. For asset impairment, our estimate of undiscounted future cash flows over the lease term is based upon our experience, the historical operations and estimates of future profitability and economic conditions. The estimates of future profitability and economic conditions require estimating such factors as sales growth, gross margin, employment costs, lease escalations, inflation and the overall economics of the retail industry, and are therefore subject to variability and difficult to predict. For right-of-use assets, we determine the fair value of the assets by using estimated market rental rates. These estimates can be affected by factors such as future results, real estate supply and demand, closure plans, and economic conditions that can be difficult to predict. Actual future results may differ from those estimates. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the excess of the asset or asset group’s net carrying value over its estimated fair value. We measure property and equipment at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy (see Note M to our Consolidated Financial Statements). We measure right-of-use assets at fair value on a nonrecurring basis using Level 2 inputs, primarily market rental rates, that are corroborated by market data. Where Level 2 inputs are not readily available, we use Level 3 inputs. Fair value of these long-lived assets is based on the present value of estimated future cash flows using a discount rate commensurate with the risk.
During fiscal 2023, we recognized impairment charges of $ million, which consisted of (i) the write-down of leasehold improvements of underperforming stores of $ million, (ii) the write-down of operating lease right-of-use-assets of $ million, and (iii) the write-off of property and equipment of $ million resulting from the exit of Aperture, a division of our Outward subsidiary, all of which is recognized within selling, general and

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 million, which consisted of: (i) $ million related to the impairment of property and equipment and $ million related to the impairment of operating lease right-of-use assets resulting from underperforming stores in Australia and (ii) $ million related to the impairment of property and equipment associated with Aperture due to these assets not being recoverable in light of projected future cash flows, all of which is recognized within SG&A. During fiscal 2021, impairment charges were recognized. to years. We determine whether an arrangement is or contains a lease at inception by evaluating potential lease agreements including services and operating agreements to determine whether an identified asset exists that we control over the term of the arrangement. Lease commencement is determined to be when the lessor provides us access to, and the right to control, the identified asset.
The rental payments for our leases are typically structured as either fixed or variable payments. Our fixed rent payments include: stated minimum rent and stated minimum rent with stated increases. We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable rent payments include: rent increases based on a future index; rent based on a percentage of store sales; payments made for pass-through costs for property taxes, insurance, utilities and common area maintenance; and rent based on a percentage of store sales if a specified store sales threshold or contractual obligation of the landlord has not been met.
Upon lease commencement, we recognize a right-of use asset and a corresponding lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a remeasurement event occurs.
Many of our leases contain renewal and early termination options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement, as we do not believe the exercise of these options to be reasonably certain. We remeasure the lease liability and right-of-use asset once we are reasonably certain to exercise a renewal or an early termination option.
Our leases generally do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment. We use judgment in determining our incremental borrowing rate, which is applied to each lease based on the lease term. An increase or decrease in the incremental borrowing rate applied would impact the value of our right-of-use assets and lease liabilities.
We use judgment in determining lease classification, including our determination of the economic life and the fair market value of the identified asset. The fair market value of the identified asset is generally estimated based on comparable market data provided by third-party sources. All of our leases are currently classified as operating leases.

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million, primarily related to our fiscal 2017 acquisition of Outward and our fiscal 2011 acquisition of Rejuvenation. In fiscal 2023, we performed our qualitative annual assessment of goodwill impairment and concluded that the fair value of each of our reporting units exceeded its carrying value. Accordingly, no further impairment testing of goodwill was performed and we did recognize any goodwill impairment in fiscal 2023. In fiscal 2022, we performed our annual quantitative assessment of goodwill impairment for the Aperture reporting unit, a division of our Outward subsidiary, using the income approach. We fully impaired the goodwill related to the Aperture reporting unit due to these assets not being recoverable in light of projected future cash flows, resulting in goodwill impairment charges of $ million. For all other reporting units, we concluded that the fair value exceeded their carrying values and no further impairment testing of goodwill was performed. In fiscal 2021, we performed our annual assessment of goodwill impairment and concluded that the fair value of each of our reporting units exceeded its carrying value. Accordingly, no further impairment testing of goodwill was performed. We did t recognize any goodwill impairment in fiscal 2021.
Self-insurance reserves for workers’ compensation, associate health benefits, product and other general liability claims were $ million and $ million as of January 28, 2024 and January 29, 2023, respectively.

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As of January 28, 2024 and January 29, 2023, we recorded a liability for expected sales returns of approximately $ million and $ million, respectively, within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately $ million and $ million, respectively, within other current assets in our Consolidated Balance Sheets.
, the majority of which is recognized within one year of the card issuance. Breakage revenue is not material to our Consolidated Financial Statements.
We have customer loyalty programs, which allow members to earn points for each qualifying purchase. Customers can earn points through spend on both our private label and co-branded credit cards, or can earn points as part of our non-credit card related loyalty program. Points earned through both loyalty programs enable members to receive certificates that may be redeemed on future merchandise purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer. The allocated consideration for the points or certificates earned by our loyalty program members is deferred based on the standalone selling price of the points and recorded within gift card and other deferred revenue within our Consolidated Balance Sheet. The measurement of standalone selling prices takes into consideration the discount the customer would receive in a separate transaction for the delivered item, as well as our estimate of certificates expected to be issued and redeemed, based on historical patterns. This measurement is applied to our portfolio of performance obligations for points or certificates earned, as all obligations have similar economic characteristics. We believe the impact to our Consolidated Financial Statements would not be materially different if this measurement was applied to each individual performance obligation. Revenue is recognized for these performance obligations at a point in time when certificates are redeemed by the customer. These obligations relate to contracts with terms less than one year, as our certificates generally expire within from issuance.
We enter into agreements with credit card issuers in connection with our private label and co-branded credit cards, whereby we receive cash incentives in exchange for promised services, such as licensing our brand names and marketing the credit card program to customers. These separate non-loyalty program related services promised under these agreements are interrelated and are thus considered a single performance obligation. Revenue is recognized over time as we transfer promised services throughout the contract term.
As of January 28, 2024 and January 29, 2023, we had recorded $ million and $ million, respectively, for gift card and other deferred revenue within current liabilities in our Consolidated Balance Sheets. The increase in our gift card and other deferred revenue balance was primarily due to advance payments collected on certain product categories.

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Total advertising expenses were approximately $ million, $ million and $ million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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Note B:
 $ Leasehold improvements  Fixtures and equipment  Land and buildings  
Construction in progress 1
  Corporate systems projects in progress  
Total
  Accumulated depreciation()()
Property and equipment, net
$ $ 
1 Construction in progress primarily consists of fixtures and equipment and leasehold improvements related to new, expanded or remodeled distribution centers and retail stores where construction had not been completed as of year-end.
Note C:
 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 $ million to provide for a total of $ million of unsecured revolving credit.
During fiscal 2023 and fiscal 2022, we had borrowings under our Revolver. Additionally, as of January 28, 2024, issued but undrawn standby letters of credit of $ 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 Revolver matures on September 30, 2026, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized. We may elect to extend the maturity date, subject to lender approval.
The Credit Facility was amended in June 2023 to replace the LIBOR with the SOFR as the basis for establishing the interest rate applicable to certain borrowings under the agreement. The interest rate applicable to the Revolver is variable and may be elected by us as: (i) the SOFR plus basis points and an applicable margin based on our leverage ratio ranging from % to % or (ii) a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio, ranging from % to %.
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 January 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
unsecured letter of credit facilities for a total of $ 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 January 28, 2024, the aggregate amount outstanding under our letter of credit facilities was $ million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 18, 2023, we renewed of our letter of credit facilities on substantially similar terms. of the letter of credit facilities totaling $ 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. of the letter of credit facilities totaling $ million matures on September 30, 2026, which is also the latest expiration date possible for future letters of credit issued under the facility.


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Note D:
 $ $ 
Foreign
   
Total
$ $ $  $ $ 
State
   
Foreign
   Total current$ $ $ 
Deferred
Federal
$()$()$ 
State
 ()()
Foreign
 ()()Total deferred$()$()$ 
Total provision
$ $ $ 
The Inflation Reduction Act, enacted on August 16, 2022, includes a new 15% minimum tax on “adjusted financial statement income” effective for tax years beginning after December 31, 2022. The company was not subject to the minimum tax for fiscal 2023.
In addition to U.S. tax law changes, a number of countries have begun to enact legislation to implement the Organization for Economic Cooperation and Development (“OECD”) international tax framework, including the Pillar Two minimum tax regime. The OECD continues to release additional guidance on these rules and the Framework calls for law enactment by OECD and G20 members to take effect in 2024 or 2025. Pillar Two minimum tax will be treated as a period cost in future years and did not impact our results of operations for fiscal 2023. 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 that we operate.

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 % % %State income tax rate   Officer’s compensation under Sec.162(m)   Deferred true up  ()Change in uncertain tax positions() ()Rate differential()()()Stock-based compensation()()()Credits ()()Other  ()Total % % %

 $  Merchandise inventories  Compensation  Gift cards  Accrued liabilities  Executive deferred compensation  Stock-based compensation  State taxes  Loyalty rewards  State net operating loss  Operating lease right-of-use assets()()Property and equipment()()Deferred lease incentives()()Other()()
Valuation allowance
()()
Total deferred tax assets, net
$ $ 
We had net state operating loss carry-forwards as of January 28, 2024. A valuation allowance has been provided against certain state net operating loss carry-forwards, as we do not expect to fully utilize the losses in future years.

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 $ $ 
Increases related to current year tax positions
   
Increases for tax positions for prior years
   
Decrease for tax positions for prior years
()()()
Lapse in statute of limitations
()()()Ending balance$ $ $ 
As of January 28, 2024, we had $ million of gross unrecognized tax benefits, of which $ million would, if recognized, affect the effective tax rate.
We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of January 28, 2024 and January 29, 2023, our accruals for the payment of interest and penalties totaled $ million and $ million, respectively.
Due to the potential resolution of tax issues, it is reasonably possible that the balance of our gross unrecognized tax benefits could decrease within the next twelve months by a range of $ to $ million.
We file income tax returns in the U.S. and foreign jurisdictions. We are subject to examination by the tax authorities in these jurisdictions. Our U.S. federal taxable years for which the statute of limitations has not expired are fiscal years 2020 to 2023. Substantially all material state, local and foreign jurisdictions’ statutes of limitations are closed for taxable years prior to 2019.

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Note E:
 $ $ 
Variable lease costs
   
Total lease costs
$ $ $ 
Sublease income and short-term lease costs were not material to us for fiscal 2023, fiscal 2022 and fiscal 2021.
 $ $ 
Our net additions to right-of-use assets were approximately $ million and $ million in fiscal 2023 and fiscal 2022, respectively.
Weighted-average incremental borrowing rate % % Fiscal 2025 Fiscal 2026 Fiscal 2027 Fiscal 2028 Fiscal 2029 and thereafter Total lease payments Less: interest()Total operating lease liabilities Less: current operating lease liabilities()Total non-current operating lease liabilities$ 
We have also entered into agreements to lease additional retail spaces, which will commence in fiscal 2024. Accordingly, future minimum lease payments under these agreements are not included in the table above.
Memphis-Based Distribution Facility
We have entered into an agreement with a partnership comprised of the estate of W. Howard Lester, our former Chairman of the Board and Chief Executive Officer, and the estate of James A. McMahan, a former Director Emeritus and significant stockholder and unrelated parties to lease a distribution facility in Memphis, Tennessee through January 31, 2025. We made annual rental payments of approximately $ million, $ million, and $ million plus applicable taxes, insurance and maintenance expenses in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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Note F:
  $ Effect of dilutive stock-based awards 
Diluted
$  $ Fiscal 2022
Basic
$  $ Effect of dilutive stock-based awards 
Diluted
$  $ Fiscal 2021
Basic
$  $ Effect of dilutive stock-based awards 
Diluted
$  $ 
The effect of anti-dilutive stock-based awards was not material for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
Note G:
million shares. As of January 28, 2024, there were approximately million shares available for future grant. Awards may be granted under the Plan to officers, associates and non-associate members of the Board of Directors of the Company (the “Board”) or any parent or subsidiary. Shares issued as a result of award exercises or releases are primarily funded with the issuance of new shares.
Stock Awards
Annual grants of stock awards are limited to million shares on a per person basis. Stock awards granted to associates generally vest evenly over a period of for service-based awards. Certain performance-based awards, which have variable payout conditions based on predetermined financial targets, generally vest from the date of grant. Certain stock awards and other agreements contain vesting acceleration clauses resulting from events including, but not limited to, retirement, disability, death, merger or a similar corporate event. Stock awards granted to non-associate Board members generally vest in . Non-associate Board members automatically receive stock awards on the date of their initial election to the Board and annually thereafter on the date of the annual meeting of stockholders (so long as they continue to serve as a non-associate Board member).
Stock-Based Compensation Expense
During fiscal 2023, fiscal 2022 and fiscal 2021, we recognized total stock-based compensation expense, as a component of SG&A expenses, of $ million, $ million, and $ million, respectively. As of January 28, 2024, there was $ million of unrecognized stock-based compensation expense (net of estimated forfeitures),

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. At each reporting period, all compensation expense attributable to vested awards has been fully recognized.
Restricted Stock Units
$ 
Granted
 
Granted, with vesting subject to performance conditions
 
Released 2
() 
Cancelled
() Balance at January 28, 2024$ $ Vested plus expected to vest at January 28, 2024$ $ 
1Intrinsic value for outstanding and unvested restricted stock units is based on the market value of our common stock on the last business day of the fiscal year (or $).
2Excludes incremental shares released due to achievement of performance conditions above target.
The following table summarizes additional information about restricted stock units:
For the Fiscal Year Ended
January 28, 2024January 29, 2023January 30, 2022
Weighted-average grant date fair value per share of awards granted$ $ $ 
Intrinsic value of awards released1 2
$ $ $ 
1Intrinsic value for releases is based on the market value on the date of release.
2Includes incremental shares released due to achievement of performance conditions above target.
Tax Benefit
We record excess tax benefits and deficiencies resulting from the settlement of stock-based awards as a benefit or expense within income taxes in the period in which they occur. During fiscal 2023, fiscal 2022, and fiscal 2021, the current tax benefit related to stock-based awards totaled $ million, $ million, and $ million, respectively.
Note H:
% of their eligible compensation each pay period. Associates designate the funds in which their contributions are invested. Each participant may choose to have their salary deferral contributions and earnings thereon invested in one or more investment funds, including our company stock fund.
Our matching contribution is equal to % of each participant’s salary deferral contribution, taking into account only those contributions that do not exceed % of the participant’s eligible pay for the pay period. Each participant’s matching contribution is earned on a semi-annual basis with respect to eligible salary deferrals for those participants that are employed with us on June 30th or December 31st of the year in which the deferrals are made. Each participant starts earning matching contributions beginning the first calendar quarter following of service. Prior to fiscal 2022, for the first five years of the participant’s employment, all matching contributions vested at the rate of % per year of service, measuring service from the participant’s hire date. Thereafter, all matching

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% after of service. Our contributions to the plan were $ million, $ million, and $ million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
The 401(k) Plan consists of two parts: a profit sharing plan portion and a stock bonus plan/associate stock ownership plan (the “ESOP”). The ESOP portion is the portion that is invested in the Williams-Sonoma, Inc. Stock Fund. The profit sharing and ESOP components of the 401(k) Plan are considered a single plan under Internal Revenue Code section 414(l).
We also have a nonqualified executive deferred compensation plan that provides supplemental retirement income benefits for a select group of management. This plan permits eligible associates to make salary and bonus deferrals that are 100% vested. We have an unsecured obligation to pay in the future the value of the deferred compensation adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. As of January 28, 2024 and January 29, 2023, $ million and $ million, respectively, is included in other long-term liabilities related to these deferred compensation obligations. Additionally, we have purchased life insurance policies on certain participants to potentially offset these unsecured obligations. The cash surrender value of these policies was $ million and $ million as of January 28, 2024 and January 29, 2023, respectively, and is included in other long-term assets, net.
Note I:
Note J:
shares of our common stock at an average cost of $ per share for an aggregate cost of $ million, excluding excise taxes on stock repurchases (net of issuances) of $ million. As of January 28, 2024, there was $ million remaining under our current stock repurchase program. In March 2024, our Board of Directors authorized a new stock repurchase program for $ billion, which replaced our existing program. As of January 28, 2024, we held treasury stock of $ million that represents the cost of shares available for issuance intended to satisfy future stock-based award settlements in certain foreign jurisdictions.
During fiscal 2022, we repurchased shares of our common stock at an average cost of $ per share for an aggregate cost of $ million. During fiscal 2021, we repurchased shares of our common stock at an average cost of $ per share for an aggregate cost of $ million.
Stock repurchases under our program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions.
Dividends
Total cash dividends declared in fiscal 2023, fiscal 2022 and fiscal 2021, were approximately $ million, or $ per common share, $ million, or $ per common share and $ million, or $ per common share, respectively. In March 2024, our Board of Directors authorized a % increase in our quarterly cash dividend, from $ to $ per common share, subject to capital availability. Our quarterly cash dividend may be limited or terminated at any time.

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Note K:
 $ $ 
West Elm
   
Williams Sonoma
   
Pottery Barn Kids and Teen
   
Other 2
   
Total 3
$ $ $ 
1Includes business-to-business net revenues within each brand.
2Primarily consists of net revenues from Rejuvenation, our international franchise operations, Mark and Graham, and GreenRow.
3Includes net revenues related to our international operations (including our operations in Canada, Australia and the United Kingdom and our franchise businesses) of approximately $ million, $ million and $ million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
 $ 
International
  
Total
$ $ 
Note L:
months. All hedging relationships are formally documented, and the forward contracts are designed to mitigate foreign currency exchange risk on hedged transactions. We record the effective portion of changes in the fair value of our cash flow hedges in other comprehensive income (“OCI”) until the earlier of when the hedged forecasted inventory purchase occurs or the respective contract reaches maturity. Subsequently, as the inventory is sold to the customer, we reclassify amounts previously recorded in OCI to cost of goods sold.
Based on the rates in

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foreign currency forward contracts outstanding. As of January 29, 2023, we had foreign currency forward contracts outstanding (in U.S. dollars) with a notional amount of $ million.
Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively, using regression analysis. Any measurable ineffectiveness of the hedge is recorded in SG&A expenses. gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all hedges were deemed effective for assessment purposes for fiscal 2023, fiscal 2022 and fiscal 2021.
The effect of derivative instruments in our Consolidated Financial Statements from gains or losses recognized in income was not material for fiscal 2023, fiscal 2022 and fiscal 2021.
The fair values of our derivative financial instruments are presented in other current assets and/or other current liabilities in our Consolidated Balance Sheets. All fair values were measured using Level 2 inputs as defined by the fair value hierarchy described in Note M.
We record all derivative assets and liabilities on a gross basis. They do not meet the balance sheet netting criteria as discussed in ASC 210, Balance Sheet, because we do not have master netting agreements established with our derivative counterparties that would allow for net settlement.


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Note M:
Goodwill
We review each reporting unit's carrying value of goodwill for impairment annually, or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. We use the income approach, whereby we calculate the fair value based on the present value of estimated future cash flows using Level 3 inputs as defined in the fair value hierarchy. The process of evaluating the potential impairment of goodwill is subjective and requires significant unobservable estimates and assumptions about the future such as sales growth, gross margin, employment costs, capital expenditures, inflation and future economic and market conditions. Additionally, our quantitative impairment test uses a discount rate that approximates the reporting unit's weighted-average cost of capital. Significant fluctuations in any of these inputs individually could significantly impact our measurement of fair value.
There were transfers between Level 1, 2 or 3 categories during fiscal 2023 or fiscal 2022.

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Note N:
)$()$()
Foreign currency translation adjustments
()— ()
Change in fair value of derivative financial instruments
— ()()
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
—   
Other comprehensive income (loss)
() ()Balance at January 30, 2022() ()
Foreign currency translation adjustments
()— ()
Change in fair value of derivative financial instruments
—   
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— ()()
Other comprehensive income (loss)
() ()Balance at January 29, 2023() ()
Foreign currency translation adjustments
()— ()
Change in fair value of derivative financial instruments
—   
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— ()()
Other comprehensive income (loss)
()()()Balance at January 28, 2024$()$()$() 
1Refer to Note L for additional disclosures about reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in the Consolidated Statements of Earnings.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Williams-Sonoma, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Williams-Sonoma, Inc. and subsidiaries (the "Company") as of January 28, 2024 and January 29, 2023, the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended January 28, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of January 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2024 and January 29, 2023, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2024, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting". Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Identification of Indicators of Impairment for Store-level Long-lived Assets — Refer to Note A and M to the financial statements.
Critical Audit Matter Description
The Company performs an analysis of the carrying value of store-level long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived assets may not be recoverable. Events that result in an impairment review may include plans to close a retail location, a significant decrease in the operating performance of the retail location, or significant adverse changes in the business climate. The Company’s evaluation of long-lived assets is primarily at the individual store level and involves the comparison of a store’s estimated future undiscounted cash flows over its remaining lease term to its carrying value. Impairment may result when the carrying value of a store’s assets exceeds the store’s estimated undiscounted future cash flows.
We identified the identification of indicators of impairment for store-level long-lived assets as a critical audit matter because the Company’s estimate of future store cash flows involves significant estimates and assumptions related to revenue growth rates and gross margin. Changes in these assumptions could have a significant impact on management’s conclusion on whether a store could be impaired and the impairment loss that is recorded.
Performing audit procedures to evaluate the appropriateness of the Company’s judgments used in these significant assumptions therefore involved a high degree of auditor judgment and an increased extent of effort, including the need to use more experienced audit professionals.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgments regarding the forecasts of revenue growth and gross margin included the following, among others:
◦We tested the effectiveness of controls over the impairment of store-level long-lived assets, including those over management’s forecasts of future revenue growth and gross margin.
◦We evaluated management’s ability to accurately forecast revenue growth rates and gross margin by performing a retrospective lookback to compare actual results to management’s historical growth forecasts.
◦We evaluated the reasonableness of management’s revenue and gross margin by comparing the forecasts to (1) historical revenues and gross margins, (2) internal communications to management and the Board of Directors, (3) external communications made by management to analysts and investors, and (4) trends in the industry and geographical region.
/s/
March 20, 2024

We have served as the Company's auditor since 1980.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of January 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 SEC.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. These internal controls are designed to provide reasonable assurance that the reported information is fairly presented, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Further, because of changes in conditions, the effectiveness of any internal control may vary over time.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of January 28, 2024. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment using those criteria, our management concluded that, as of January 28, 2024, our internal control over financial reporting is effective.
Our independent registered public accounting firm audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and the Company’s internal control over financial reporting. Their audit report appears on pages 68 through 69 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no significant changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION
Insider Adoption or Termination of Trading Arrangements
During the fourth quarter of fiscal 2023, none of our directors or officers or a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
 
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.


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PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item is incorporated by reference herein to information under the headings “Election of Directors,” “Information Concerning Executive Officers,” “Audit and Finance Committee Report,” “Corporate Governance — Corporate Governance Guidelines and Code of Business Conduct and Ethics,” and “Corporate Governance — Audit and Finance Committee” in our Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after January 28, 2024 (the “Proxy Statement”). With regard to the information required by this item regarding compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
ITEM 11.     EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference herein to information under the headings “Corporate Governance — Compensation Committee,” “Corporate Governance — Director Compensation,” and “Executive Compensation” (excluding the information under the subheading “Pay Versus Performance”) in our Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference herein to information under the heading “Security Ownership of Principal Stockholders and Management” in our Proxy Statement.
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference herein to information under the heading “Certain Relationships and Related Transactions” in our Proxy Statement.
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID #), is incorporated by reference herein to information under the headings “Audit and Finance Committee Report” and “Proposal 4 — Ratification of Selection of Independent Registered Public Accounting Firm — Deloitte Fees and Services” in our Proxy Statement.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)Financial Statements:
The following Consolidated Financial Statements of Williams-Sonoma, Inc. and subsidiaries and the related notes are filed as part of this Annual Report on Form 10-K pursuant to Item 8:
PAGE
45
45
46
47
48
49
68
(a)(2)Financial Statement Schedules: Schedules have been omitted because they are not required, are not applicable, or because the required information, where material, is included in the financial statements, notes, or supplementary financial information.
(a)(3)Exhibits: The exhibits listed in the below Exhibit Index are filed or incorporated by reference as part of this Annual Report on Form 10-K
(b)Exhibits: The exhibits listed in the below Exhibit Index are filed or incorporated by reference as part of this Annual Report on Form 10-K
(c)Financial Statement Schedules: Schedules have been omitted because they are not required or are not applicable.
 
Exhibit Index
 
CERTIFICATE OF INCORPORATION AND BYLAWS
3.1
3.2
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1
FINANCING AGREEMENTS
10.1
10.2

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STOCK PLANS
10.3+
10.4+
10.5+
10.6+
OTHER INCENTIVE PLANS
10.7+
10.8+
10.9+
10.10+
10.11+
PROPERTIES
10.12
10.13
10.14
10.15

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10.16
EMPLOYMENT AGREEMENTS
10.17+
10.18+
10.19+
OTHER AGREEMENTS
10.20+
OTHER EXHIBITS
21.1*
23.1*
97.1+*
CERTIFICATIONS
31.1*
31.2*
32.1*
32.2*
101*
The following financial statements from the Company’s Annual Report on Form
10-K for the fiscal year ended January 28, 2024, formatted in Inline XBRL: (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted under Exhibit 101).
 
*Filed herewith.
+Indicates a management contract or compensatory plan or arrangement.

ITEM 16.    FORM 10-K SUMMARY
None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
WILLIAMS-SONOMA, INC.
Date: March 20, 2024
By
/S/    LAURA ALBER
Laura Alber
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Date: March 20, 2024/s/    SCOTT DAHNKE
Scott Dahnke
Chairman of the Board of Directors
Date: March 20, 2024/s/    LAURA ALBER
Laura Alber
Chief Executive Officer and Director
(principal executive officer)
Date: March 20, 2024/s/    JEFFREY E. HOWIE
Jeffrey E. Howie
Chief Financial Officer
(principal financial officer)
Date: March 20, 2024/s/    JEREMY BROOKS
Jeremy Brooks
Chief Accounting Officer
(principal accounting officer)
Date: March 20, 2024/s/    ANNE FINUCANE
Anne Finucane
Director
Date: March 20, 2024/s/    ESI EGGLESTON BRACEY
Esi Eggleston Bracey
Director
Date: March 20, 2024/s/    FRITS VAN PAASSCHEN
Frits van Paasschen
Director
Date: March 20, 2024/s/    PAULA PRETLOW
Paula Pretlow
Director
Date: March 20, 2024/s/    WILLIAM READY
William Ready
Director


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