# EDGAR Filing Document

**Accession Number:** 0000719955
**File Stem:** 0001628280-23-009175
**Filing Date:** 2023-3
**Character Count:** 325893
**Document Hash:** cd69f7ac6b99f79da7f770960ae119be
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001628280-23-009175.hdr.sgml**: 20230324

**ACCESSION NUMBER**: 0001628280-23-009175

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 79

**CONFORMED PERIOD OF REPORT**: 20230129

**FILED AS OF DATE**: 20230324

**DATE AS OF CHANGE**: 20230324

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** WILLIAMS SONOMA INC
- **CENTRAL INDEX KEY:** 0000719955
- **STANDARD INDUSTRIAL CLASSIFICATION:** RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700]
- **IRS NUMBER:** 942203880
- **STATE OF INCORPORATION:** CA
- **FISCAL YEAR END:** 0129

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-14077
- **FILM NUMBER:** 23760825

**BUSINESS ADDRESS:**
- **STREET 1:** 3250 VAN NESS AVENUE
- **CITY:** SAN FRANCISCO
- **STATE:** CA
- **ZIP:** 94109
- **BUSINESS PHONE:** 415-421-7900

**MAIL ADDRESS:**
- **STREET 1:** 3250 VAN NESS AVENUE
- **CITY:** SAN FRANCISCO
- **STATE:** CA
- **ZIP:** 94109

?xml version="1.0" ? wsm-20230129

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**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION** 

**WASHINGTON, D.C. 20549** 

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| | |
|:---|:---|
| **FORM** | **10-K** |

---

(Mark One):

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended January 29, 2023.

OR

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u> to<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u> 

Commission file number 001-14077

---

| |
|:---|
| **WILLIAMS-SONOMA, INC.** |
| (Exact name of registrant as specified in its charter) |

---

---

| | |
|:---|:---|
| **Delaware** | **94-2203880** |
| (State or other jurisdiction of<br>incorporation or organization) | (I.R.S. Employer<br>Identification No.) |
| **3250 Van Ness Avenue, San Francisco, CA** | **94109** |
| (Address of principal executive offices) | (Zip Code) |

---

Registrant's telephone number, including area code: (415) 421-7900

Securities registered pursuant to Section 12(b) of the Act:

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| | | |
|:---|:---|:---|
| **Title of each class:** | **Trading<br>Symbol(s):** | **Name of each exchange<br>on which registered:** |
| **Common Stock, par value $.01 per share** | **WSM** | **New York Stock Exchange, Inc.** |

---

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 🗷&nbsp;&nbsp;&nbsp;&nbsp;No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐&nbsp;&nbsp;&nbsp;&nbsp;No 🗷

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 🗷&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 🗷&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 🗷 &nbsp;&nbsp;&nbsp;&nbsp;Accelerated filer ☐&nbsp;&nbsp;&nbsp;&nbsp;Non-accelerated filer ☐

Smaller reporting company ☐&nbsp;&nbsp;&nbsp;&nbsp;Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

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As of July 31, 2022, the approximate aggregate market value of the registrant's common stock held by non-affiliates was $9,561,401,198 based on the closing sale price as reported on the New York Stock Exchange on such date. It is assumed for purposes of this computation that an affiliate includes all persons as of July 31, 2022 listed as executive officers and directors with the Securities and Exchange Commission. This aggregate market value includes all shares held in the Williams-Sonoma, Inc. Stock Fund within the registrant's 401(k) Plan.

As of March 19, 2023, 66,228,239 shares of the registrant's common stock were outstanding.

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**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, also referred to in this Annual Report on Form 10-K as our Proxy Statement, which will be filed with the Securities and Exchange Commission, or SEC, have been incorporated in <u>[Part III](#i11feac0231874f069e6311a641ff37e8_157)</u> hereof.

**FORWARD-LOOKING STATEMENTS** 

This Annual Report on Form 10-K and the letter to stockholders contained in this Annual Report contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and operating results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements related to: projections of earnings, revenues, growth and other financial items; the strength of our business and our brands; our ability to execute strategic priorities and growth initiatives regarding digital leadership, product and technology innovation, cross-brand initiatives, retail transformation and operational excellence; our ability to execute on our environmental, social and governance initiatives; the continuing impact of inflation and measures to control inflation, including raising interest rates, on consumer spending; the continuing impact of the coronavirus, war in Ukraine, 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; 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; our beliefs about our competitive advantages and areas of potential future growth in the market; our ability to drive long-term sustainable returns; the plans, strategies, initiatives and objectives of management for future operations; our brands, products and related initiatives, including our ability to introduce new products and product lines and bring in new customers; the complementary nature of our e-commerce and retail channels; our marketing efforts; our global business and expansion efforts, including franchise, other third-party arrangements and company-owned operations; the seasonal variations in demand; our ability to recruit, retain and motivate skilled personnel; our belief in the reasonableness of the steps taken to protect the security and confidentiality of the information we collect; our belief in the adequacy of our facilities and the availability of suitable additional or substitute space; our belief in the ultimate resolution of current legal proceedings; the payment of dividends; our stock repurchase program; our capital allocation strategy in fiscal 2023; our planned use of cash in fiscal 2023; our compliance with financial covenants; our belief that our cash on hand and available credit facilities will provide adequate liquidity for our business operations; our belief regarding the effects of potential losses under our indemnification obligations; the effects of changes in our inventory reserves; the impact of new accounting pronouncements; and 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 "will," "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 <u>[Part I, Item 1A](#i11feac0231874f069e6311a641ff37e8_19)</u> hereto and the risks, uncertainties and assumptions discussed from time to time in our other public filings with the U.S. Securities and Exchange Commission ("SEC"), which are available on the SEC's web site at www.sec.gov. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

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**WILLIAMS-SONOMA, INC.** 

**ANNUAL REPORT ON FORM 10-K**

**FISCAL YEAR ENDED JANUARY 29, 2023** 

**TABLE OF CONTENTS** 

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| | | |
|:---|:---|:---|
| | | **PAGE** |
| | **PART I** | |
| Item 1. | <u>[Business](#i11feac0231874f069e6311a641ff37e8_16)</u> | <u>[3](#i11feac0231874f069e6311a641ff37e8_16)</u> |
| Item 1A. | <u>[Risk Factors](#i11feac0231874f069e6311a641ff37e8_19)</u> | <u>[8](#i11feac0231874f069e6311a641ff37e8_19)</u> |
| Item 1B. | <u>[Unresolved Staff Comments](#i11feac0231874f069e6311a641ff37e8_22)</u> | <u>[23](#i11feac0231874f069e6311a641ff37e8_22)</u> |
| Item 2. | <u>[Properties](#i11feac0231874f069e6311a641ff37e8_25)</u> | <u>[24](#i11feac0231874f069e6311a641ff37e8_25)</u> |
| Item 3. | <u>[Legal Proceedings](#i11feac0231874f069e6311a641ff37e8_28)</u> | <u>[25](#i11feac0231874f069e6311a641ff37e8_28)</u> |
| Item 4. | <u>[Mine Safety Disclosures](#i11feac0231874f069e6311a641ff37e8_31)</u> | <u>[25](#i11feac0231874f069e6311a641ff37e8_31)</u> |
|  | **PART II** |  |
| Item 5. | <u>[Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#i11feac0231874f069e6311a641ff37e8_37)</u> | <u>[26](#i11feac0231874f069e6311a641ff37e8_37)</u> |
| Item 6. | <u>[Reserved](#i11feac0231874f069e6311a641ff37e8_40)</u> | <u>[27](#i11feac0231874f069e6311a641ff37e8_40)</u> |
| Item 7. | <u>[Management's Discussion and Analysis of Financial Condition and Results of Operations](#i11feac0231874f069e6311a641ff37e8_43)</u> | <u>[28](#i11feac0231874f069e6311a641ff37e8_43)</u> |
| Item 7A. | <u>[Quantitative and Qualitative Disclosures About Market Risk](#i11feac0231874f069e6311a641ff37e8_73)</u> | <u>[36](#i11feac0231874f069e6311a641ff37e8_73)</u> |
| Item 8. | <u>[Financial Statements and Supplementary Data](#i11feac0231874f069e6311a641ff37e8_76)</u> | <u>[37](#i11feac0231874f069e6311a641ff37e8_76)</u> |
| Item 9. | <u>[Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#i11feac0231874f069e6311a641ff37e8_145)</u> | <u>[58](#i11feac0231874f069e6311a641ff37e8_145)</u> |
| Item 9A. | <u>[Controls and Procedures](#i11feac0231874f069e6311a641ff37e8_148)</u> | <u>[58](#i11feac0231874f069e6311a641ff37e8_148)</u> |
| Item 9B. | <u>[Other Information](#i11feac0231874f069e6311a641ff37e8_151)</u> | <u>[58](#i11feac0231874f069e6311a641ff37e8_151)</u> |
| Item 9C. | <u>[Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](#i11feac0231874f069e6311a641ff37e8_154)</u> | <u>[58](#i11feac0231874f069e6311a641ff37e8_151)</u> |
|  | **PART III** |  |
| Item 10. | <u>[Directors, Executive Officers and Corporate Governance](#i11feac0231874f069e6311a641ff37e8_160)</u> | <u>[59](#i11feac0231874f069e6311a641ff37e8_160)</u> |
| Item 11. | <u>[Executive Compensation](#i11feac0231874f069e6311a641ff37e8_163)</u> | <u>[59](#i11feac0231874f069e6311a641ff37e8_163)</u> |
| Item 12. | <u>[Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#i11feac0231874f069e6311a641ff37e8_166)</u> | <u>[59](#i11feac0231874f069e6311a641ff37e8_166)</u> |
| Item 13. | <u>[Certain Relationships and Related Transactions, and Director Independence](#i11feac0231874f069e6311a641ff37e8_169)</u> | <u>[59](#i11feac0231874f069e6311a641ff37e8_169)</u> |
| Item 14. | <u>[Principal Accountant Fees and Services](#i11feac0231874f069e6311a641ff37e8_172)</u> | <u>[59](#i11feac0231874f069e6311a641ff37e8_172)</u> |
|  | **PART IV** |  |
| Item 15. | <u>[Exhibits and Financial Statement Schedules](#i11feac0231874f069e6311a641ff37e8_178)</u> | <u>[60](#i11feac0231874f069e6311a641ff37e8_178)</u> |
| Item 16. | <u>[Form 10-K Summary](#i11feac0231874f069e6311a641ff37e8_181)</u> | <u>[62](#i11feac0231874f069e6311a641ff37e8_181)</u> |

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**PART I** 

**ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;BUSINESS** 

**OVERVIEW** 

Williams-Sonoma, Inc., (the "Company", "we", or "us") incorporated in 1973, is an omni-channel specialty retailer of high-quality products for the home.

In 1956, our founder, Chuck Williams, turned a passion for cooking and eating with friends into a small business with a big idea. He opened a store in Sonoma, California to sell the French cookware that intrigued him while visiting Europe but that could not be found in America. Chuck's business, which set a standard for customer service, took off and helped fuel a revolution in American cooking and entertaining that continues today.

In the decades that followed, the quality of our products, our ability to identify new opportunities in the market and our people-first approach to business have facilitated our expansion beyond the kitchen into nearly every area of the home. Growth across our portfolio has been fueled by our three key differentiators - our in-house design, our digital-first channel strategy, and our values. Our in-house design capabilities and vertically integrated sourcing organization allow us to deliver high-quality, sustainable products at competitive prices. Through our e-commerce platform, our in-house customer relationship management and data analytic teams optimize our digital spend and customer connections. We have expanded our in-store services to include ship-to-store as we transition our stores to not only provide an exceptional customer service experience but to also serve as design centers and omni-fulfillment hubs.

Williams-Sonoma, Inc. is the world's largest digital-first, design-led and sustainable home retailer. Our products represent distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and 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 Environmental, Social and Governance ("ESG") efforts.

*Williams Sonoma* 

From the beginning, our namesake brand, Williams Sonoma, has been bringing people together around food. A leading specialty retailer of high-quality products for the kitchen and home, the brand seeks to provide world-class service and an engaging customer experience. Williams Sonoma products include everything for cooking, dining and entertaining, including: cookware, tools, electrics, cutlery, tabletop and bar, outdoor, furniture and a vast library of cookbooks. The brand also includes Williams Sonoma Home, a premium concept that offers classic home furnishings and decorative accessories, extending the Williams Sonoma lifestyle beyond the kitchen into every room of the home.

*Pottery Barn* 

Established in 1949 and acquired by Williams-Sonoma, Inc. in 1986, Pottery Barn is a premier omni-channel home furnishings retailer. America's most meaningful, beautiful design source, Pottery Barn brings together good products, people and values — seeking inspiration, quality, sustainability and service in everything we do. Thoughtfully designed and crafted to last, Pottery Barn's furniture, bedding, lighting, rugs, table essentials, decorative accessories and more can be loved for a lifetime.

*Pottery Barn Kids* 

Kids are, and have always been, the inspiration behind what we do at Pottery Barn Kids. Since 1999, it's been our mission to bring the utmost in quality, sustainability, safety and style into every family's home. Most importantly, all our designs are rigorously tested to meet the highest child safety standards and expertly crafted from the best materials to last beyond their childhood years.

*West Elm* 

Born in Brooklyn in 2002, West Elm is dedicated to transforming people's lives and spaces through creativity, style and purpose. West Elm creates unique, modern and affordable home decor and curates a global selection of local, ethically-sourced and Fair Trade Certified products, available online and in our stores worldwide.

*Pottery Barn Teen* 

Launched in 2003, Pottery Barn Teen is the first home concept to focus exclusively on the teen market. Our purpose is to make safe and sustainable designs that inspire teens to create the world they want to live in. We're designing everything from organic bedding to multi-purpose furniture that adapts and lasts. Our mission is to create for the future.

*Rejuvenation* 

Rejuvenation, founded in 1977 with a passion for timeless design and quality craftsmanship, was acquired by Williams-Sonoma, Inc. in 2011. With design, manufacturing and distribution facilities in Portland, Oregon, Rejuvenation offers a wide assortment of made-to-order lighting, hardware, furniture and home décor inspired by history, designed for today and made to last for years to come.

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*Mark and Graham* 

Established in 2012, Mark and Graham is a leading monogrammed lifestyle brand that offers thoughtfully designed personalized products and custom gifts. The digitally native brand is known for high quality collections, ranging from home gifts to luggage to handbags, designed in-house that can be personalized with more than 50 exclusive monograms.

*Outward* 

In 2017, we acquired Outward, Inc., a 3-D imaging and augmented reality platform for the home furnishings and décor industry. Headquartered in San Jose, California, Outward's technology enables scalable applications in product visualization, digital room design and augmented and virtual reality.

**OPERATIONS** 

As of January 29, 2023, we had the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation and Mark and Graham, which sell our products through our e-commerce websites, retail stores and direct-mail catalogs. We offer shipping from many of our brands to countries worldwide, while our catalogs reach customers throughout the U.S. The e-commerce and retail businesses complement each other by meeting the customers where they are; building brand awareness and acting as effective advertising vehicles. Our ability to leverage insights from both these channels, our omni-channel positioning and our marketing efforts, focused on digital advertising complemented by targeted catalogs, drive sales to each of our channels. Consistent with our published privacy policies, we leverage our proprietary customer file which is a unified view of customers across brands and channels, for digital, email, and catalog marketing purposes, augmented by our propensity to buy models developed by our in-house analytics team. Our retail stores serve as billboards for our brands, which we believe inspires new and existing customers to also shop online. We operate 530 stores, which include 489 stores in 41 states, Washington, D.C. and Puerto Rico, 20 stores in Canada, 19 stores in Australia and 2 stores in the United Kingdom. We also have multi-year franchise agreements with third parties in the Middle East, the Philippines, Mexico, South Korea and India that currently operate 138 franchised locations as well as e-commerce websites in certain locations.

**SUPPLIERS** 

We purchase most of our merchandise from numerous foreign and domestic manufacturers and importers, the largest of which accounted for approximately 3% of our purchases during fiscal 2022. Approximately 67% of our merchandise purchases in fiscal 2022 were sourced from foreign vendors, predominantly in Asia and Europe. Substantially all of these purchases were negotiated and paid for in U.S. dollars. In addition, we manufacture merchandise, primarily upholstered furniture and lighting, at our facilities located in North Carolina, California, Oregon and Mississippi. The current macroeconomic environment is uncertain and we continue to incur increased costs across our global supply chain. It is hard to predict with certainty when these supply chain challenges will be fully resolved, and we currently expect these supply chain challenges to negatively impact our cost of goods sold into 2023. Additionally, we are subject to risks that may disrupt our supply chain operations or regionalization efforts, such as increasing labor costs and union organizing activity. Despite these challenges, we believe our key differentiators, growth strategies and the efficiencies of our operating model to reduce costs and manage inventory levels leave us well-positioned to mitigate these costs in both the short- and long- term. Refer to <u>[Item 1A. Risk Factors](#i11feac0231874f069e6311a641ff37e8_19)</u> and to <u>[Part II, Item 7](#i11feac0231874f069e6311a641ff37e8_43)[.](#i11feac0231874f069e6311a641ff37e8_43)[Management's Discussion and Analysis of Financial Condition and Results of Operations](#i11feac0231874f069e6311a641ff37e8_43)</u> for further discussion on the effect the global supply chain disruption has had on our results of operations.

**COMPETITION AND SEASONALITY** 

The specialty e-commerce and retail businesses are highly competitive. Our e-commerce websites, retail stores and direct-mail catalogs compete with other retailers, including e-commerce retailers, large department stores, discount retailers, other specialty retailers offering home-centered assortments and other direct-mail catalogs. The continued shift to e-commerce has encouraged the entry of many new competitors, including discount retailers selling undifferentiated products at reduced prices, new business models and increased competition from established companies. We compete on the basis of our brand authority, the quality of our merchandise, our customer service, our proprietary customer list, our e-commerce websites and marketing capabilities, the location and appearance of our stores, as well as our in-house design, our digital-first channel strategy, and our values, which we believe have become increasingly relevant and set us apart from our competitors. Our in-house teams design our own products and work with our talented vendors to bring quality, sustainable products to market through our high-touch multi-channel platform.

Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our net 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 employees, primarily in our retail stores, distribution facilities and customer care centers.

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**HUMAN CAPITAL MANAGEMENT** 

As of January 29, 2023, we had approximately 21,100 employees, who we refer to as associates, of whom approximately 12,500 were full-time. In preparation for and during our fiscal 2022 holiday selling season, we hired a substantial number of part-time and seasonal employees, primarily in our retail stores, distribution facilities and customer care centers. None of our employees are represented by a collective bargaining agreement.

We have three key ESG pillars as key areas of focus for our Company. One of those three pillars is "People" in keeping with our long-held "People First" culture. This includes the following areas of focus:

*Associate Engagement* 

We conduct an annual Associate Opinion Survey to directly engage with and collect feedback from our associates, which we use to improve the experience of our teams. Our human resources department maintains an open-door policy for associates to report concerns, and we provide an anonymous reporting hotline, which is available in multiple languages and managed by an independent company not affiliated with us. We strive to deliver a workplace experience where the quality of our engagement with fellow associates, business partners and customers matches the quality of the products and services we bring to the marketplace.

*Talent Development and Engagement* 

We invest in our employees through accessible resources and structured training programs that help our associates to create the career they envision for themselves. We offer a large selection of development opportunities for our employees including in-person and online learning, as well as professional development courses, such as goal setting, unconscious bias and inclusive leadership training. We have a company-wide Advisor Program, which matches associates in a manager-and-above role with an associate in a lower-level role to form advisor/advisee relationships to provide career guidance and receive support in working through career and development challenges. We created new learning programs to further build skills and career opportunities for associates, notably focused on design and core retail skills. We also foster other team-based programs to develop talent at all levels of the Company, supplying associates with new skills and training. Through these programs, we give our associates the tools to succeed, learn new skills and develop their careers.

*Diversity, Equity and Inclusion* 

Associate engagement and retention require an understanding of the needs of a diverse, creative and purpose-driven workforce. We firmly believe that working in a culture focused on diversity, equity and inclusion spurs innovation, creates healthy and high-performing teams, and delivers superior customer experiences. We aim to provide equal opportunity for all employees. We have several systems under which associates can report incidents or discrimination confidentially or anonymously and without fear of reprisal. As of the end of fiscal 2022, approximately 67.4% of our total workforce identified as female and approximately 43.7% identified as an ethnic minority group. Additionally, approximately 54.8% of our Vice Presidents and above identified as female. We were also included in the 2023 Bloomberg Gender-Equality Index, which tracks public companies' commitment to gender equality.

We are focused on increasing the representation of minority talent through hiring and career development. In June 2020, we established an Equity Action Plan and formed an Equity Action Committee, including a diverse group of executives and associates, to drive positive change in the fight for racial justice, and in 2022 we continued our commitment to equity through our partnership and donation support with our racial equity and justice non-profit partners such as the NAACP, the Jackie Robinson Foundation, the National Urban League, and Asian Americans Advancing Justice—Asian Law Caucus.

We are currently building relationships with approximately 180 organizations, universities, colleges and networks to expand our reach to potential candidates. We continue to ensure we bring forward a diverse slate of candidates for all of our corporate roles posted externally, and have seen improvement in both overall representation and hire rate since we launched our Equity Action Plan. We are also a member of CEO Action for Diversity & Inclusion, in which we pledged a goal to "identify and establish associate networks for underrepresented communities to promote diversity and inclusion throughout the Company." In furtherance of our stated goal, we have developed associate equity networks including an LGBTQIA+ Network, Black Associate Network, Veterans Appreciation Network, Hispanic/LatinX Associate Network, Asian WSI Network, and a Disability, Education & Advocacy Network.

*Safety/Health and Wellness* 

Our vision is to provide a safe and healthy work environment for our associates and customers. Aligned with our values, we strive to continuously improve our work environments to keep our associates and customers as safe as possible. Our efforts include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Incident and hazard reporting;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Standard operating procedures aimed at reducing risk of injury;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Associate and management training;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Promotion of best practices; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Measurement of key safety metrics.

*Compensation and Benefits* 

We offer a benefits package designed to put our associates' health and well-being, and that of their families, at the forefront. Depending on position and location, associates may be eligible for: 401(k) plan and other investment opportunities; paid vacations, holidays and other time-off programs; health, dental and vision insurance; health and dependent care tax-free spending accounts;

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medical, family and bereavement leave; paid maternity/primary caregiver benefits; tax-free commuter benefits; wellness programs including telehealth visits; time off to volunteer, and matching donations to qualifying nonprofit organizations. In addition, consistent with our commitment to diversity and inclusion, we have expanded our benefit offerings to include coverage for transgender-inclusive services, including gender confirmation surgery and hormone therapy. As we strive to keep health care affordable and inclusive, we minimized cost increases to associates and, for a large portion of the associate population, decreased the cost of health care while adding offerings to support mental health and well-being. During fiscal 2022, we also raised our Company minimum wage to $16 per hour for U.S.-based hourly associates across our retail store, corporate, and supply chain workforce.

*Community Involvement* 

Through online and in-store donations, special product collaborations, and national and local fundraising, we give back to the communities we serve. We remain committed to our partnerships with St. Jude Children's Research Hospital, No Kid Hungry, The Trevor Project, AIDS Walk, Canada Children's Hospitals and the Arbor Day Foundation. We raised $4.0 million for St. Jude Children's Research Hospital during fiscal 2022, which included donations from our customers at time of purchase, special St. Jude-designated product sales where a portion of the sale was donated, employee donations, and donations from the Company. We also support organizations and partners, such as Good360 and Habitat for Humanity, who assist those with damaged or lost homes, or those seeking decent, affordable housing. We give charitable grants, donate our merchandise, donate proceeds from the sale of certain products, and provide matching grants for charitable donations made by our associates. Our Williams-Sonoma, Inc. Foundation also provides need-based grants to our associates directly impacted by federally-declared disasters.

We also support our communities through our associates' time and leadership, and we provide 8 hours of paid Community Involvement Time each year to our eligible associates. Additionally, we brought back opportunities for associates to volunteer their time and talents with curated in-person events that support our local and national nonprofit partners. We believe volunteering deepens our presence in the community, enhances our relationships with customers and strengthens employee engagement.

**ENVIRONMENTAL, SOCIAL AND GOVERNANCE MATTERS**

We believe that strategies that support the health of our planet, the well-being of our people and a shared sense of purpose foster long-term, sustainable growth for the Company. Our work continued to earn recognition across our industry. We were included in Barron's 100 Most Sustainable Companies for five years running, recognized as Sustainable Furnishings Council Top Scoring global company for sustainable wood furniture for the past five years, and were included in the Dow Jones Sustainability North America Index for the first time. Given the alignment of our ESG work with our strategic direction, our Board is highly engaged on the topic of sustainability. Since 2019, our Nominations, Corporate Governance and Social Responsibility Committee and our Board have overseen ESG matters. The Nominations, Corporate Governance and Social Responsibility Committee oversees corporate policies and programs that speak to long-standing commitments to our associates, supply chain, environment, health and safety, human rights, cybersecurity and ethics. These policies and programs are relevant to our business, critical to our associates, and important to our customers. The Board of Directors' oversees environmental and social matters through updates from WSI's Executive Vice President of Sourcing, Quality Assurance, and Sustainable Development and annual updates from the organization's dedicated sustainability team. The sustainability team presents to the full Board at least once a year to monitor and review existing and proposed strategy, goals and targets. The Executive Vice President leads both the organization's dedicated global team of sustainability professionals as well as a working group of cross-functional leaders.

As a multinational retailer with a global supply chain, we are committed to responsible practices across our business—from designing and sourcing responsible products, to reducing waste, to working with suppliers to lower emissions and adopt sustainable business practices. We amplified our climate work in the past year, making progress towards our Science-Based Target for emissions reduction across our value chain. Building on the progress of our cotton and wood goals, we are aligning our preferred materials work with our climate strategy, using materials as part of our efforts to reach our Science-Based Target. In 2022, we drove progress towards our landfill diversion goal with stores implementing waste reduction initiatives, such as backhauling of expanded polystyrene foam. We continued to divert products from landfill into donation streams and to identify opportunities for waste reduction.

We hold our suppliers to high ethical standards, and we are committed to integrity and honesty throughout all aspects of our business. We require our vendors to adhere to the standards outlined in our Vendor Code of Conduct and accompanying implementation standards, which are informed by the conventions of the International Labour Organization (ILO) and the UN's Guiding Principles on Business and Human Rights. Hundreds of factories in our audit scope are audited annually by independent third-party audit firms to ensure compliance with our standards relating to labor practices, health and safety, environmental protection, ethical conduct, sub-contracting, management systems, and transparency. Using a continuous improvement model, we work alongside factories to improve working conditions.

**INTELLECTUAL PROPERTY** 

As of January 29, 2023, we own and/or have applied to register approximately 210 unique trademarks or service marks. We own and/or have applied to register our key brand names in the U.S. as well as in approximately 96 additional jurisdictions. Generally, exclusive rights to the trademarks and service marks are held by Williams-Sonoma, Inc. and are used by our subsidiaries and franchisees under license. These marks include our core brand names as well as brand names for selected products and services. Our

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core brand names, including "Williams Sonoma," "Pottery Barn," "pottery barn kids," "Pottery Barn Teen," "west elm," "Williams Sonoma Home," "Rejuvenation" and "Mark and Graham" are of material importance to us. Trademarks are generally valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. Trademark registrations can generally be renewed indefinitely so long as the marks are in use. We also own numerous patents, copyrights and trade dress rights for our products, proprietary designs, product packaging, catalogs, website designs and store designs, among other things, which are used by our subsidiaries and franchisees under license. As of January 29, 2023, we own or have applied to register approximately 370 patents in connection with certain product designs, inventions and proprietary technology. Patents in the U.S. are generally valid for 15 to 20 years as long as their registrations are properly maintained. In addition, we have registered and maintain numerous Internet domain names, including "williams-sonoma.com," "potterybarn.com," "potterybarnkids.com," "potterybarnteen.com," "westelm.com," "wshome.com," "williams-sonomainc.com," "rejuvenation.com" and "markandgraham.com." Collectively, the trademarks, patents, copyrights, trade dress rights, domain names, trade secrets and other intellectual property and proprietary technology that we hold are of material importance to us.

**REGULATION**

As a company with global operations, we are subject to the laws of the United States and multiple foreign jurisdictions in which we operate and the rules and regulations of various governing bodies, which may differ among jurisdictions. Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, or competitive position as compared to prior periods. Also see the section entitled "Risk Factors" in <u>[Part I, Item 1A](#i11feac0231874f069e6311a641ff37e8_19)</u> of this Annual Report on Form 10-K.

**AVAILABLE INFORMATION** 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Williams-Sonoma, Inc. and other companies that file materials electronically with the SEC. Our annual reports, Forms 10-K, Forms 10-Q, Forms 8-K and proxy and information statements, and any amendments thereto, are also available, free of charge, on our website at www.williams-sonomainc.com.

Investors and others should note that we announce material financial and operational information to our investors on our Investor Relations website (http://ir.williams-sonomainc.com), press releases, SEC filings and public conference calls and webcasts. Information on our website is not, and will not, be deemed a part of this report or incorporated into any other filings we make with the SEC.

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**ITEM 1A.&nbsp;&nbsp;&nbsp;&nbsp; RISK FACTORS**

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report and in our other public filings before investing in our common stock. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Quantitative and Qualitative Disclosures about Market Risk" and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

**Risk Factor Summary** 

The following is a summary of the risks and uncertainties that could cause our business, financial condition or operating results to be harmed. We encourage you to carefully review the full risk factors contained in this report in their entirety for additional information regarding these risks and uncertainties.

**Risks Related to Our Business**

*• We are unable to control many of the factors affecting consumer spending, and declines in consumer spending on home furnishings and kitchen products in general could reduce demand for our products.*

*• If we are unable to identify and analyze factors affecting our business, anticipate changing consumer preferences and buying trends, and manage our inventory and marketing spend commensurate with customer demand, our sales levels and operating results may decline.*

*• Our business and operating results may be harmed if we are unable to timely and effectively deliver merchandise to our stores and customers.*

*• Our failure to successfully manage our order-taking and fulfillment operations could have a negative impact on our business and operating results*.

• *We must protect and maintain our brand image and reputation.*

*• Our sales may be negatively impacted by increasing competition from companies with brands or products similar to ours.*

*• Our facilities and systems, as well as those of our vendors, are vulnerable to natural disasters, adverse weather conditions, technology issues and other unexpected events, any of which could result in an interruption in our business and harm our operating results.*

*• Our aspirations, goals and disclosures related to ESG matters expose us to numerous risks, including risks to our reputation and stock price.*

*• Our business is subject to evolving corporate governance and public disclosure regulations and expectations that could expose us to numerous risks.*

*• Our failure to successfully manage the costs and performance of our digital advertising might have a negative impact on our business*

*• If we are unable to effectively manage our e-commerce business and digital marketing efforts, our reputation and operating results may be harmed.* 

*• Declines in our comparable brand revenues may harm our operating results and cause a decline in the market price of our common stock.*

*• Our business has been and may continue to be materially impacted by the COVID-19 pandemic, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.* 

*• Our failure to successfully manage the costs and performance of our digital advertising might have a negative impact on our business.*

*• If we are unable to successfully manage the complexities associated with an omni-channel and multi-brand business, we may suffer declines in our existing business and our ability to attract new business.*

*• A number of factors that affect our ability to successfully open new stores or close existing stores are beyond our control.*

*• Our inability or failure to adequately protect or enforce our intellectual property could negatively impact our business.*

*• We outsource certain aspects of our business to third-party vendors and are in the process of insourcing certain business functions from third-party vendors.*

*• If we fail to attract and retain key personnel, our business and operating results may be harmed.*

*• If we are unable to introduce new brands and brand extensions successfully, or to reposition or close existing brands, our business and operating results may be negatively impacted.*

*• We may be subject to legal proceedings that could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources.*

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**Risks Related to Technology** 

• *We may be exposed to cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption that could cause us to incur unexpected expenses and loss of revenue.*

*• We receive, process, store, use and share data, some of which contains personal information, which subjects us to complex and evolving governmental regulation and other legal obligations.*

*• We are undertaking certain systems changes that might disrupt our business operations.*

**Risks Related to Our Vendors and Our Global Operations** 

*• Our dependence on foreign vendors and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.*

*• We depend on foreign vendors and third-party agents for timely and effective sourcing of our merchandise, and we may not be able to acquire products in appropriate quantities and at acceptable prices to meet our needs.*

*• If our vendors fail to adhere to our quality control standards and test protocols, we may delay a product launch or recall a product, which could damage our reputation and negatively affect our operations and financial results.*

*• Our efforts to expand globally may not be successful and could negatively impact the value of our brands.*

*• We have limited experience operating on a global basis and our failure to effectively manage the risks and challenges inherent in a global business could adversely affect our business, operating results and financial condition and growth prospects.*

**Risks Related to Taxes and Tariffs** 

**•** *Any significant changes in tax, trade or other policies in the U.S. or other countries, including policies that restrict imports or increase import tariffs, could have a material adverse effect on our results of operations.*

*• Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results.*

**Risks Related to Our Financial Statements and Liquidity** 

*• We may require funding from external sources, which may not be available at the levels we require or may cost more than we expect.*

*• Disruptions in the financial markets may adversely affect our liquidity and capital resources and our business.*

*• Our operating results may be harmed by unsuccessful management of our employment, occupancy and other operating costs, and the operation and growth of our business may be harmed if we are unable to attract qualified personnel.*

**General Risk Factors**

*• Our inability to obtain commercial insurance at acceptable rates or our failure to adequately reserve for self-insured exposures might increase our expenses and have a negative impact on our business.*

*• If our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and analysts, our stock price may decline.*

*• A variety of factors may cause our quarterly operating results to fluctuate, leading to volatility in our stock price.*

*• Changes in the method of determining the London Interbank Offered Rate, or LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our financial condition and results of operations.*

*• If we are unable to pay quarterly dividends or repurchase our stock at intended levels, our reputation and stock price may be harmed.*

*• If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and our investors' views of us could be harmed.*

*• Changes to accounting rules or regulations may adversely affect our operating results.*

*• In preparing our financial statements we make certain assumptions, judgments and estimates that affect the amounts reported, which, if not accurate, may impact our financial results.*

*• Changes to estimates related to our cash flow projections may cause us to incur impairment charges related to our long-lived assets for our retail store locations and other property and equipment, including information technology systems, as well as goodwill.*

**Risks Related to our Business** 

*We are unable to control many of the factors affecting consumer spending, and declines in consumer spending on home furnishings and kitchen products in general could reduce demand for our products.* 

Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer spending, including general economic conditions, inflationary pressures, consumer disposable income, fuel prices, recession and fears of recession, unemployment, war and fears of war, outbreaks of disease, adverse weather, availability of consumer credit, consumer debt levels, conditions in the housing market, elevated interest rates, sales tax rates and rate increases, consumer confidence

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in future economic and political conditions, and consumer perceptions of personal well-being and security. In particular, past economic downturns and inflationary pressures have led to decreased discretionary spending, which adversely impacted our business. An uncertain economic environment could also cause our vendors to go out of business or our banks to discontinue lending to us or our vendors, or it could cause us to undergo restructurings, any of which would adversely impact our business and operating results. In addition, periods of decreased home purchases typically lead to decreased consumer spending on home products. These factors have affected, and may in the future affect, our various brands and channels differently. Adverse changes in factors affecting discretionary consumer spending have reduced and may in the future reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.

*If we are unable to identify and analyze factors affecting our business, anticipate changing consumer preferences and buying trends, and manage our inventory and marketing spend commensurate with customer demand, our sales levels and operating results may decline.* 

Our success depends, in large part, upon our ability to identify and analyze factors affecting our business and to anticipate and respond in a timely manner to changing merchandise trends and customer demands in order to maintain and attract customers. For example, in the specialty home products business, style and color trends are constantly evolving. As a result, consumer preferences cannot be predicted with certainty and may change between selling seasons. We must be able to stay current with preferences and trends in our brands and address the customer tastes for each of our target customer demographics. Additionally, changes in customer preferences and buying trends may affect our brands differently. We must also be able to identify and adjust the customer offerings in each of our brands to cater to customer demands. For example, a change in customer preferences for children's room furnishings may not correlate to a similar change in buying trends for other home furnishings. If we misjudge either the market for our merchandise or our customers' purchasing habits, our sales may decline significantly or may be delayed while we work to fill related backorders. Alternatively, we may be required to mark down certain products to sell any excess inventory or to sell such inventory through our outlet or other liquidation channels at prices which are significantly lower than our retail prices, any of which would negatively impact our business and operating results.

In addition, we must manage our inventory effectively and commensurate with customer demand. Much of our inventory is sourced from vendors located outside of the U.S. Thus, we usually must order merchandise, and enter into contracts for the purchase and manufacturing of such merchandise, up to twelve months and generally multiple seasons in advance of the applicable selling season and frequently before trends are known. The extended lead times for many of our purchases may make it difficult for us to respond rapidly to new or changing trends. Our vendors also may not have the capacity to handle our demands or may go out of business or have other delays in production in times of economic crisis. In addition, the seasonal nature of the specialty home products business requires us to carry a significant amount of inventory prior to peak selling season. As a result, we are vulnerable to demand and pricing shifts and to misjudgments in the selection and timing of merchandise purchases. If we do not accurately predict our customers' preferences and acceptance levels of our products, our inventory levels will not be appropriate, and our business and operating results may be negatively impacted.

*Our business and operating results may be harmed if we are unable to timely and effectively deliver merchandise to our stores and customers.* 

If we are unable to effectively manage our inventory levels and responsiveness of our supply chain, including predicting the appropriate levels and type of inventory to stock within each of our distribution facilities, our business and operating results may be harmed. For example, during the COVID-19 pandemic, we experienced elevated levels of demand for many of our products, and as a result, we encountered delays in fulfilling this demand and replenishing to appropriate inventory levels. Continued or lengthy delays in fulfilling customer demand could cause our customers to shop with our competitors instead of us, which could harm our business. Additionally, although we continue to insource furniture delivery hubs in certain geographies and continue with the regionalization of our retail and e-commerce fulfillment capabilities, we are subject to risks that may disrupt our supply chain operations or regionalization efforts, such as increasing labor costs, union organizing activity (including the UPS Teamsters negotiation scheduled to occur in mid-2023, the International Longshoremen's Association negotiations to occur during 2023, and the International Longshore & Warehouse Union negotiations to occur during 2023, which may affect port operations) and our ability to effectively locate real estate for our distribution facilities or other supply chain operations.

Further, we cannot control all of the various factors that might affect our e-commerce fulfillment rates and timely and effective merchandise delivery to our stores. We rely upon third-party carriers for our merchandise shipments and reliable data regarding the timing of those shipments, including shipments to our customers and to and from our stores. In addition, we are heavily dependent upon certain carriers for the delivery of our merchandise to our customers. As a result of our dependence on all of these third-party providers, we are subject to risks, including labor disputes, union organizing activity (such as the UPS Teamsters negotiation scheduled to occur in mid-2023, the International Longshoremen's Association negotiations to occur during 2023, and the International Longshore & Warehouse Union negotiations to occur during 2023 which may affect port operations), adverse weather, natural disasters, climate change, the closure of such carriers' offices or a reduction in operational hours due to an economic slowdown or the inability to sufficiently ramp up operational hours during an economic recovery or upturn, availability of adequate trucking or railway providers, the potential for railway and port worker strikes, possible acts of terrorism, war, outbreaks of disease or other factors affecting such carriers' ability to provide delivery services to meet our shipping needs, disruptions or increased fuel costs and

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costs associated with any regulations to address climate change. Further, we have experienced, and may continue to experience increased costs and restricted capacity from our third-party shipping providers and shortages of raw materials used to make our products and increased costs associated with our packaging. Failure to deliver merchandise in a timely and effective manner could cause customers to cancel their orders and could damage our reputation and brands. In addition, fuel costs have been volatile and airline and other transportation companies continue to struggle to operate profitably, which could lead to increased fulfillment expenses. Any rise in fulfillment expenses could negatively affect our business and operating results.

*Our failure to successfully manage our order-taking and fulfillment operations could have a negative impact on our business and operating results.* 

Our e-commerce business depends, in part, on our ability to maintain efficient and uninterrupted order-taking and fulfillment operations in our distribution facilities, our customer care centers and on our e-commerce websites. Disruptions or slowdowns in these areas could result from disruptions in telephone or network services, power outages, inadequate system capacity, system hardware or software issues, computer viruses, security breaches, human error, changes in programming, union organizing activity, insufficient or inadequate labor to fulfill the orders, disruptions in our third-party labor contracts, inefficiencies due to inventory levels and limited distribution facility space, issues with third-party order fulfillment and drop shipping, natural disasters, adverse weather conditions, outbreaks of disease (such as the COVID-19 pandemic), war or acts of terrorism. Industries that are particularly seasonal, such as the home furnishings business, face a higher risk of harm from operational disruptions during peak sales seasons. These problems could result in a reduction in sales as well as increased expenses.

In addition, we face the risk that we cannot hire enough qualified employees to support our e-commerce operations, or that there will be a disruption in the workforce we hire from our third-party providers, especially during our peak season. The need to operate with fewer employees could negatively impact our customer service levels and our operations.

*We must protect and maintain our brand image and reputation.* 

Our brands have wide recognition, and our success has been due in large part to our ability to maintain, enhance and protect our brand image and reputation and our customers' connection to our brands. Our continued success depends in part on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and online advertising campaigns. Even if we react appropriately to negative posts or comments about us and/or our brands on social media and online, our customers' perception of our brand image and our reputation could be negatively impacted. In addition, customer sentiment could be shaped by our sustainability policies and related design, sourcing and operations decisions. Failure to maintain, enhance and protect our brand image could have a material adverse effect on our results of operations.

*Our sales may be negatively impacted by increasing competition from companies with brands or products similar to ours.* 

The specialty e-commerce and retail businesses are highly competitive. We compete with other retailers that market lines of merchandise similar to ours. We compete with national, regional and local businesses that utilize a similar retail store strategy, as well as traditional furniture stores, department stores, direct-to-consumer businesses and specialty stores. The continued sales growth in the e-commerce industry has encouraged the entry of many new competitors, including discount retailers selling similar products at reduced prices, new business models, and an increase in competition from established companies, many of whom are willing to spend significant funds and/or reduce pricing in order to gain market share.

The competitive challenges facing us include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• anticipating and quickly responding to changing consumer demands or preferences better than our competitors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• maintaining favorable brand recognition and achieving customer perception of value;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• effectively marketing and competitively pricing our products to consumers in several diverse market segments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• effectively managing and controlling our costs, including advertising spend;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• effectively managing increasingly competitive promotional activity;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• effectively attracting new customers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• developing new innovative shopping experiences, like mobile applications and augmented reality capabilities, that effectively engage today's digital customers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• developing innovative, high-quality products in colors and styles that appeal to consumers of varying age groups, tastes and regions, and in ways that favorably distinguish us from our competitors; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• effectively managing our supply chain and distribution strategies in order to provide our products to our consumers on a timely basis and minimize returns, replacements and damaged products.

In light of the many competitive challenges facing us, we may not be able to compete successfully. Increased competition could reduce our sales and harm our operating results and business.

*Our facilities and systems, as well as those of our vendors, are vulnerable to natural disasters, adverse weather conditions, technology issues and other unexpected events, any of which could result in an interruption in our business and harm our operating results.* 

Our retail stores, corporate offices, distribution and manufacturing facilities, infrastructure and e-commerce operations, as well as the operations of our vendors from which we receive goods and services, are vulnerable to damage from earthquakes, tornadoes,

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hurricanes, fires, floods or other volatile weather, power losses, telecommunications failures, hardware and software failures, computer hacking, cybersecurity breaches, computer viruses and similar events. If any of these events result in damage to our facilities or systems, or those of our vendors, we may experience interruptions in our business until the damage is repaired, resulting in the potential loss of customers and revenues. In addition, we may incur costs in repairing any damage beyond our applicable insurance coverage.

*Our aspirations, goals and disclosures related to ESG matters expose us to numerous risks, including risks to our reputation and stock price.*

There has been increased focus from our stakeholders, including consumers, employees and investors, on our ESG practices. We have established and announced goals and other objectives related to ESG matters. These goal statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation, stock price, and results of operation. We could also incur additional costs and require additional resources to implement various ESG practices to make progress against our public goals and to monitor and track our performance with respect to such goals.

The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming and may require us to rely on data from third parties, such as suppliers and vendors, who may not reliably or accurately track or record such data. Our selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period. In addition, our interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.

Our ability to achieve any ESG-related goal or objective is subject to numerous risks, many of which are outside of our control, including: (i) the availability and cost of renewable energy sources, credits and technologies, (ii) evolving regulatory requirements affecting ESG standards or disclosures, (iii) the availability of vendors and suppliers that can meet our sustainability, diversity and other standards, and (iv) the availability and cost of raw materials that meet and further our sustainability goals.

If our ESG practices do not meet evolving consumer, employee, investor, regulatory body, or other stakeholder expectations and standards or our publicly-stated goals, then our reputation, our ability to attract or retain employees and our competitiveness, including as an investment and business partner, could be negatively impacted. Furthermore, if our competitors' ESG performance is perceived to be better than ours, potential or current customers and investors may elect to do business with our competitors instead, and our ability to attract or retain employees could be negatively impacted. Our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also expose us to government enforcement actions and private litigation.

*Our business is subject to evolving corporate governance and public disclosure regulations and expectations that could expose us to numerous risks.*

We are subject to changing rules and regulations promulgated by a number of federal, state, and local governmental and self-regulatory organizations, including the United States Securities and Exchange Commission ("SEC"), the New York Stock Exchange and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. In addition, increasingly, regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC's proposed climate-related reporting requirements, and similar proposals by state regulators and other international regulatory bodies. We may also communicate certain initiatives and goals, regarding environmental matters, diversity, responsible sourcing and social investments and other ESG-related matters, in our SEC filings or in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized, fined or suffer other adverse consequences based on the inaccuracy, inadequacy or incompleteness of the disclosure. Further, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.

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*If we are unable to effectively manage our e-commerce business and digital marketing efforts, our reputation and operating results may be harmed.* 

Our e-commerce channel has been our fastest-growing business over the last several years and represented more than 66% of our net revenues and profits in fiscal 2022. The success of our e-commerce business depends, in part, on third parties and factors over which we have limited control. We must continually respond to changing consumer preferences and buying trends relating to e-commerce usage, including an emphasis on mobile e-commerce. Our success in e-commerce has been strengthened in part by our ability to leverage the information we have on our customers to infer customer interests and affinities such that we can personalize the experience they have with us. We also utilize digital advertising to target internet and app users whose behavior indicates they might be interested in our products. Current or future legislation or changes to other corporations' policies may reduce or restrict our ability to use these techniques, which could reduce the effectiveness of our marketing efforts.

We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce and mobile websites and digital marketing efforts, including: changes in required technology interfaces; website downtime and other technical failures; internet connectivity issues; costs and technical issues as we upgrade our website software; computer viruses; human error; vendor reliability; changes in applicable federal and state regulations, such as the California Consumer Privacy Act ("CCPA") and the California Privacy Rights Act ("CPRA"), and related compliance costs; security breaches; and consumer privacy concerns. We must keep up to date with competitive technology trends and opportunities that are emerging throughout the retail environment, including the use of new or improved technology, evolving creative user interfaces, and other e-commerce marketing changes as it relates to paid search, re-targeting, loyalty programs, paid social advertising, and the proliferation of mobile usage, among others. While we endeavor to predict and invest in technology that is most relevant and beneficial to our company, our initiatives may not prove to be successful, may increase our costs, or may not succeed in driving sales or attracting customers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales or margin in our e-commerce business, require us to impair certain assets, and damage our reputation and brands.

*Declines in our comparable brand revenues may harm our operating results and cause a decline in the market price of our common stock.*

Various factors affect comparable brand revenues, including the number, size and location of stores we open, close, remodel or expand in any period, the overall economic and general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, our ability to efficiently source and distribute products, changes in our merchandise mix, competition (including competitive promotional activity and discount retailers), current local and global economic conditions, the timing of our releases of new merchandise and promotional events, the success of marketing programs, the cannibalization of existing store sales by our new stores, changes in catalog circulation and in our e-commerce business and fluctuations in foreign exchange rates. Among other things, weather conditions have affected, and may continue to affect, comparable brand revenues by limiting our ability to deliver our products to our stores, altering consumer behavior, or requiring us to close certain stores temporarily, thus reducing store traffic. Even if stores are not closed, many customers may decide to avoid going to stores in bad weather. These factors have caused, and may continue to cause, our comparable brand revenue results to differ materially from prior periods and from earnings guidance we have provided. For example, the overall economic and general retail sales environment, as well as local and global economic conditions, has caused a significant decline in our comparable brand revenue results in the past. In addition, public health conditions (such as the COVID-19 pandemic), or other unforeseen events, could affect our ability to deliver our products to our customers and stores, alter consumer behavior, or require us to close certain stores temporarily or reduce customer capacity within certain stores temporarily, thus reducing store traffic and materially impacting our comparable brand revenues.

Our comparable brand revenues have fluctuated significantly in the past on an annual, quarterly and monthly basis, and we expect that comparable brand revenues will continue to fluctuate in the future. In addition, past comparable brand revenues are not necessarily an indication of future results and comparable brand revenues may decrease in the future. Our ability to improve our comparable brand revenue results depends, in large part, on maintaining and improving our forecasting of customer demand and buying trends, selecting effective marketing techniques (including digital advertising), effectively driving traffic to our stores, e-commerce websites and direct-mail catalogs through marketing and various promotional events, providing an appropriate mix of merchandise for our broad and diverse customer base and using effective pricing strategies. Any failure to meet the comparable brand revenue expectations of investors and securities analysts in one or more future periods could significantly reduce the market price of our common stock.

*Our business has been and may continue to be materially impacted by the COVID-19 pandemic, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.*

Our business has been and may continue to be materially impacted by the COVID-19 pandemic, which has negatively affected the U.S. and global economies, disrupted businesses and financial markets, and led to significant travel and transportation reductions.

Although during the COVID-19 pandemic our revenues have grown, there is no guarantee that such growth will continue over a prolonged period of time or that our revenues will not decline as consumers return to the workplace and spend less time at home, or if the COVID-19 pandemic worsens due to new variants, either of which could result in decreased consumer spending in the markets in which we operate.

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The continuing impact of the COVID-19 pandemic on our results, financial position and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, such as the impact from new variants, the extent and effectiveness of containment actions and vaccination rollout throughout the world, and the impact of these and other factors on our stores, offices, employees, distributors, vendors and customers. If we are not able to respond to and manage the impact of such events effectively, our business, operating results, financial condition and cash flows could be adversely affected.

*Our failure to successfully manage the costs and performance of our digital advertising might have a negative impact on our business.*

We use digital advertising to drive sales and traffic to our e-commerce sites. Competition and available inventory affect the price the company pays when ads are sold and costs which could impact the efficiency of our spend. Additionally, we have historically experienced fluctuations in our customers' response to our marketing. Customer response to our advertisements is substantially dependent on merchandise assortment, availability and creative presentation, as well as the general retail sales environment, current domestic and global economic conditions and competition. In addition, if we misjudge the correlation between our advertising spend and net sales, if we mismanage budgets or if our strategy overall does not continue to be successful, our results of operations could be negatively impacted.

*If we are unable to successfully manage the complexities associated with an omni-channel and multi-brand business, we may suffer declines in our existing business and our ability to attract new business.* 

With the expansion of our e-commerce business, the development of new brands, acquired brands, and brand extensions, our overall business has become substantially more complex. The changes in our business have forced us to develop new expertise and face new challenges, risks and uncertainties. For example, we face the risk that our e-commerce business, might cannibalize a portion of our retail sales or our newer brands, brand extensions and products may result in a decrease in sales of existing brands and products. While we recognize that our e-commerce sales and sales from new brands and products cannot be entirely incremental to sales through our retail channel or from existing brands and products, respectively, we seek to attract as many new customers as possible with the most relevant channels, brands and products to meet customer needs and grow our market share. We continually analyze the business results of our channels, brands and products in an effort to find opportunities to build incremental sales.

*A number of factors that affect our ability to successfully open new stores or close existing stores are beyond our control.* 

Approximately 34% of our net revenues are generated by our retail stores. Our ability to open additional stores or close existing stores successfully will depend upon a number of factors, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• general economic conditions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• our identification of, and the availability of, suitable store locations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• our success in negotiating new leases and amending, subleasing or terminating existing leases on acceptable terms;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the success of other retail stores in and around our retail locations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• our ability to secure required governmental permits and approvals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the availability and cost of building materials needed for store remodels;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• our hiring and training of skilled store operating personnel, especially management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the unionization, or potential for unionization, of store personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the availability of financing on acceptable terms, if at all; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the financial stability of our landlords and potential landlords.

Many of these factors are beyond our control. For example, for the purpose of identifying suitable store locations, we rely, in part, on demographic surveys regarding the location of consumers in our target market segments. While we believe that the surveys and other relevant information are helpful indicators of suitable store locations, we recognize that these information sources cannot predict future consumer preferences and buying trends with complete accuracy. In addition, changes in demographics, in consumer shopping patterns, such as a reduction in mall traffic, in the types of merchandise that we sell and in the pricing of our products, may reduce the number of suitable store locations or cause formerly suitable locations to become less desirable. Further, time frames for lease negotiations and store development vary from location to location and can be subject to unforeseen delays or unexpected cancellations. We may experience delays in opening new store locations or remodeling existing locations due to the uncertain availability and increased costs of building materials necessary to remodel and improve our stores. We may not be able to open new stores or, if opened, operate those stores profitably. Construction and other delays in store openings could have a negative impact on our business and operating results. Additionally, we may not be able to renegotiate the terms of our current leases or close our underperforming stores on terms favorable to us, any of which could negatively impact our operating results. Our typical methods of managing these risks and uncertainties may not be sufficient, and as a result, our business and operating results could be negatively impacted.

*Our inability or failure to adequately protect or enforce our intellectual property could negatively impact our business.* 

We may not be able to effectively protect or enforce our intellectual property rights in the U.S. or in foreign jurisdictions, particularly as we continue to expand our business offerings and geographic reach. The laws of certain countries may not protect intellectual property rights to the same extent as the laws of the U.S. Our trademarks, service marks, copyrights, trade dress rights, trade secrets, domain names, patents, designs, proprietary technology and other intellectual property are valuable assets that are critical to our

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success. The unauthorized reproduction, theft or other misappropriation of our intellectual property could diminish the value of our brands or reputation and cause a decline in our sales. Protection of our intellectual property and maintenance of our distinct branding are particularly important as they distinguish our products and services from our competitors. The actions we take to protect our intellectual property rights may not be adequate to prevent imitation of our brands and products by others, particularly in jurisdictions that do not have strong intellectual property protection. In addition, the costs of protecting and policing our intellectual property assets may adversely affect our operating results. Advances in artificial intelligence technology may generate developments, which existing intellectual property laws may not adequately protect against and which may also give rise to a proliferation of infringement which we may not be able to address effectively.

*We outsource certain aspects of our business to third-party vendors and are in the process of insourcing certain business functions from third-party vendors.* 

We outsource certain aspects of our business to third-party vendors that subject us to risks of disruptions in our business as well as increased costs. For example, we utilize outside vendors for such things as payroll processing, email and other digital marketing and various distribution facilities and delivery services. In some cases, we rely on a single vendor for such services. Accordingly, we are subject to the risks associated with their ability to successfully provide the necessary services to meet our needs. If our vendors are unable to adequately protect our data and information is lost, our ability to deliver our services is interrupted, our vendors' fees are higher than expected, or our vendors make mistakes in the execution of operations support, then our business and operating results may be negatively impacted.

In addition, in the past, we have insourced certain aspects of our business, including certain technology services and the management of certain furniture manufacturing and delivery, each of which was previously outsourced to third-party providers. We may also need to continue to insource other aspects of our business in the future in order to control our costs and to stay competitive. This may cause disruptions in our business and result in increased cost to us. In addition, if we are unable to perform these functions better than, or at least as well as, our third-party providers, our business may be harmed.

*If we fail to attract and retain key personnel, our business and operating results may be harmed.* 

Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our senior management, whose vision for our company, knowledge of our business and expertise would be difficult to replace. If any one of our key employees leaves, as we experienced during the last year, is seriously injured or unable to work, or fails to perform and we are unable to find a qualified replacement either internally or externally, we may be unable to execute our business strategy. In addition, our main offices are located in the San Francisco Bay Area, where competition for personnel with digital/e-commerce and technology skills can be intense. Several of our strategic initiatives, including our e-commerce, design, technology and supply chain initiatives, require that we hire and/or develop employees with appropriate experience. We may not be successful in recruiting, retaining and motivating skilled personnel domestically or globally who have the requisite experience to achieve our global business goals, and failure to do so may harm our business. Further, in the event we need to hire additional personnel, we may experience difficulties in attracting and successfully hiring such individuals due to competition for highly skilled personnel, increasing wages throughout the United States, as well as the significantly higher cost of living expenses in our markets. Additionally, if long-term, remote or flexible work options become more commonplace, potential employees may choose to move to lower cost of living areas or accept positions at companies with more favorable remote working policies, which could negatively impact our ability to recruit appropriately skilled personnel for positions that cannot be performed remotely. Lastly, we may experience reputational harm should current or former associates post negative comments about us on social media sites.

*If we are unable to introduce new brands and brand extensions successfully, or to reposition or close existing brands, our business and operating results may be negatively impacted.*

We have in the past and may in the future introduce new brands and brand extensions, reposition brands, close existing brands, or acquire new brands, especially as we continue to expand globally. Any new brands, brand extensions or expansion into new lines of business may not perform as expected. The work involved with integrating new brands or businesses into our existing systems and operations could be time-consuming, require significant amounts of management time and result in the diversion of substantial operational resources. Further, if we devote time and resources to new brands, acquired brands, brand extensions, brand repositioning, or new lines of business and those businesses are not as successful as we planned, then we risk damaging our overall business results or incurring impairment charges, including to write off any existing property and equipment, goodwill or intangible assets associated with previously acquired brands. As a result, we may not be able to introduce new brands in a manner that improves our overall business and/or operating results and may therefore be forced to close the brands or new lines of business, which may damage our reputation and/or negatively impact our operating results.

*We may be subject to legal proceedings that could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources.*

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. There has been a rise in the number of lawsuits against companies like us regarding consumer protection, false advertising, data breach, and e-commerce-related patent infringement.

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From time to time, we have been subject to these types of lawsuits and are currently the subject of some of these types of lawsuits. The cost of defending against these types of claims or the ultimate resolution of any such claims against us, whether by settlement or adverse court decision, may harm our business and operating results. In addition, the increasingly regulated business environment may result in a greater number of enforcement actions by government agencies and private litigation. This could subject us to increased exposure to stockholder lawsuits and potential penalties related to regulatory inquiries. Additionally, in recent years there has been an increase in the number of employment claims and, in particular, discrimination and harassment claims. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies that have faced employment or harassment-related lawsuits have had to terminate management or other key personnel and have suffered reputational harm that has negatively impacted their business.

**Risks Related to Technology** 

*We may be exposed to cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption that could cause us to incur unexpected expenses and loss of revenue.* 

A significant portion of our customer orders are placed through our e-commerce websites or through our customer care centers. In addition, a significant portion of sales made through our retail channel require the collection of certain customer data, such as credit card information. In order for our sales channels to function successfully, we, our banking and authorizations partners, and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information and other personal information of our customers, securely over public and private networks. Third parties may have or develop the technology or knowledge to breach, disable, disrupt or interfere with our systems or processes or those of our vendors. Although we take the security of our systems and the privacy of our customers' confidential information seriously, and we believe we take reasonable steps to protect the security and confidentiality of the information we collect, we cannot guarantee that our security measures will effectively prevent others from obtaining unauthorized access to our information and our customers' information. The techniques used to obtain unauthorized access to systems change frequently and are not often recognized until after they have been launched. Any person who circumvents our security measures could destroy or steal valuable information or disrupt our operations. Any security breach or vulnerability that is discovered could cause consumers to lose confidence in the security of our information systems, including our e-commerce websites or stores, and choose not to purchase from us. Any security breach could also expose us to risks of data loss, litigation, regulatory investigations and other significant liabilities. Such a breach could also seriously disrupt, slow or hinder our operations and harm our reputation and customer relationships, any of which could harm our business. If we or our third-party providers are the target of a cybersecurity attack resulting in unauthorized disclosure of our customer data, we may be required to undertake costly notification procedures. If we fail to implement appropriate safeguards, detect and provide prompt notice of unauthorized access as required by some data privacy laws, or otherwise comply with these laws, we could be subject to potential fines, claims for damages and other remedies, which could be significantly in excess of our insurance coverage and could harm our business.

*We receive, process, store, use and share data, some of which contains personal information, which subjects us to complex and evolving governmental regulation and other legal obligations.* 

We receive, process, store, use and share data, some of which contains personal information. There are numerous federal, state, local and foreign laws and regulations regarding matters central to our business, data privacy and the collection, storing, sharing, use, processing, disclosure and protection of personal information and other data from customers, employees and business partners, the scope of which are regularly changing, subject to uncertain and differing interpretations and may be inconsistent among countries or conflict with other rules. For example, we are subject to the General Data Protection Regulation ("GDPR") in the European Union and United Kingdom, the Canadian Consumer Privacy Protection Act in Canada ("CCPA"), and similar laws in other foreign countries. In addition, in November 2020, the California Privacy Rights Act ("CPRA") was passed in the General Election and amended the CCPA as of January 1, 2023, imposing new, and potentially broader, consumer privacy rights on businesses, including ours. Other states, including Colorado, Virginia, Utah, and Connecticut passed similar laws that take effect in 2023. The application and interpretation of these laws and regulations are often uncertain, and as the focus on data privacy and data protection increases globally and domestically, we are, and will continue to be, subject to varied and evolving data privacy and data protection laws. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The burdens imposed by these and other laws and regulations that may be enacted, or new interpretations of existing laws and regulations, may require us or our third-party vendors to modify our data processing practices and policies and to incur substantial costs in order to comply. These laws and regulations may also impact our ability to expand advertising on our platform internationally, as they may impede our ability to deliver targeted advertising and accurately measure our ad performance.

Any failure or perceived failure by us to comply with our privacy policies, data privacy-related obligations to customers or other third parties, or our data privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, or other failure to comply with these laws and regulations, or regulatory scrutiny, may result in governmental enforcement actions or litigation that could expose our business to substantial financial penalties, or other monetary or non-monetary relief, negative publicity, loss of confidence in our brands, decline in customer growth or damage

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to our brands and reputation. The GDPR, CCPA, CPRA and other such laws and regulations impose new and burdensome obligations, and include substantial uncertainty as to their interpretation, and we may face challenges in addressing their requirements, which could result in fines or penalties, lead us or our third-party vendors to change our data privacy policies and practices and limit our ability to deliver personalized advertising. Additionally, if third parties that we work with, such as advertisers, service providers or developers, violate applicable laws or our policies, these violations may also put customers' information at risk, which could, in turn, have an adverse effect on our business, revenue and financial results.

*We are undertaking certain systems changes that might disrupt our business operations.* 

Our success depends, in part, on our ability to source, sell and distribute merchandise efficiently through appropriate systems and procedures. We are continually modifying our information technology systems, which involves updating or replacing legacy systems with successor systems often over the course of several years. There are inherent risks associated with replacing our core systems, including supply chain and merchandising systems disruptions, that could affect our ability to get the correct products into the appropriate stores and delivered to customers or delay fulfillment and delivery until the issue is resolved. In addition, changes to any of our software implementation strategies could result in the impairment of software-related assets. We are also subject to the risks associated with the ability of our vendors to provide information technology solutions to meet our needs. Any disruptions could negatively impact our business and operating results.

We recently replaced our core financial reporting and human capital management systems with new enterprise resource planning systems to standardize our processes worldwide and adopt best-in-class capabilities. As we continue to utilize our core financial reporting and human capital management systems, we may need to add or improve processes and features, which could disrupt service to our operations or cause errors in data. We are heavily reliant on third-party vendors for access to our systems and the accuracy of the functionality within the systems. If we encounter implementation or usage problems with these new systems or other related systems and infrastructure, or if the systems do not operate as intended, do not give rise to anticipated benefits, or fail to integrate properly with our other systems or software platforms, then our business, results of operations, and internal controls over financial reporting may be adversely affected.

**Risks Related to our Vendors and Global Operations** 

*Our dependence on foreign vendors and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.* 

Approximately 67% of our merchandise purchases in fiscal 2022 were sourced from foreign vendors predominantly in Asia and Europe. Our dependence on foreign vendors means that we may be affected by changes in the value of the U.S. dollar relative to other foreign currencies. For example, any upward valuation in the Chinese yuan, the euro, or any other foreign currency against the U.S. dollar may result in higher costs to us for those goods. Although substantially all of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars, declines in foreign currencies and currency exchange rates might negatively affect the profitability and business prospects of one or more of our foreign vendors. This, in turn, might cause such foreign vendors to demand higher prices for merchandise in their effort to offset any lost profits associated with any currency devaluation, delay merchandise shipments to us, or discontinue selling to us, any of which could ultimately reduce our sales or increase our costs. In addition, the rising cost of labor in the countries in which our foreign vendors operate has resulted in increases in our costs of doing business. Any further increases in the cost of living in such countries may result in additional increases in our costs or in our foreign vendors going out of business.

We, and our foreign vendors, are also subject to other risks and uncertainties associated with changing economic, political, social, health and environmental conditions and regulations within and outside of the U.S. These risks and uncertainties include import duties and quotas, compliance with anti-dumping regulations, work stoppages, economic uncertainties and adverse economic conditions (including inflation and recession), government regulations, trade restrictions, regulations to address climate change, employment and labor matters, wars and fears of war, political unrest, acts of terrorism, natural disasters, adverse weather, climate change, outbreaks of disease, and other unexpected events. We cannot predict whether any of the countries from which our raw materials or products are sourced, or in which our products are currently manufactured or may be manufactured in the future, will be subject to trade restrictions imposed by the U.S. or foreign governments, such as the tariffs levied by the U.S. against China, or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from foreign vendors could increase the cost, reduce the supply of merchandise available to us, or result in excess inventory if merchandise is received after the planned or appropriate selling season, all of which could adversely affect our business, financial condition and operating results. Furthermore, some or all of our foreign vendors' operations may be adversely affected by political and financial instability resulting in the disruption of trade from exporting countries, restrictions on the transfer of funds and/or increased tariffs or quotas, war, political unrest, acts of terrorism, natural disasters, adverse weather, climate change, outbreaks of disease or other trade disruptions. For example, the COVID-19 pandemic impacted our supply chain by forcing some factories that manufacture our merchandise to temporarily close or experience worker shortages and by causing delays and increased costs in international shipping. In addition, an economic downturn, or failure of foreign markets, may result in financial instabilities for our foreign vendors, which may cause our foreign vendors to decrease production, discontinue selling to us, or cease operations altogether. Our global operations in Asia, Australia, Europe and Canada

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could also be affected by changing economic and political conditions in foreign countries, which could have a negative effect on our business, financial condition and operating results.

Although we continue to be focused on improving our global compliance program, there remains a risk that one or more of our foreign vendors will not adhere to our global compliance standards, such as fair labor standards and the prohibition of child labor. Non-governmental organizations might attempt to create an unfavorable impression of our sourcing practices or the practices of some of our foreign vendors that could harm our image. If either of these events occurs, we could lose customer goodwill and favorable brand recognition, which could negatively affect our business and operating results.

Furthermore, many of our raw materials, such as cotton, are generally sourced internationally, and represent a significant part of our business. As part of our sustainability goals and preferred raw materials strategy, we aim to shift our raw materials to lower emission options, where possible. Many key inputs and processes in our raw material supply chain are resource and carbon intensive, introducing risk of scarcity due to disruption in availability, price volatility, and drought or other supply issues. Furthermore, as more companies increase their use of organic, recycled, lower emission or related materials in their product assortments, the availability of raw materials that meet and further our sustainability goals may be a risk. As a result of these developments, our business and operating results could be negatively impacted.

*We depend on foreign vendors and third-party agents for timely and effective sourcing of our merchandise, and we may not be able to acquire products in appropriate quantities and at acceptable prices to meet our needs.* 

Our performance depends, in part, on our ability to purchase our merchandise in sufficient quantities at competitive prices. We purchase our merchandise from numerous foreign and domestic manufacturers and importers. We generally have no contractual assurances of continued supply, pricing, or access to new products, and any vendor could change the terms upon which it sells to us, discontinue selling to us, or go out of business at any time. We may not be able to acquire desired merchandise in sufficient quantities on terms acceptable to us. Additionally, we may not be able to modify our existing purchase orders with our vendors in response to fluctuating sales demand from our customers. Better than expected sales demand may lead to customer backorders and lower in-stock positions of our merchandise, which could negatively affect our business and operating results. Conversely, if we experience lower than expected sales demand, we may not be able to reduce our purchase orders with our vendors, which may lead to higher than anticipated inventory levels, and could require us to mark down certain products and sell excess inventory at a discount. In addition, our vendors may have difficulty adjusting to our changing demands and growing business.

Any inability to acquire the appropriate amount of suitable merchandise on acceptable terms or the loss of one or more of our foreign vendors or third-party agents could have a negative effect on our business and operating results. Failure to acquire sufficient merchandise could harm our business because we would be missing products that we felt were important to our assortment, unless and until alternative supply arrangements are secured. We may not be able to develop relationships with new vendors or third-party agents, and products from alternative sources, if any, may not be of a suitable quality and/or may be more expensive than those we currently purchase. Failure to reduce our merchandise orders from our vendors during times of decreased customer demand could also harm our business because it may result in higher than anticipated inventory levels, which could require us to sell inventory at a discount. In addition, we are subject to certain risks that could limit our vendors' ability to provide us with quality merchandise on a timely basis and at prices that are commercially acceptable to us, including risks related to the availability of raw materials, labor disputes, work disruptions or stoppages, union organizing activities, vendor financial liquidity, adverse weather, natural disasters, political unrest, war, acts of terrorism, outbreaks of disease (such as the COVID-19 pandemic), general economic and political conditions and regulations to address climate change. For example, certain of our vendors have experienced work disruptions or stoppages, or transportation or other restrictions, due to the COVID-19 pandemic, which negatively impacted our ability to acquire merchandise, which has had an adverse effect on our results of operations.

*If our vendors fail to adhere to our quality control standards and test protocols, we may delay a product launch or recall a product, which could damage our reputation and negatively affect our operations and financial results.* 

Our vendors might not adhere to our quality control standards, and we might not identify the deficiency before merchandise ships to our stores or customers. Our vendors' failure to manufacture or import quality merchandise in a timely and effective manner could damage our reputation and brands, and could lead to an increase in customer complaints and litigation against us and an increase in our routine insurance and litigation costs. Further, any merchandise that we receive, even if it meets our quality standards, could become subject to a recall, which could damage our reputation and brands, and harm our business. Additionally, changes to the legislative or regulatory framework regarding product safety or quality may subject companies like ours to more product recalls and result in higher recall-related expenses. Any recalls or other safety issues could harm our brands' images and negatively affect our business and operating results.

*Our efforts to expand globally may not be successful and could negatively impact the value of our brands.* 

We are currently growing our business and increasing our global presence by opening new stores outside of the U.S., including by expanding our franchise and shop-in-shop operations, and offering shipping globally through third-party vendors. As part of our overall global expansion strategy, we operate company-owned retail stores and e-commerce websites outside of North America. While our global expansion to date has been a small part of our business, we plan to continue to increase our presence internationally,

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including through our franchise and shop-in-shop arrangements. We have limited experience with global sales, understanding foreign consumer preferences, anticipating buying trends in different countries, marketing to customers overseas, or managing shipping logistics to customers overseas. Moreover, global awareness of our brands and our products may not be high. Consequently, we may not be able to successfully compete with established brands in these markets and our global sales may not result in the revenues we anticipate. Additionally, global economic or political instability, work disruptions or stoppages, war or fear of war or outbreaks of diseases (such as the COVID-19 pandemic) and resulting government actions (such as lockdowns or quarantines), may delay or harm our efforts to expand globally. Also, our products may not be accepted, either due to foreign legal requirements or due to different consumer tastes and trends. If our global growth initiatives are not successful, or if we or any of our third-party vendors fail to comply with any applicable regulations or laws, we may be forced to close stores or cease operations in certain countries, which may result in significant financial harm, diminish the value of our brands and negatively affect our future opportunities for global growth.

In addition, we are exposed to foreign currency exchange rate risk with respect to our operations denominated in currencies other than the U.S. dollar. Our retail stores 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. Although we use instruments to hedge certain foreign currency risks, such hedges may not succeed in offsetting all of the impact of foreign currency rate volatility and generally only delay such impact on our business and financial results. Further, because we do not hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations. Our ultimate realized gain or loss with respect to currency fluctuations will generally depend on the size and type of the transactions that we enter into, the currency exchange rates associated with these exposures, changes in those rates and whether we have entered into foreign currency hedge contracts to offset these exposures. All of these factors could materially impact our results of operations, financial position and cash flows.

We 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 pursuant to franchise agreements. Under these agreements, our franchisees operate stores and/or e-commerce websites that sell goods purchased from us under our brand names. We continue to expand our franchise operations with our existing franchisees as well as seek to identify new franchise partnerships for select countries. The effect of these franchise arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new global markets. In addition, certain aspects of our franchise arrangements are not directly within our control, such as the ability of each franchisee to meet its projections regarding store openings and sales, and the impact of exchange rate fluctuations on their business. Moreover, while the franchise agreements we have entered into may provide us with certain termination rights, to the extent that our franchisees do not operate their stores in a manner consistent with our requirements regarding our brand identities and customer experience standards, the reputation and value of our brands could be impaired. In addition, in connection with these franchise arrangements, we have and will continue to implement certain new processes that may subject us to additional regulations and laws, such as U.S. export regulations. Failure to comply with any applicable regulations or laws could have an adverse effect on our results of operations.

*We have limited experience operating on a global basis and our failure to effectively manage the risks and challenges inherent in a global business could adversely affect our business, operating results and financial condition and growth prospects.* 

We operate several retail businesses, subsidiaries and branch offices throughout Asia, Australia, Europe, Mexico, and Canada, which includes managing overseas employees, and may expand these overseas operations in the future. Our global presence exposes us to the laws and regulations of these jurisdictions, including those related to marketing, privacy, data protection, employment and product safety and testing. We may be unable to keep current with government requirements as they change from time to time. Our failure to comply with such laws and regulations may harm our reputation, adversely affect our future opportunities for growth and expansion in these countries, and harm our business and operating results.

Moreover, our global operations subject us to a variety of risks and challenges, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• increased management, infrastructure and legal compliance costs, including the cost of real estate and labor in those markets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• increased financial accounting and reporting requirements and complexities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• increased operational and tax complexities, including managing our inventory globally;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the diversion of management attention away from our core business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• general economic conditions, changes in diplomatic and trade relationships, including the imposition of new or increased tariffs, political and social instability, war and acts of terrorism, outbreaks of diseases (such as the COVID-19 pandemic) and natural disasters in each country or region;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• economic uncertainty around the world;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• compliance with U.S. laws and regulations for foreign operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• reputational harm due to negative post about our brands or products on foreign social media or online forums;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• fluctuations in foreign currency exchange rates and the related effect on our financial results, and the use of foreign exchange hedging programs to mitigate such risks;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• growing cash balances in foreign jurisdictions which may be subject to repatriation restrictions; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• reduced or varied protection for intellectual property rights in some countries and practical difficulties of enforcing such rights abroad.

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Any of these risks could adversely affect our global operations, reduce our revenues or increase our operating costs, which in turn could adversely affect our business, operating results, financial condition and growth prospects. Some of our vendors and our franchisees also have global operations and are subject to the risks described above. Even if we are able to successfully manage the risks of our global operations, our business may be adversely affected if our vendors and franchisees are not able to successfully manage these risks.

In addition, as we continue to expand our global operations, we are subject to certain U.S. laws, including the Foreign Corrupt Practices Act, as well as the laws of the foreign countries in which we operate. We must ensure that our employees and third-party agents comply with these laws. If any of our overseas operations, or our employees or third-party agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.

**Risks Related to Taxes and Tariffs** 

*Any significant changes in tax, trade or other policies in the U.S. or other countries, including policies that restrict imports or increase import tariffs, could have a material adverse effect on our results of operations.* 

A significant portion of our products are manufactured outside of the U.S. Significant changes in tax, trade or other polices either in the U.S. or other countries could materially increase our tax burden or costs of goods sold. These changes in policies may also require us to increase our prices, which could adversely affect our sales. Tariffs or retaliatory trade restrictions implemented by other countries, could adversely affect customer sales, cause potential delays in product received from our vendors, and negatively impact our cost of goods sold and results of operations.

*Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results.* 

We are subject to income taxes in many U.S. and foreign jurisdictions. Our provision for income taxes is subject to volatility and could be adversely impacted by a number of factors that require significant judgment and estimation. At any point in time, multiple tax years are subject to examination by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly and annual effective tax rates as taxable events occur and uncertain tax positions are either evaluated or resolved. In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings or losses in countries with differing statutory tax rates or by changes to existing laws or regulations. For example, in 2021, 137 member states of the Organization of Economic Co-operation and Development agreed to a two-pillar inclusive framework that will fundamentally change the taxing rights of governments and the allocation of profits among tax jurisdictions in which companies conduct business. In December 2022, the European Union adopted the Minimum Tax Directive under Pillar 2 of the inclusive framework, requiring member states to pass legislation by the end of 2023. Although it is uncertain if some or all of these proposals will be enacted into law in the U.S. or in other countries in which we operate, it is possible that such changes could materially impact our effective tax rate. We regularly assess all of these matters to determine the adequacy of our income tax provision, which is subject to significant judgment.

**Risks Related to our Financial Statements and Liquidity** 

*We may require funding from external sources, which may not be available at the levels we require, or may cost more than we expect, and, as a consequence, our expenses and operating results could be negatively affected.* 

We regularly review and evaluate our liquidity and capital needs. Although our credit facilities provide for up to a total of $750 million in unsecured revolving lines of credit (which includes a $250 million accordion feature subject to lender consent), in the event we require additional liquidity from our lenders, such funds may not be available to us on acceptable terms, or at all. In addition, in the event we were to breach any of our financial covenants, our banks would not be required to provide us with additional funding, or they may require us to renegotiate our existing Credit Facility on less favorable terms. In addition, we may not be able to renew our letters of credit that we use to help pay our suppliers, or our Credit Facility, on terms that are acceptable to us, or at all, as the availability of credit facilities may become limited. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results.

*Disruptions in the financial markets may adversely affect our liquidity and capital resources and our business.* 

Global financial markets and the banking sector can experience extreme volatility, disruption and credit contraction, which adversely affect global economic conditions. Such turmoil in financial and credit markets or other changes in economic conditions could adversely affect the sources of liquidity available to us and our costs of capital. For example, each financial institution in the syndicate for our credit facilities is responsible for providing a portion of the loans to be made under the facilities. If any lender, or group of lenders, with a significant portion of the commitments in our credit facilities fails to satisfy its obligations to extend credit under the facilities and we are unable to find a replacement for such lender or group of lenders on a timely basis, if at all, our liquidity and our business may be materially adversely affected. In addition, if the U.S. government were to default on its debt obligations due to Congress' failure to increase the debt limit, the U.S. and global financial markets would be adversely affected and our liquidity and borrowing costs could be adversely impacted. Should we need it, we also may not be able to obtain additional credit on terms which are acceptable to us, if at all.

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*Our operating results may be harmed by unsuccessful management of our employment, occupancy and other operating costs, and the operation and growth of our business may be harmed if we are unable to attract qualified personnel.* 

To be successful, we need to manage our operating costs and continue to look for opportunities to reduce costs. We incur substantial costs to warehouse and distribute our inventory. We continue to expand our furniture delivery network including insourcing and third party expansion of furniture delivery hubs in certain geographies and continue to regionalize our retail and e-commerce fulfillment capabilities. Significant increases in our inventory levels may result in increased warehousing and distribution costs, such as costs related to additional distribution facilities, which we may not be able to lease or purchase on acceptable terms, if at all. Such increases in inventory levels may also lead to slower delivery times to customers, as capacity constraints at distribution facilities could cause delays in locating and shipping products, and increases in costs associated with inventory that is lost, damaged or aged. Higher than expected costs, particularly if coupled with lower than expected sales, would negatively impact our business and operating results. In addition, in times of economic uncertainty, these long-term contracts may make it difficult to quickly reduce our fixed operating costs, which could negatively impact our business and operating results.

We recognize that we may need to increase the number of our employees, especially during holiday selling seasons, and incur other expenses to support new brands and brand extensions and the growth of our existing brands, including the opening of new stores. In addition, the market for prime real estate is competitive, especially in San Francisco where our corporate offices are headquartered. If we are unable to make substantial adjustments to our cost structure during times of uncertainty, such as an economic downturn or during times of expansion, we may incur unnecessary expense or we may have inadequate resources to properly run our business, and our business and operating results may be negatively impacted. From time to time, we may also experience union organizing activity in currently non-union facilities, including in our stores and distribution facilities. Union organizing activity may result in work slowdowns or stoppages and higher labor costs. In addition, there continues to be a growing number of wage-and-hour lawsuits and other employment-related lawsuits against retail companies, especially in California. State, federal and global laws and regulations regarding employment change frequently and the ultimate cost of compliance cannot be precisely estimated. Further, there have been and may continue to be increases in minimum wage and health care requirements. Any changes in regulations, the imposition of additional regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, trade, or health care, could have an adverse impact on our financial condition and results of operations.

We contract with various agencies to provide us with qualified personnel for our workforce. Any negative publicity regarding these agencies, such as in connection with immigration issues or employment practices, could damage our reputation, disrupt our ability to obtain needed labor or result in financial harm to our business, including the potential loss of business-related financial incentives in the jurisdictions where we operate. Although we strive to secure long-term contracts on favorable terms with our service providers and other vendors, we may not be able to avoid unexpected operating cost increases in the future, such as those associated with minimum wage increases, enhanced health care requirements and benefits, or increases in insurance premiums.

**General Risk Factors**

*Our inability to obtain commercial insurance at acceptable rates or our failure to adequately reserve for self-insured exposures might increase our expenses and have a negative impact on our business.* 

We believe that commercial insurance coverage is prudent in certain areas of our business for risk management. Insurance costs have increased substantially and may continue to increase in the future and may be affected by natural disasters, outbreaks of disease (such as the COVID-19 pandemic), climate change, fear of terrorism, war, financial irregularities, cybersecurity breaches and fraud at publicly-traded companies, intervention by the government or political crises and instability, an increase in the number of claims received by the carriers, and a decrease in the number of insurance carriers. In addition, the carriers with which we hold our policies may go out of business or be otherwise unable to fulfill their contractual obligations, or they may disagree with our interpretation of the coverage or the amounts owed. In addition, for certain types or levels of risk, such as risks associated with certain natural disasters, cybersecurity breaches, or terrorist attacks, we may determine that we cannot obtain commercial insurance at acceptable rates, if at all. Therefore, we may choose to forego or limit our purchase of relevant commercial insurance, choosing instead to self-insure one or more types or levels of risks. We are primarily self-insured and we purchase insurance only for catastrophic types of events for such risks as workers' compensation, employment practices liability, employee health benefits, product recall and reputational risk, among others. If we suffer a substantial loss that is not covered by commercial insurance or our self-insurance reserves, the loss and related expenses could harm our business and operating results. In addition, exposures exist for which no insurance may be available and for which we have not reserved.

*If our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and analysts, our stock price may decline.* 

We typically provide public guidance on our expected operating and financial results for future periods on an annual basis only, as we believe this approach is better aligned with the long-term view we take in managing our business and our focus on long-term stockholder value creation. Although we believe that this guidance provides investors and analysts with a better understanding of management's expectations for the future and is useful to our stockholders and potential stockholders, such guidance is comprised of forward-looking statements subject to the risks and uncertainties described in this report and in our other public filings and public statements. Our actual results may not always be in line with or exceed the guidance we have provided or the expectations of our

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investors and analysts, especially in times of economic uncertainty. In the past, when we have reduced our previously provided guidance, the market price of our common stock has declined. If, in the future, our operating or financial results for a particular period do not meet our guidance or the expectations of our investors and analysts or if we reduce our guidance for future periods, the market price of our common stock may decline.

*A variety of factors may cause our quarterly operating results to fluctuate, leading to volatility in our stock price.* 

Our quarterly results have fluctuated in the past and may fluctuate in the future, depending upon a variety of factors, including changes in economic conditions, shifts in the timing of holiday selling seasons, including Valentine's Day, Easter, Halloween, Thanksgiving and Christmas, as well as timing shifts due to 53-week fiscal years, which occur approximately every five years. Historically, a significant portion of our net revenues and net earnings have typically been realized during the period from October through January each year, our peak selling season. In preparation for and during our holiday selling season, we hire a substantial number of part-time and seasonal employees, primarily in our retail stores, distribution facilities and customer care centers. If our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and analysts, our stock price may decline.

*Changes in the method of determining the London Interbank Offered Rate, or LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our financial condition and results of operations.* 

Certain of our financial obligations and instruments, including our credit facilities, are or may be made at variable interest rates that use LIBOR (or metrics derived from or related to LIBOR) as a benchmark for establishing the interest rate. The United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR, and most LIBOR tenors are not expected to be published after June 30, 2023. These reforms may result in new methods of calculating LIBOR to be established, or alternative reference rates to be established. For example, the Federal Reserve Bank of New York has begun publishing a Secured Overnight Funding Rate, or SOFR, which is intended to replace U.S. dollar LIBOR, and central banks in several other jurisdictions have also announced plans for alternative reference rates for other currencies. The potential consequences of these actions cannot be fully predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us. Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows. In addition, any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. This could materially and adversely affect our results of operations, cash flows, and liquidity.

*If we are unable to pay quarterly dividends or repurchase our stock at intended levels, our reputation and stock price may be harmed.* 

We have historically repurchased our shares through our stock repurchase program and paid a common stock dividend quarterly. The stock repurchase program and dividend may require the use of a significant portion of our cash earnings, which are also needed to fund our operations and finance future growth. As a result, we may not retain a sufficient amount of cash to fund our operations or finance future growth opportunities, new product development initiatives and unanticipated capital expenditures, which could adversely affect our financial performance. Further, our Board of Directors may, at its discretion, decrease or entirely discontinue the payment of dividends at any time and the stock repurchase program may be limited or eliminated at any time. Our ability to pay dividends and repurchase stock will depend on our ability to generate sufficient cash flows from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors, that are beyond our control. Any failure to pay dividends or repurchase stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in us, and may negatively impact our stock price.

*If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and our investors' views of us could be harmed.* 

We have evaluated and tested our internal controls in order to allow management to report on, and our registered independent public accounting firm to attest to, the effectiveness of our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. If we are not able to continue to meet the requirements of Section 404 in a timely manner, or with adequate compliance, we may be required to disclose material weaknesses if they develop or are uncovered, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or the New York Stock Exchange. In addition, our internal controls may not prevent or detect all errors and fraud on a timely basis, if at all. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable assurance that the objectives of the control system will be met. If any of the above were to occur, our business and the perception of us in the financial markets could be negatively impacted.

*Changes to accounting rules or regulations may adversely affect our operating results.* 

Changes to existing accounting rules or regulations may impact our future operating results. A change in accounting rules or regulations may even affect our reporting of transactions completed before the change is effective. The introduction of new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future.

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Future changes to accounting rules or regulations, or the questioning of current accounting practices, may adversely affect our operating results.

*In preparing our financial statements we make certain assumptions, judgments and estimates that affect the amounts reported, which, if not accurate, may impact our financial results.* 

We make assumptions, judgments and estimates that impact amounts reported in our consolidated financial statements for a number of items, including merchandise inventories, long-lived assets, leases, goodwill, and income taxes, among others. These assumptions, judgments and estimates are derived from historical experience and various other factors that we believe are reasonable under the circumstances as of the date our consolidated financial statements are prepared. Actual results could differ materially from our estimates, and such differences may impact our financial results.

*Changes to estimates related to our cash flow projections may cause us to incur impairment charges related to our long-lived assets for our retail store locations and other property and equipment, including information technology systems, as well as goodwill.* 

We make estimates and projections in connection with impairment analyses of our long-lived assets for our retail store locations and other property and equipment, including information technology systems, as well as goodwill. These analyses require us to make a number of estimates and projections of future results. If these estimates or projections change or prove incorrect, we may be, and have been, required to record impairment charges on certain store locations and other property and equipment, including information technology systems, and goodwill. These impairment charges have been significant in the past and may be significant in the future and, as a result of these charges, our operating results have been and may, in the future, be adversely affected.

**ITEM 1B.&nbsp;&nbsp;&nbsp;&nbsp; UNRESOLVED STAFF COMMENTS**

None.

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**ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp; PROPERTIES** 

We lease store locations, distribution and manufacturing facilities, corporate facilities and customer care centers for our U.S. and foreign operations for original terms generally ranging from 5 to 22 years. Certain leases contain renewal options for periods of up to 20 years.

For our store locations, our gross leased store space as of January 29, 2023 totaled approximately 5,962,000 square feet for 530 stores compared to approximately 6,004,000 square feet for 544 stores as of January 30, 2022.

*Leased Properties* 

The following table summarizes the location and size of our leased facilities occupied by us as of January 29, 2023:

---

| | |
|:---|:---|
| Location | Occupied Square Footage (Approximate) |
| *Distribution and Manufacturing Facilities* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;*U.S. Operations* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New Jersey | 3269000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;California | 3150000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mississippi | 2267000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Texas | 1682000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Georgia | 1537000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Arizona | 1200000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Florida | 650000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tennessee | 603000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;North Carolina | 412000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ohio | 329000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Massachusetts | 140000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Colorado | 125000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oregon | 93000 |
| &nbsp;&nbsp;&nbsp;&nbsp;*Foreign Operations* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Australia | 187000 |
| *Corporate Facilities* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New York | 238000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;California | 94000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oregon | 61000 |
| *Customer Care Centers* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nevada | 36000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 25000 |

---

In addition to the above leased properties, we enter into agreements for other offsite storage needs for our distribution facilities and our retail store locations, as necessary. As of January 29, 2023, the total leased space related to these properties was not material to us and is not included in the occupied square footage reported above.

*Owned Properties* 

As of January 29, 2023, we owned 471,000 square feet of space, primarily in California, for our corporate headquarters and certain data center operations.

We believe that all of our facilities are adequate for our current needs and that suitable additional or substitute space will be available in the future to replace our existing facilities, or to accommodate the expansion of our operations, if necessary.

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**ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp; LEGAL PROCEEDINGS** 

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These disputes, which are not currently material, are increasing in number as our business expands and our company grows. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount can be reasonably estimated. In view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the case is close to resolution, in which case no reserve is established until that time. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our consolidated financial statements taken as a whole.

**ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp; MINE SAFETY DISCLOSURES** 

Not applicable.

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**PART II** 

**ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

**MARKET INFORMATION** 

Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol WSM. The closing price of our common stock on the NYSE on March 19, 2023 was $116.86.

**STOCKHOLDERS** 

The number of stockholders of record of our common stock as of March 19, 2023 was 286. This number excludes stockholders whose stock is held in nominee or street name by brokers.

**DIVIDENDS**

While we have historically paid dividends to holders of our common stock on a quarterly basis, the declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and are at the discretion of our Board of Directors.

**PERFORMANCE GRAPH** 

This graph compares the cumulative total stockholder return for our common stock with those of the NYSE Composite Index and S&P Retailing, our peer group index. The cumulative total return listed below assumed an initial investment of $100 and reinvestment of dividends. The graph shows historical stock price performance, including reinvestment of dividends, and is not necessarily indicative of future performance.

**COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN\*** 

**Among Williams-Sonoma, Inc., the NYSE Composite Index,** 

**and S&P Retailing**![wsm-20230129_g1.jpg](wsm-20230129_g1.jpg)

\*$100 invested on January 28, 2018 in stock or index, including reinvestment of dividends. Fiscal year ended January 29, 2023.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **1/28/18** | **2/3/19** | **2/2/20** | **1/31/21** | **1/30/22** | **1/29/23** |
| &nbsp;&nbsp;Williams-Sonoma, Inc. | $100.00 | $104.33 | $139.37 | $262.59 | $320.43 | $268.67 |
| &nbsp;&nbsp;NYSE Composite Index | $100.00 | $94.38 | $107.18 | $116.13 | $137.22 | $135.37 |
| &nbsp;&nbsp;S&P Retailing | $100.00 | $108.42 | $127.45 | $180.19 | $195.77 | $160.10 |

---

**Notes:**

A.The lines represent monthly index levels derived from compounded daily returns that include all dividends.

B.The indices are re-weighted daily, using the market capitalization on the previous trading day.

C.If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.

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**STOCK REPURCHASE PROGRAM** 

During fiscal 2022, we repurchased 6,423,643 shares of our common stock at an average cost of $137.00 per share and a total cost of $880.0 million under our $1.5 billion stock repurchase program approved in March 2022. As of January 29, 2023, there was $690.0 million remaining under our current stock repurchase program. In March 2023, our Board of Directors authorized a new stock repurchase program for $1 billion, which replaced our existing program.

The following table summarizes our repurchases of shares of our common stock during the fourth quarter of fiscal 2022 under our stock repurchase program:

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| | | | | |
|:---|:---|:---|:---|:---|
| Fiscal period | Total<br>Number <br>of Shares <br>Purchased<sup>1</sup> | Average <br>Price Paid <br>Per Share | Total Number of Shares Purchased as <br>Part of a Publicly <br>Announced Program<sup>1</sup> | Maximum <br>Dollar Value of <br>Shares That May <br>Yet Be Purchased <br>Under the Program |
| October 31, 2022 – November 27, 2022 |  |  |  | $729044000 |
| November 28, 2022 – December 25, 2022 | 341935 | $114.30 | 341935 | $689962000 |
| December 26, 2022 – January 29, 2023 |  |  |  | $689962000 |
| Total | 341935 | $114.30 | 341935 | $689962000 |

---

*1Excludes shares withheld for employee taxes upon vesting of stock-based awards*

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. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.

**ITEM 6.&nbsp;&nbsp;&nbsp;&nbsp;[RESERVED]**

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**ITEM 7.&nbsp;&nbsp;&nbsp;&nbsp;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the 52 weeks ended January 29, 2023 ("fiscal 2022"), and the 52 weeks ended January 30, 2022 ("fiscal 2021") should be read in conjunction with our Consolidated Financial Statements and notes thereto. All explanations of changes in operational results are discussed in order of magnitude.

A discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the 52 weeks ended January 30, 2022 ("fiscal 2021"), compared to the 52 weeks ended January 31, 2021 ("fiscal 2020"), can be found under Item 7 in our Annual Report on Form 10-K for fiscal 2021, filed with the SEC on March 28, 2022, which is available on the SEC's website at www.sec.gov and under the Financial Reports section of our Investor Relations website.

**OVERVIEW** 

Williams-Sonoma, Inc. is a specialty retailer of high-quality sustainable products for the home. Our products, representing distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and 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 Environmental, Social and Governance ("ESG") efforts.

During fiscal 2021 and continuing through fiscal 2022, global supply chain disruptions, including COVID-19 related factory closures and increased port congestion, caused delays in inventory receipts and backorder delays, increased raw material costs, and higher shipping-related charges. We expect the impact of higher product costs, ocean freight, detention and demurrage to continue into fiscal 2023, which could negatively impact our business.

*Fiscal 2022 Financial Results* 

Net revenues in fiscal 2022 increased $428.5 million, or 5.2%, with company comparable brand revenue ("company comp") growth of 6.5%. This was driven by strong order fulfillment and growth initiatives. On a two-year basis, company comp growth was 28.5%. Pottery Barn, our largest brand, delivered 14.9% comparable brand revenue ("brand comp") growth driven by our growth initiatives such as our accessible home, apartment and our market-place assortment. On a 3-year basis, Pottery Barn delivered 54.0% brand comp growth. In West Elm, brand comp growth was 2.5% with strong operating margins, on top of 33.1% brand comp growth the prior year, resulting in a 35.6% brand comp growth on a two-year basis. On a 3-year basis West Elm generated 50.8% brand comp growth. West Elm is our brand most affected by the current tough macroeconomic environment. Our Williams Sonoma brand had a brand comp decrease of 1.7% as we continued recovery in our in-stock inventory position and increased our focus on product exclusivity and innovation. On a 3-year basis, Williams Sonoma generated 32.6% brand comp growth. In our Pottery Barn Kids and Teen businesses, we saw brand comp growth of 0.4% driven by growth in baby and dorm as in-stock inventory improved. Finally, our emerging brands, Rejuvenation and Mark and Graham, combined, delivered 9.6% brand comp growth.

We ended the year with a cash balance of $367.3 million and generated positive operating cash flow of $1.1 billion. In addition to our strong cash balance, we also ended the year with no outstanding borrowings under our revolving line of credit. This strong liquidity position allowed us to fund the operations of the business by investing $354.1 million in capital expenditures during fiscal 2022, and to provide shareholder returns of approximately $1.1 billion in fiscal 2022 through share repurchases and dividends.

In fiscal 2022, diluted earnings per share was $16.32 (which included a $0.21 impact from the impairment of Aperture, a division of our Outward, Inc. subsidiary) versus $14.75 in fiscal 2021 (which included a $0.10 impact from acquisition-related expenses of Outward, Inc.).

Our three key differentiators - our in-house design, our digital-first channel strategy, and our values - continued to distinguish us as the world's largest digital-first, design-led and sustainable home retailer. Our in-house design capabilities and vertically integrated sourcing organization allow us to deliver high-quality, sustainable products at competitive prices. Through our e-commerce platform, our in-house customer relationship management and data analytic teams optimize our digital spend and customer connections. Our stores serve as design centers and omni-fulfillment hubs.

Along with our key differentiators, our success and profitability are driven by our growth initiatives that are cross-brand and/or outside of our core brands. Our largest cross-brand growth driver is business-to-business, which positions us to furnish our customers everywhere - from restaurants to hotels, from football stadiums to office spaces.

Another successful growth initiative is our expansion into global markets. We have expanded our franchise business into India with an exclusive and differentiated product line, and our three stores and websites are outperforming our expectations in a market where we

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see tremendous opportunity. In Canada, we relaunched our websites and saw improvements in conversion and average unit retail across brands.

Our emerging brands, Rejuvenation and Mark and Graham, have also provided incremental growth. These two brands service the 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. At Mark and Graham, our high-quality gift and personalization business is resonating with our customers, and we saw outsized growth in the travel space including luggage and accessories.

As a digital-first company, we are in continuous pursuit of incremental improvement to our customers' shopping journey online. We have improved several product-finding and purchasing experiences on our websites, including improved room styling, native registry applications, and the removal of friction in the checkout process. Additionally, we are focused on continued optimization and automation in our distribution centers and logistics networks to improve our service times.

On the sustainability front, we take great pride in the progress we are making within our impact initiatives and ESG leadership across the home furnishings industry. These commitments are reflected in the high quality, durable, sustainable products that we offer our customers, and continues to distinguish our company and our brands.

*Looking Ahead to 2023* 

As we look forward to the year ahead, we believe our key differentiators – our in-house design, our digital-first channel strategy, and our values, our growth initiatives and our unique operating model will set us apart from our competition and allow us to drive long-term growth and profitability. However, the current uncertain macroeconomic environment with the weak housing market, layoffs, inflationary pressure and possible recession may impact our results. Additionally, we continue to experience increased costs across our global supply chain, including higher product costs, higher freight and incremental distribution center costs for additional space to support our overall growth. It is hard to predict with certainty when these supply chain and macroeconomic challenges will be fully resolved and we currently expect these challenges to negatively impact our results into fiscal 2023. In the back half of fiscal 2023, we believe these gross margin pressures may become tailwinds that support our profitability. Despite these challenges, we believe our key differentiators, our growth initiatives and our unique operating model leave us well-positioned to mitigate these challenges in both the short- and long- term. For information on risks, please see "Risk Factors" in <u>[Part I, Item](#i11feac0231874f069e6311a641ff37e8_19)[1A](#i11feac0231874f069e6311a641ff37e8_19)</u>.

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***Results of Operations***

**NET REVENUES** 

Net revenues 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.

Net revenues in fiscal 2022 increased $428.5 million, or 5.2%, with company comp growth of 6.5%. This was driven by strong order fulfillment and growth initiatives. On a two-year basis, company comp increased 28.5%.

The following table summarizes our net revenues by brand for fiscal 2022 and fiscal 2021:

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| | | |
|:---|:---|:---|
| *(In thousands)* | Fiscal 2022 <sup>1</sup> | Fiscal 2021 <sup>1</sup> |
| Pottery Barn | $3555521 | $3120687 |
| West Elm | 2278131 | 2234548 |
| Williams Sonoma | 1286651 | 1345851 |
| Pottery Barn Kids and Teen | 1132937 | 1139893 |
| Other <sup>2</sup> | 421177 | 404957 |
| Total | $8674417 | $8245936 |

---

*1Includes business-to-business net revenues within each brand.*

*2Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.*

*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. Comparable stores that were temporarily closed during fiscal 2021 due to COVID-19 were not excluded from the comparable brand revenue calculation. Outlet comparable store net 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 growth for newer concepts is not separately disclosed until such time that we believe those sales are meaningful to evaluating the performance of the brand.

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| | | |
|:---|:---|:---|
| *Comparable brand revenue growth (decline)* | Fiscal 2022 <sup>1</sup> | Fiscal 2021 <sup>1</sup> |
| Pottery Barn | 14.9% | 23.9% |
| West Elm | 2.5 | 33.1 |
| Williams Sonoma | (1.7) | 10.5 |
| Pottery Barn Kids and Teen | 0.4 | 11.6 |
| Total <sup>2</sup> | 6.5% | 22.0% |

---

*1Comparable brand revenue includes business-to-business revenues within each brand.*

*2Total comparable brand revenue growth includes the results of Rejuvenation and Mark and Graham.*

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**RETAIL STORE DATA** 

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| | | |
|:---|:---|:---|
| | Fiscal 2022 | Fiscal 2021 <sup>1</sup> |
| &nbsp;&nbsp;&nbsp;&nbsp;Store count – beginning of year | 544 | 581 |
| &nbsp;&nbsp;&nbsp;&nbsp;Store openings | 15 | 12 |
| &nbsp;&nbsp;&nbsp;&nbsp;Store closings | (29) | (49) |
| &nbsp;&nbsp;&nbsp;&nbsp;Store count – end of year | 530 | 544 |
| &nbsp;&nbsp;&nbsp;&nbsp;Store selling square footage at year-end | 3813000 | 3821000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Store leased square footage ("LSF") at year-end | 5962000 | 6004000 |

---

*1 Retail store data for fiscal 2021 includes stores temporarily closed due to COVID-19. All stores were reopened as of the end of fiscal 2021.*

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| | | | | |
|:---|:---|:---|:---|:---|
| | Fiscal 2022 | Fiscal 2022 | Fiscal 2021 | Fiscal 2021 |
| | Store <br>Count | Avg. LSF <br>Per Store | Store <br>Count | Avg. LSF <br>Per Store |
| Pottery Barn | 188 | 14800 | 188 | 14500 |
| Williams Sonoma | 165 | 6800 | 174 | 6800 |
| West Elm | 122 | 13200 | 121 | 13200 |
| Pottery Barn Kids | 46 | 7700 | 52 | 7700 |
| Rejuvenation | 9 | 8000 | 9 | 9400 |
| Total | 530 | 11200 | 544 | 11000 |

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**COST OF GOODS SOLD** 

---

| | | | | |
|:---|:---|:---|:---|:---|
| *(In thousands)* | Fiscal 2022 | % Net <br>Revenues | Fiscal 2021 | % Net <br>Revenues |
| Cost of goods sold <sup>1</sup> | $4996684 | 57.6% | $4613973 | 56.0% |

---

*1Includes occupancy expenses of $785.4 million and $728.0 million in fiscal 2022 and fiscal 2021, respectively.*

Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as replacements, damages, obsolescence and shrinkage. Occupancy expenses consist of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation. Shipping costs consist 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").

*Fiscal 2022 vs. Fiscal 2021* 

Cost of goods sold increased $382.7 million, or 8.3%, compared to fiscal 2021. Cost of goods sold as a percentage of net revenues increased to 57.6% from 56.0% in fiscal 2021. This increase 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 our retail store optimization initiatives.

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**SELLING, GENERAL AND ADMINISTRATIVE EXPENSES** 

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| | | | | |
|:---|:---|:---|:---|:---|
| *(In thousands)* | Fiscal 2022 | % Net <br>Revenues | Fiscal 2021 | % Net <br>Revenues |
| Selling, general and administrative expenses | $2179311 | 25.1% | $2178847 | 26.4% |

---

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 and other general expenses.

*Fiscal 2022 vs. Fiscal 2021* 

SG&A increased $0.5 million and remained relatively flat compared to fiscal 2021. SG&A as a percentage of net revenues decreased to 25.1% from 26.4% for fiscal 2021. This decrease in rate was primarily driven by the leverage of employment costs and advertising expenses from overall cost discipline and adjusted incentive compensation commensurate with business performance.

**INCOME TAXES** 

The effective income tax rate was 24.8% for fiscal 2022 and 22.4% for fiscal 2021. Compared to fiscal 2021, the increase in the tax rate is primarily due to less excess tax benefit from stock-based compensation in fiscal 2022, the return to provision difference between the two fiscal years, the expiration of the statutes of limitation related to uncertain tax positions in fiscal 2021 and the change in permanent reinvestment assertion on Canadian earnings in fiscal 2022.

Since the Tax Cuts and Jobs Act of 2017, we have elected not to provide for income taxes with respect to the earnings of Canada after fiscal 2017. In the second quarter of fiscal 2022, we assessed the overall forecasted cash needs and financial position of our foreign subsidiaries, and management decided to no longer assert its intent to indefinitely reinvest undistributed earnings in Canada. As a result of this change in assertion, we recorded $2.4 million of tax expense mainly related to Canadian withholding taxes.

The Inflation Reduction Act, enacted on August 16, 2022, includes a new 15% minimum tax on "adjusted financial statement income" beginning with the Company's fiscal year 2023, and a new 1% excise tax on stock repurchases after December 31, 2022, which will be included in the acquisition cost of treasury stock recorded within stockholders' equity. While these tax law changes had no immediate effect in fiscal 2022 and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes available.

**LIQUIDITY AND CAPITAL RESOURCES** 

***Material Cash Requirements***

We are party to contractual obligations involving commitments to make payments to third parties in the future. Certain contractual obligations are reflected on our Consolidated Balance Sheet as of January 29, 2023, while others are considered future obligations. Our material cash requirements as of January 29, 2023 include the following contractual obligations and commitments arising in the normal course of business:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Our operating leases had fixed lease payment obligations, including imputed interest, of $1.7 billion, with $308.3 million payable within 12 months. See <u>[Note E](#i11feac0231874f069e6311a641ff37e8_109)</u> to our Consolidated Financial Statements for amount outstanding as of January 29, 2023 related to operating leases.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Our purchase obligations consist primarily of open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business. As of January 29, 2023, our purchase obligations were approximately $981.0 million, with $910.0 million expected to be settled within 12 months.

In addition, we had $37.1 million of unrecognized tax benefits recorded in our accompanying Consolidated Balance Sheet as of January 29, 2023, for which we cannot make a reasonably reliable estimate of the amount and period of payment. See <u>[Note D](#i11feac0231874f069e6311a641ff37e8_106)</u> to our Consolidated Financial Statements for information related to income taxes.

We are party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to commercial matters, operating leases, trademarks, intellectual property and financial matters. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results of operations.

See <u>[Note](#i11feac0231874f069e6311a641ff37e8_121)[I](#i11feac0231874f069e6311a641ff37e8_121)</u> to our Consolidated Financial Statements for further information related to our commitments and contingencies.

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***Dividends***

In fiscal 2022 and fiscal 2021, total cash dividends declared were approximately $216.3 million, or $3.12 per common share, and $199.4 million, or $2.60 per common share, respectively. In March 2023, our Board of Directors authorized a 15% increase in our quarterly cash dividend, from $0.78 to $0.90 per common share, subject to capital availability. Our quarterly cash dividend may be limited or terminated at any time.

***Stock Repurchase Program***

See section titled "Stock Repurchase Program" within <u>[Part II, Item 5](#i11feac0231874f069e6311a641ff37e8_37)</u> of this Annual Report on Form 10-K for further information.

***Liquidity Outlook***

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 capital expenditures, dividends, share 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 January 29, 2023, we held $367.3 million in cash and cash equivalents, the majority of which was held in interest-bearing demand deposit accounts and money market funds, and of which $81.2 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.

Throughout the fiscal year, we utilize our cash resources to build our inventory levels in preparation for our fourth quarter holiday sales. Our largest source of operating cash flows is cash collections from the sale of our merchandise throughout the year. In fiscal 2023, we plan to use our cash resources to fund our inventory and inventory-related purchases, employment related-costs, advertising and marketing initiatives, rental payments on our leases, stock repurchases and dividend payments, property and equipment purchases, and the payment of income taxes.

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 $750 million of unsecured revolving credit.

Currently, the interest rate applicable to the Revolver is variable and may be elected by us as: (i) the LIBOR plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% or (ii) a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio ranging from 0% to 0.775%. However, as a result of the future cessation of LIBOR, our interest rate will change in fiscal 2023 in accordance with the Credit Facility. On the earliest of (i) the date that LIBOR rates permanently or indefinitely cease to be provided, (ii) June 30, 2023 or (iii) the early opt-in effective date which is determined by us, the replacement benchmark rate will be determined.

During fiscal 2022, we had no borrowings under our Revolver. Additionally, as of January 29, 2023, issued but undrawn standby letters of credit of $11.2 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 January 29, 2023, we were in compliance with our financial covenants under our credit facilities 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 reimbursement 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 January 29, 2023, the aggregate amount outstanding under our letter of credit facilities was $0.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 19, 2022, we renewed all three of our letter of credit facilities on substantially similar terms. Two of the letter of credit facilities totaling $30 million mature on August 19, 2023, and the latest expiration date possible for future letters of credit issued under these facilities is January 16, 2024. 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.

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*Cash Flows from Operating Activities* 

For fiscal 2022, net cash provided by operating activities was $1.1 billion compared to $1.4 billion in fiscal 2021. For fiscal 2022, net cash provided by operating activities was primarily attributable to net earnings adjusted for non-cash items, partially offset by higher spending on merchandise inventories as a result of our efforts to improve our in-stock position as well as accounts payable. Net cash provided by operating activities compared to fiscal 2021 decreased primarily due to decreases in accounts payable and accrued expenses and other liabilities.

*Cash Flows from Investing Activities* 

For fiscal 2022, net cash used in investing activities was $354.0 million compared to $226.2 million in fiscal 2021 and was primarily attributable to purchases of property and equipment related to technology and supply chain enhancements.

*Cash Flows from Financing Activities* 

For fiscal 2022, net cash used in financing activities was $1.2 billion compared to $1.5 billion in fiscal 2021 and was primarily attributable to the repurchases of common stock and payment of dividends. Net cash used in financing activities for fiscal 2022 decreased compared to fiscal 2021 primarily due to the repayment of debt in the fiscal 2021 that did not recur in fiscal 2022.

**IMPACT OF 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 COVID-19 pandemic and the uncertain economic environment. 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 fiscal 2022. We cannot be assured that our results of operations and financial condition will not be materially impacted by inflation in the future. For information on risks, please see "Risk Factors" in <u>[Part I, Item 1A](#i11feac0231874f069e6311a641ff37e8_19)</u>.

**CRITICAL ACCOUNTING ESTIMATES** 

Our Consolidated Financial Statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates 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 from these estimates.

*Merchandise Inventories* 

The significant estimates used in our inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or net realizable value reserves) and estimates of inventory shrinkage. We reserve for obsolescence based on historical trends of inventory sold below cost and specific identification.

The reserves for shrinkage are recorded throughout the year based on historical shrinkage results, cycle count results within our distribution centers, expectations of future shrinkage and current inventory levels, and are therefore subject to uncertainty. Actual shrinkage is recorded at year-end based on the results of our cycle counts and year end physical inventory counts, and can vary from our estimates recorded throughout the year due to such factors as changes in operations, the mix of our inventory (which ranges from large furniture to small tabletop items) and execution against loss prevention initiatives in our stores, distribution facilities and off-site storage locations, and with our third-party warehouse and transportation providers. Accordingly, there is no material shrinkage reserve at year-end. Historically, actual shrinkage has not differed materially from our estimates.

Our obsolescence and shrinkage reserve calculations contain estimates that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We have made no material changes to our assumptions included in the calculations of the obsolescence and shrinkage reserves throughout the year. In addition, we do not believe a 10% change in our inventory reserves would have a material effect on our net earnings. As of January 29, 2023 and January 30, 2022, our inventory obsolescence reserves were $24.7 million and $14.0 million, respectively.

*Long-lived Assets* 

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

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. Our estimate of

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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.

During fiscal 2022, we recognized impairment charges of $3.3 million related to the impairment of property and equipment and $2.6 million related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market rental values resulting from underperforming stores in Australia, and we also recognized impairment charges of $9.7 million related to the impairment of property and equipment associated with Aperture, a division of our Outward, Inc. subsidiary, 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, no impairment charges were recognized. During fiscal 2020, we recognized asset impairment charges of approximately $19.2 million related to property and equipment and $7.9 million related to right-of use assets for our retail stores, which is recognized within SG&A.

*Leases*

The significant estimates used in accounting for our leases relate to the incremental borrowing rate used in the present value of lease obligations calculation. As our leases generally do not provide information about the rate implicit in the lease, we utilize an estimated 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. A 50 basis point increase or decrease in the incremental borrowing rate would not have a material impact on the value of our new or remeasured right-of-use assets and lease liabilities. As of fiscal 2022 and fiscal 2021, our incremental borrowing rates were 3.4% and 3.2%, respectively. 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 when we are reasonably certain to exercise a renewal or an early termination option. 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.

*Income Taxes* 

We record reserves for our estimates of the additional income tax liability that is more likely than not to result from the ultimate resolution of foreign and domestic tax examinations. The results of these examinations and negotiations with taxing authorities may affect the ultimate settlement of these issues. We review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, upon completion of tax examination, upon expiration of statutes of limitation, or upon occurrence of other events. As of January 29, 2023, we had $37.1 million of gross unrecognized tax benefits, of which $31.0 million would, if recognized, affect the effective tax rate. Additionally, we accrue interest and penalties related to these unrecognized tax benefits in the provision for income taxes. As of January 29, 2023 and January 30, 2022, our accruals for the payment of interest and penalties totaled $6.1 million and $5.7 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 $0 to $6.2 million.

In order to compute income tax on an interim basis, we estimate what our effective tax rate will be for the full fiscal year and adjust these estimates throughout the year as necessary. Adjustments to our income tax provision due to changes in our estimated effective tax rate are recorded in the interim period in which the change occurs. The tax expense (or benefit) related to items other than ordinary income is individually computed and recognized when the items occur. Our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of our earnings in various taxing jurisdictions or changes in tax law. Our effective tax rates for fiscal 2022 and fiscal 2021 were 24.8% and 22.4%, respectively.

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**ITEM 7A.&nbsp;&nbsp;&nbsp;&nbsp;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

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 fiscal 2022, we had no borrowings under the 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 January 29, 2023, 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 vendors 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 fiscal 2022 or fiscal 2021. 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 vendors 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 fiscal 2022, 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 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 hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies (see <u>[Note L](#i11feac0231874f069e6311a641ff37e8_133)</u> to our Consolidated Financial Statements).

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**ITEM 8. &nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

***Williams-Sonoma, Inc.***

***Consolidated Statements of Earnings***

---

| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands, except per share amounts)* | January 29, 2023 | January 30, 2022 | January 31, 2021 |
| Net revenues | $8674417 | $8245936 | $6783189 |
| Cost of goods sold | 4996684 | 4613973 | 4146920 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit | 3677733 | 3631963 | 2636269 |
| Selling, general and administrative expenses | 2179311 | 2178847 | 1725572 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating income | 1498422 | 1453116 | 910697 |
| Interest (income) expense, net | (2260) | 1865 | 16231 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings before income taxes | 1500682 | 1451251 | 894466 |
| Income taxes | 372778 | 324914 | 213752 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earnings | $1127904 | $1126337 | $680714 |
| Basic earnings per share | $16.58 | $15.17 | $8.81 |
| Diluted earnings per share | $16.32 | $14.75 | $8.61 |
| Shares used in calculation of earnings per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic | 68021 | 74272 | 77260 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted | 69100 | 76354 | 79055 |

---

*See Notes to Consolidated Financial Statements.*

***Williams-Sonoma, Inc.***

***Consolidated Statements of Comprehensive Income***

---

| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29, 2023 | January 30, 2022 | January 31, 2021 |
| Net earnings | $1127904 | $1126337 | $680714 |
| Other comprehensive income (loss): |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | (3572) | (4488) | 8195 |
| &nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments, net of tax (tax benefit) of $329, $(91) and $(113) | 932 | (247) | (315) |
| &nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $121, $(371) and $149 | (341) | 1024 | (410) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive income | $1124923 | $1122626 | $688184 |

---

*See Notes to Consolidated Financial Statements.* 

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***Williams-Sonoma, Inc.***

***Consolidated Balance Sheets***

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| | | |
|:---|:---|:---|
| | As of | As of |
| *(In thousands, except per share amounts)* | January 29, 2023 | January 30, 2022 |
| ASSETS |  |  |
| Current assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $367344 | $850338 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 115685 | 131683 |
| &nbsp;&nbsp;&nbsp;Merchandise inventories, net | 1456123 | 1246372 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 64961 | 69252 |
| &nbsp;&nbsp;&nbsp;Other current assets | 31967 | 26249 |
| &nbsp;&nbsp;&nbsp;Total current assets | 2036080 | 2323894 |
| Property and equipment, net | 1065381 | 920773 |
| Operating lease right-of-use assets | 1286452 | 1132764 |
| Deferred income taxes, net | 81389 | 56585 |
| Goodwill | 77307 | 85354 |
| Other long-term assets, net | 116407 | 106250 |
| Total assets | $4663016 | $4625620 |
| LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $508321 | $612512 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 247594 | 319924 |
| &nbsp;&nbsp;&nbsp;Gift card and other deferred revenue | 479229 | 447770 |
| &nbsp;&nbsp;&nbsp;Income taxes payable | 61204 | 79554 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities | 231965 | 217409 |
| &nbsp;&nbsp;&nbsp;Other current liabilities | 108138 | 94517 |
| &nbsp;&nbsp;&nbsp;Total current liabilities | 1636451 | 1771686 |
| Deferred lease incentives | 10027 | 16360 |
| Long-term operating lease liabilities | 1211693 | 1066839 |
| Other long-term liabilities | 103794 | 106528 |
| Total liabilities | 2961965 | 2961413 |
| Commitments and contingencies – See <u>[Note I](#i11feac0231874f069e6311a641ff37e8_121)</u> |  |  |
| Stockholders' equity |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock: $0.01 par value; 7,500 shares authorized; none issued |  |  |
| &nbsp;&nbsp;&nbsp;Common stock: $0.01 par value; 253,125 shares authorized; 66,226 and 71,982 shares issued and outstanding at January 29, 2023 and January 30, 2022, respectively | 663 | 720 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 573117 | 600942 |
| &nbsp;&nbsp;&nbsp;Retained earnings | 1141819 | 1074084 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss | (13809) | (10828) |
| &nbsp;&nbsp;&nbsp;Treasury stock, at cost: 1 and 4 shares as of January 29, 2023 and January 30, 2022, respectively | (739) | (711) |
| &nbsp;&nbsp;&nbsp;Total stockholders' equity | 1701051 | 1664207 |
| Total liabilities and stockholders' equity | $4663016 | $4625620 |

---

*See Notes to Consolidated Financial Statements.* 

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***Williams-Sonoma, Inc.***

***Consolidated Statements of Stockholders' Equity***

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | <br>Common Stock | <br>Common Stock | Additional<br>Paid-in<br>Capital | Retained<br>Earnings | Accumulated <br>Other <br>Comprehensive <br>Income (Loss) | Treasury <br>Stock | Total<br>Stockholders'<br>Equity |
| *(In thousands)* | Shares | Amount | Additional<br>Paid-in<br>Capital | Retained<br>Earnings | Accumulated <br>Other <br>Comprehensive <br>Income (Loss) | Treasury <br>Stock | Total<br>Stockholders'<br>Equity |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at February 2, 2020 | 77137 | $772 | $605822 | $644794 | $(14587) | $(941) | $1235860 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earnings |  |  |  | 680714 |  |  | 680714 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments |  |  |  |  | 8195 |  | 8195 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments, net of tax |  |  |  |  | (315) |  | (315) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax |  |  |  |  | (410) |  | (410) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion/release of stock-based awards<sup>1</sup> | 699 | 7 | (31565) |  |  | (171) | (31729) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock | (1496) | (15) | (7569) | (142416) |  |  | (150000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reissuance of treasury stock under stock-based compensation plans<sup>1</sup> |  |  | (499) | (14) |  | 513 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense |  |  | 72186 |  |  |  | 72186 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends declared |  |  |  | (163316) |  |  | (163316) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 31, 2021 | 76340 | 764 | 638375 | 1019762 | (7117) | (599) | 1651185 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earnings |  |  |  | 1126337 |  |  | 1126337 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments |  |  |  |  | (4488) |  | (4488) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments, net of tax |  |  |  |  | (247) |  | (247) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax |  |  |  |  | 1024 |  | 1024 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion/release of stock-based awards<sup>1</sup> | 745 | 7 | (103742) |  |  | (500) | (104235) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock | (5103) | (51) | (26806) | (872576) |  |  | (899433) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reissuance of treasury stock under stock-based compensation plans<sup>1</sup> |  |  | (344) | (44) |  | 388 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense |  |  | 93459 |  |  |  | 93459 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends declared |  |  |  | (199395) |  |  | (199395) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 30, 2022 | 71982 | 720 | 600942 | 1074084 | (10828) | (711) | 1664207 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earnings |  |  |  | 1127904 |  |  | 1127904 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments |  |  |  |  | (3572) |  | (3572) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments, net of tax |  |  |  |  | 932 |  | 932 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax |  |  |  |  | (341) |  | (341) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion/release of stock-based awards<sup>1</sup> | 668 | 7 | (80925) |  |  | (372) | (81290) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock | (6424) | (64) | (36134) | (843840) |  |  | (880038) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reissuance of treasury stock under stock-based compensation plans<sup>1</sup> |  |  | (344) |  |  | 344 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense |  |  | 89578 |  |  |  | 89578 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends declared |  |  |  | (216329) |  |  | (216329) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 29, 2023 | 66226 | $663 | $573117 | $1141819 | $(13809) | $(739) | $1701051 |

---

*1Amounts are shown net of shares withheld for employee taxes.*

*See Notes to Consolidated Financial Statements.*

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***Williams-Sonoma, Inc.***

***Consolidated Statements of Cash Flows***

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| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29, 2023 | January 30, 2022 | January 31, 2021 |
| &nbsp;&nbsp;Cash flows from operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earnings | $1127904 | $1126337 | $680714 |
| &nbsp;&nbsp;Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 214153 | 196087 | 188655 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on disposal/impairment of assets | 25116 | 1015 | 32365 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of deferred lease incentives | (3019) | (4282) | (5783) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash lease expense | 231350 | 216888 | 216368 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | (23823) | 2535 | (13061) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 90268 | 95240 | 73185 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 680 | 288 | (264) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 15687 | 11896 | (31503) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merchandise inventories | (208908) | (239981) | 99144 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | (11823) | (2060) | (16388) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | (113521) | 56674 | 25489 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses and other liabilities | (61995) | 49460 | 129142 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gift card and other deferred revenue | 31839 | 75460 | 82841 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease liabilities | (242855) | (224567) | (232989) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable | (18231) | 10157 | 46933 |
| &nbsp;&nbsp;Net cash provided by operating activities | 1052822 | 1371147 | 1274848 |
| &nbsp;&nbsp;Cash flows from investing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment | (354117) | (226517) | (169513) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 162 | 270 | 629 |
| &nbsp;&nbsp;Net cash used in investing activities | (353955) | (226247) | (168884) |
| &nbsp;&nbsp;Cash flows from financing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock | (880038) | (899433) | (150000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of dividends | (217345) | (187539) | (157645) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax withholdings related to stock-based awards | (81290) | (104235) | (31729) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment of long-term debt |  | (300000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt issuance costs |  | (778) | (3645) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings under revolving line of credit |  |  | 487823 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments under the revolving line of credit |  |  | (487823) |
| &nbsp;&nbsp;Net cash used in financing activities | (1178673) | (1491985) | (343019) |
| &nbsp;&nbsp;Effect of exchange rates on cash and cash equivalents | (3188) | (2914) | 5230 |
| &nbsp;&nbsp;Net (decrease) increase in cash and cash equivalents | (482994) | (349999) | 768175 |
| &nbsp;&nbsp;Cash and cash equivalents at beginning of year | 850338 | 1200337 | 432162 |
| &nbsp;&nbsp;Cash and cash equivalents at end of year | $367344 | $850338 | $1200337 |
| &nbsp;&nbsp;Supplemental disclosure of cash flow information: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash paid during the year for interest | $788 | $3090 | $18346 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash paid during the year for income taxes, net of refunds | $400776 | $306158 | $162842 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash investing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment not yet paid for at end of year | $6633 | $267 | $753 |

---

*See Notes to Consolidated Financial Statements.* 

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***Williams-Sonoma, Inc.***

***Notes to Consolidated Financial Statements***

**Note A: Summary of Significant Accounting Policies**

Williams-Sonoma, Inc. ("Company", "we", or "us") is a specialty retailer of high-quality sustainable products for the home. Our products, representing distinct merchandise strategies — Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham — are marketed through e-commerce websites, direct-mail catalogs and 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 Environmental, Social and Governance ("ESG") efforts.

*Consolidation* 

The Consolidated Financial Statements include the accounts of Williams-Sonoma, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated.

*Fiscal Year* 

Our fiscal year ends on the Sunday closest to January 31, based on a 52 or 53-week year. Fiscal 2022, a 52-week year, ended on January 29, 2023; Fiscal 2021, a 52-week year, ended on January 30, 2022; and Fiscal 2020, a 52-week year, ended on January 31, 2021.

*Use of Estimates* 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 from these estimates.

*Cash Equivalents* 

Cash equivalents include highly liquid investments with an original maturity of three months or less. As of January 29, 2023, we were invested primarily in interest-bearing demand deposit accounts and money market funds. Book cash overdrafts issued, but not yet presented to the bank for payment, are reclassified to accounts payable.

*Accounts Receivable and Allowance for Doubtful Accounts* 

Accounts receivable are stated at their carrying values, net of an allowance for doubtful accounts. Accounts receivable consist primarily of credit card, franchisee and landlord receivables for which collectability is reasonably assured. Receivables are evaluated for collectability on a regular basis and an allowance for doubtful accounts is recorded, if necessary. Our allowance for doubtful accounts was not material to our financial statements as of January 29, 2023 and January 30, 2022.

*Merchandise Inventories* 

Merchandise inventories, net of an allowance for shrinkage and obsolescence, are stated at the lower of cost (weighted average method) or net realizable value. To determine if the value of our inventory should be reduced below cost, we consider current and anticipated demand, customer preferences and age of the merchandise. We reserve for obsolescence based on historical trends of inventory sold below cost and specific identification.

Reserves for shrinkage are estimated and recorded throughout the year based on historical shrinkage results, cycle count results within our distribution centers, expectations of future shrinkage and current inventory levels. Actual shrinkage is recorded at year-end based on the results of our cycle counts and physical inventory counts and can vary from our estimates due to such factors as changes in operations, the mix of our inventory (which ranges from large furniture to small tabletop items) and execution against loss prevention initiatives in our stores, distribution facilities, off-site storage locations, and with our third-party warehouse and transportation providers. Accordingly, there is no material shrinkage reserve at year-end. Historically, actual shrinkage has not differed materially from our estimates.

Our obsolescence and shrinkage reserve calculations contain estimates that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. If actual obsolescence or shrinkage estimates change from our original estimate, we will adjust our reserves accordingly throughout the year. As of January 29, 2023, and January 30, 2022, our inventory obsolescence reserves were $24.7 million and $14.0 million, respectively.

*Long-lived Assets* 

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:

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| | |
|:---|:---|
| Leasehold improvements | Shorter of estimated useful life or lease term (generally 5 – 22 years) |
| Fixtures and equipment | 2 – 20 years |
| Buildings and building improvements | 10 – 40 years |
| Capitalized software | 2 – 10 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 <u>[N](#i11feac0231874f069e6311a641ff37e8_136)[ote M](#i11feac0231874f069e6311a641ff37e8_136)</u> 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 2022, we recognized impairment charges of $3.3 million related to the impairment of property and equipment and $2.6 million related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market rental values resulting from underperforming stores in Australia, and we also recognized impairment charges of $9.7 million related to the impairment of property and equipment associated with Aperture, a division of our Outward, Inc. subsidiary, due to these assets not being recoverable in light of projected future cash flows, all of which is recognized within selling, general and administrative ("SG&A") expenses. During fiscal 2021, no impairment charges were recognized. During fiscal 2020, we recognized asset impairment charges of approximately $19.2 million related to property and equipment and $7.9 million related to right-of use assets for our retail stores, which is recognized within SG&A expenses.

*Leases* 

We lease store locations, distribution and manufacturing facilities, corporate facilities, customer care centers and certain equipment for our U.S. and foreign operations with initial terms generally ranging from 2 to 22 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

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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.

*Goodwill* 

Goodwill is initially recorded as of the acquisition date and is measured as any excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized, but rather is subject to impairment testing annually (on the first day of the fourth quarter), 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 first perform a qualitative assessment to evaluate goodwill for potential impairment. If based on that assessment it is more likely than not that the fair value of the reporting unit is below its carrying value, a quantitative impairment test is necessary. The quantitative impairment test requires determining the fair value of the reporting unit. We use the income approach, whereby we calculate the fair value based on the present value of estimated future cash flows, using a discount rate that approximates the reporting unit's weighted average cost of capital. The process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions about the future such as sales growth, gross margins, employment costs, capital expenditures, inflation and future economic and market conditions. We measure the fair value using Level 3 inputs as defined in the fair value hierarchy (see <u>[N](#i11feac0231874f069e6311a641ff37e8_136)[ote M](#i11feac0231874f069e6311a641ff37e8_136)</u> to our Consolidated Financial Statements). Actual future results may differ from those estimates. If the carrying value of the reporting unit's assets and liabilities, including goodwill, exceeds its fair value, impairment is recorded for the excess, not to exceed the total amount of goodwill allocated to the reporting unit.

As of January 29, 2023 and January 30, 2022, we had goodwill of $77.3 million and $85.4 million, respectively, primarily related to our fiscal 2017 acquisition of Outward and our fiscal 2011 acquisition of Rejuvenation, Inc. In fiscal 2022, we performed our annual quantitative assessment of goodwill impairment for the Aperture reporting unit, a division of our Outward, Inc. 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 $8.0 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 and fiscal 2020, 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 not recognize any goodwill impairment in fiscal 2021 or fiscal 2020.

*Self-Insured Liabilities* 

We are primarily self-insured for workers' compensation, employee health benefits, product and other general liability claims. We record self-insurance liability reserves based on claims filed, including the development of those claims, and an estimate of claims incurred but not yet reported, based on an actuarial analysis of historical claims data. Factors affecting these estimates include future inflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should a different number of claims occur compared to what was estimated, or costs of the claims increase or decrease beyond what was anticipated, reserves may need to be adjusted accordingly. Self-insurance reserves for workers' compensation, employee health benefits, product and other general liability claims were $26.8 million and $25.5 million as of January 29, 2023 and January 30, 2022, respectively.

*Fair Value of Financial Instruments* 

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and debt approximate their estimated fair values. We use derivative financial instruments to hedge against foreign currency exchange rate fluctuations. The assets or liabilities associated with our derivative financial instruments are recorded at fair value in either other current or long-term assets or other current or long-term liabilities. The fair value of our foreign currency derivative instruments is measured using the income approach, whereby we use observable market data at the measurement date and standard valuation techniques to convert future amounts to a single present value amount. These observable inputs include spot rates, forward rates, interest rates and credit derivative market rates (see Notes <u>[L](#i11feac0231874f069e6311a641ff37e8_133)</u> and <u>[M](#i11feac0231874f069e6311a641ff37e8_136)</u> for additional information).

*Revenue from Merchandise Sales*

Revenues from the sale of our merchandise through our e-commerce channel, at our retail stores as well as to our business-to-business customers and franchisees are, in each case, recognized at a point in time when control of merchandise is transferred to the customer. Merchandise can either be picked up in our stores, or delivered to the customer. For merchandise picked up in the store, control is transferred at the time of the sale to the customer. For merchandise delivered to the customer, control is transferred either when delivery has been completed, or when we have a present right to payment which, for certain merchandise, occurs upon conveyance of the merchandise to the carrier for delivery. We exclude from revenue any taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and are concurrent with revenue-generating activities. Our payment terms are primarily at the point of sale for merchandise sales and for most services. We have elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation.

Revenue from the sale of merchandise is reported net of sales returns. We estimate future returns based on historical return trends together with current product sales performance. As of January 29, 2023 and January 30, 2022, we recorded a liability for expected

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sales returns of approximately $61.9 million and $47.2 million within other current liabilities and a corresponding asset for the expected net realizable value of the merchandise inventory to be returned of approximately $19.5 million and $14.3 million within other current assets in our Consolidated Balance Sheet.

*Gift Card and Other Deferred Revenue* 

We defer revenue and record a liability when cash payments are received in advance of satisfying performance obligations, primarily associated with our merchandise sales, stored-value cards, customer loyalty programs, and incentives received from credit card issuers.

We issue stored-value cards that may be redeemed on future merchandise purchases. Our stored-value cards have no expiration dates. Revenue from stored-value cards is recognized at a point in time upon redemption of the card and as control of the merchandise is transferred to the customer. Breakage is recognized in a manner consistent with our historical redemption patterns over the estimated period of redemption of our cards of approximately four years, 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 six months 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 29, 2023 and January 30, 2022, we had recorded $482.2 million and $451.3 million, respectively, for gift card and other deferred revenue in our Consolidated Balance Sheet, substantially all of which is expected to be recognized into revenue within the next 12 months.

*Vendor Allowances* 

We receive allowances or credits from certain vendors for volume and other rebates. We treat such rebates as an offset to the cost of the product or services provided at the time the expense is recorded. These allowances and credits received are recorded in both cost of goods sold and in SG&A expenses.

*Cost of Goods Sold* 

Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory-related costs such as replacements, damages, obsolescence and shrinkage. Occupancy expenses consist of rent, other occupancy costs (including property taxes, common area maintenance and utilities) and depreciation. Shipping costs consist of third-party delivery services and shipping materials.

*Selling, General and Administrative Expenses* 

SG&A expenses consist of non-occupancy-related costs associated with our retail stores, distribution 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 and other general expenses.

*Stock-Based Compensation* 

We account for stock-based compensation arrangements by measuring and recognizing compensation expense for all stock-based awards using a fair value-based method. Restricted stock units are valued using the closing price of our stock on the date prior to the date of grant. The fair value of each stock-based award is amortized over the requisite service period, net of estimated forfeitures. We estimate the forfeiture rate based on an analysis of historical experience as well as expected future trends.

*Advertising Expenses* 

Advertising expenses consist of media and production costs related to digital advertising, catalog mailings and other direct marketing activities. All advertising costs are expensed as incurred, or upon the release of the initial advertisement.

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Total advertising expenses (including digital advertising, catalog advertising and other advertising costs) were approximately $581.1 million, $618.5 million, and $326.0 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

*Foreign Currency Translation* 

Some of our foreign operations have a functional currency other than the U.S. dollar. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded as other comprehensive income within stockholders' equity. Foreign currency exchange gains and losses are recorded in SG&A expenses, except for those discussed in <u>[Note L](#i11feac0231874f069e6311a641ff37e8_133)</u>.

*Earnings Per Share* 

Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding plus common stock equivalents for the period. Common stock equivalents consist of shares subject to stock-based awards with exercise prices less than or equal to the average market price of our common stock for the period, to the extent their inclusion would be dilutive.

*Income Taxes* 

Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in our Consolidated Financial Statements. We record reserves for our estimates of the additional income tax liability that is more likely than not to result from the ultimate resolution of foreign and domestic tax examinations. At any point in time, many tax years are subject to examination by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. We review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, upon completion of tax examination, upon expiration of statutes of limitation, or upon occurrence of other events.

In order to compute income tax on an interim basis, we estimate what our effective tax rate will be for the full fiscal year and adjust these estimates throughout the year as necessary. Adjustments to our income tax provision due to changes in our estimated effective tax rate are recorded in the interim period in which the change occurs. The tax expense (or benefit) related to items other than ordinary income is individually computed and recognized when the items occur. Our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of our earnings in various taxing jurisdictions or changes in tax law.

*Recently Issued Accounting Pronouncements* 

In March 2020, January 2021 and December 2022, the FASB issued ASU 2020-04, *Reference Rate Reform* (Topic 848), ASU-2021-01, *Reference Rate Reform: Scope*, ASU-2022-06, *Reference Rate Reform* (Topic 848), *Deferral of the Sunset Date of Topic 848,* respectively. Together, the ASUs are intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance provides optional expedients and scope exceptions for transactions if certain criteria are met. These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. We may elect to apply the provisions of the new standard prospectively through December 31, 2024. Unlike other topics, the provisions of this update are only available until December 31, 2024, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe any adoption would have a material impact on our financial condition, results of operations or cash flows.

**Note B: Property and Equipment** 

Property and equipment consists of the following:

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| | | |
|:---|:---|:---|
| | As of | As of |
| *(In thousands)* | January 29, 2023 | January 30, 2022 |
| Capitalized Software | $1097914 | $980876 |
| Leasehold improvements | 895732 | 882320 |
| Fixtures and equipment | 933922 | 863353 |
| Land and buildings | 180923 | 179843 |
| Corporate systems projects in progress | 49444 | 57604 |
| Construction in progress <sup>1</sup> | 61455 | 19112 |
| Total | 3219390 | 2983108 |
| Accumulated depreciation | (2154009) | (2062335) |
| Property and equipment, net | $1065381 | $920773 |

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*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.*

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**Note C: Borrowing Arrangements** 

*Credit Facility* 

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 $750 million of unsecured revolving credit.

During fiscal 2022 and fiscal 2021, we had no borrowings under our Revolver. Additionally, as of January 29, 2023, issued but undrawn standby letters of credit of $11.2 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.

Currently, the interest rate applicable to the Revolver is variable and may be elected by us as: (i) the LIBOR plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% or (ii) a base rate as defined in the Credit Facility, plus an applicable margin based on our leverage ratio ranging from 0% to 0.775%. However, as a result of the future cessation of LIBOR, our interest rate will change in fiscal 2023 in accordance with the Credit Facility. On the earliest of (i) the date that LIBOR rates permanently or indefinitely cease to be provided, (ii) June 30, 2023 or (iii) the early opt-in effective date which is determined by us, the replacement benchmark rate will be determined.

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 29, 2023, we were in compliance with our financial covenants under our credit facilities 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 reimbursement 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 January 29, 2023, the aggregate amount outstanding under our letter of credit facilities was $0.5 million, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. On August 19, 2022, we renewed all three of our letter of credit facilities on substantially similar terms. Two of the letter of credit facilities totaling $30 million mature on August 19, 2023, and the latest expiration date possible for future letters of credit issued under these facilities is January 16, 2024. 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.

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**Note D: Income Taxes** 

The components of earnings before income taxes, by tax jurisdiction, are as follows:

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| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29,<br>2023 | January 30,<br>2022 | January 31,<br>2021 |
| United States | $1331492 | $1280438 | $773317 |
| Foreign | 169190 | 170813 | 121149 |
| Total | $1500682 | $1451251 | $894466 |

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The provision for income taxes consists of the following:

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| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29,<br>2023 | January 30,<br>2022 | January 31,<br>2021 |
| Current |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | $299015 | $234638 | $171821 |
| &nbsp;&nbsp;&nbsp;State | 71120 | 61056 | 39498 |
| &nbsp;&nbsp;&nbsp;Foreign | 26466 | 26685 | 15494 |
| &nbsp;&nbsp;&nbsp;Total Current | $396601 | $322379 | $226813 |
| Deferred |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | $(17293) | $5896 | $(7575) |
| &nbsp;&nbsp;&nbsp;State | (3292) | (741) | (5997) |
| &nbsp;&nbsp;&nbsp;Foreign | (3238) | (2620) | 511 |
| &nbsp;&nbsp;&nbsp;Total Deferred | $(23823) | $2535 | $(13061) |
| Total provision | $372778 | $324914 | $213752 |

---

Since the Tax Cuts and Jobs Act of 2017, we have elected not to provide for income taxes with respect to the earnings of Canada after fiscal 2017. In the second quarter of fiscal 2022, we assessed the overall forecasted cash needs and financial position of our foreign subsidiaries, and management decided to no longer assert its intent to indefinitely reinvest undistributed earnings in Canada. As a result of this change in assertion, we recorded $2.4 million of tax expense mainly related to Canadian withholding taxes.

A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:

---

| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29,<br>2023 | January 30,<br>2022 | January 31,<br>2021 |
| Federal income taxes at the statutory rate | 21.0% | 21.0% | 21.0% |
| State income tax rate | 4.2 | 4.1 | 3.9 |
| Officer's compensation under Sec.162(m) | 1.4 | 2.0 | 1.1 |
| Change in uncertain tax positions | 0.3 | (0.5) | 0.2 |
| Deferred true up | 0.1 | (0.1) | (0.6) |
| Rate differential | (0.7) | (0.6) | (1.1) |
| Credits | (0.2) | (0.2) | (0.2) |
| Stock-based compensation | (1.7) | (2.9) | (0.2) |
| Other | 0.4 | (0.4) | (0.2) |
| Total | 24.8% | 22.4% | 23.9% |

---

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Significant components of our deferred income tax accounts are as follows:

---

| | | |
|:---|:---|:---|
| | As of | As of |
| *(In thousands)* | January 29, 2023 | January 30, 2022 |
| Deferred tax assets (liabilities) |  |  |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities | $359001 | $321649 |
| &nbsp;&nbsp;&nbsp; Merchandise inventories | 32338 | 23513 |
| &nbsp;&nbsp;&nbsp;Gift cards | 24632 | 21519 |
| &nbsp;&nbsp;&nbsp;Accrued liabilities | 22356 | 17919 |
| &nbsp;&nbsp;&nbsp;Compensation | 18960 | 27069 |
| &nbsp;&nbsp;&nbsp;Stock-based compensation | 14308 | 11879 |
| &nbsp;&nbsp;&nbsp;Executive deferred compensation | 9605 | 10476 |
| &nbsp;&nbsp;&nbsp;State taxes | 8084 | 7362 |
| &nbsp;&nbsp;&nbsp;Loyalty rewards | 3734 | 5246 |
| &nbsp;&nbsp;&nbsp;State net operating loss | 2446 | 2552 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets | (321646) | (285764) |
| &nbsp;&nbsp;&nbsp;Property and equipment | (65039) | (76643) |
| &nbsp;&nbsp;&nbsp;Deferred lease incentives | (22400) | (28808) |
| &nbsp;&nbsp;&nbsp;Other | (4756) | 57 |
| &nbsp;&nbsp;&nbsp;Valuation allowance | (2635) | (2760) |
| Total deferred tax assets, net | $78988 | $55266 |

---

We had net state operating loss carry-forwards as of January 29, 2023. 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.

The following table summarizes the activity related to our gross unrecognized tax benefits:

---

| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29,<br>2023 | January 30,<br>2022 | January 31,<br>2021 |
| Beginning Balance | $33612 | $38696 | $36638 |
| &nbsp;&nbsp;&nbsp;Increases related to current year tax positions | 8169 | 8573 | 4593 |
| &nbsp;&nbsp;&nbsp;Increases for tax positions for prior years | 807 | 1738 | 848 |
| &nbsp;&nbsp;&nbsp;Decrease for tax positions for prior years | (2237) | (82) | (437) |
| &nbsp;&nbsp;&nbsp;Lapse in statute of limitations | (3283) | (15313) | (2946) |
| Ending Balance | $37068 | $33612 | $38696 |

---

As of January 29, 2023, we had $37.1 million of gross unrecognized tax benefits, of which $31.0 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 29, 2023 and January 30, 2022, our accruals for the payment of interest and penalties totaled $6.1 million and $5.7 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 $0 to $6.2 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 2018 to 2022. Substantially all material states, local and foreign jurisdictions' statutes of limitations are closed for taxable years prior to 2019.

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**Note E: Leases**

The components of our lease costs are as follows:

---

| | | |
|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29, 2023 | January 30, 2022 |
| Operating lease costs | $275086 | $256924 |
| Variable lease costs | 138155 | 127784 |
| Total lease costs | $413241 | $384708 |

---

Sublease income and short-term lease costs were not material to us for fiscal 2022 or fiscal 2021.

Supplemental cash flow information related to our leases are as follows:

---

| | | |
|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended |
| *(In thousands)* | January 29, 2023 | January 30, 2022 |
| Cash paid for amounts included in the measurement of operating lease liabilities | $296053 | $279005 |
| Net additions to right-of-use assets | $389494 | $268143 |

---

Additional information related to our leases is as follows:

---

| | | |
|:---|:---|:---|
| | For the Fiscal Year Ended | For the Fiscal Year Ended |
| | January 29, 2023 | January 30, 2022 |
| Weighted average remaining lease term (years) | 6.9 | 7.0 |
| Weighted average incremental borrowing rate | 3.4% | 3.2% |

---

As of January 29, 2023, the future minimum lease payments under our operating lease liabilities are as follows:

---

| | |
|:---|:---|
| *(In thousands)* |  |
| Fiscal 2023 | $308272 |
| Fiscal 2024 | 275043 |
| Fiscal 2025 | 244068 |
| Fiscal 2026 | 209178 |
| Fiscal 2027 | 173054 |
| Fiscal 2028 and thereafter | 457271 |
| Total lease payments | 1666886 |
| Less: interest | (223228) |
| Total operating lease liabilities | 1443658 |
| Less: current operating lease liabilities | (231965) |
| Total non-current operating lease liabilities | $1211693 |

---

We have also entered into agreements to lease additional distribution facilities and retail spaces, which will commence in fiscal 2023. 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 two unrelated parties to lease a distribution facility in Memphis, Tennessee through January 31, 2024. We made annual rental payments of approximately $2.3 million, $2.1 million, and $1.5 million plus applicable taxes, insurance and maintenance expenses in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

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**Note F: Earnings Per Share** 

Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding and common stock equivalents outstanding for the period. Common stock equivalents consist of shares subject to stock-based awards to the extent their inclusion would be dilutive.

The following is a reconciliation of net earnings and the number of shares used in the basic and diluted earnings per share computations:

---

| | | | |
|:---|:---|:---|:---|
| *(In thousands, except per share amounts)* | Net Earnings | Weighted <br>Average Shares | Earnings <br>Per Share |
| Fiscal 2022 |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $1127904 | 68021 | $16.58 |
| &nbsp;&nbsp;&nbsp;Effect of dilutive stock-based awards |  | 1079 |  |
| &nbsp;&nbsp;&nbsp;Diluted | $1127904 | 69100 | $16.32 |
| Fiscal 2021 |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $1126337 | 74272 | $15.17 |
| &nbsp;&nbsp;&nbsp;Effect of dilutive stock-based awards |  | 2082 |  |
| &nbsp;&nbsp;&nbsp;Diluted | $1126337 | 76354 | $14.75 |
| Fiscal 2020 |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $680714 | 77260 | $8.81 |
| &nbsp;&nbsp;&nbsp;Effect of dilutive stock-based awards |  | 1795 |  |
| &nbsp;&nbsp;&nbsp;Diluted | $680714 | 79055 | $8.61 |

---

The effect of anti-dilutive stock-based awards was not material for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

**Note G: Stock-Based Compensation** 

*Equity Award Programs* 

Our Amended and Restated 2001 Long-Term Incentive Plan (the "Plan") provides for grants of incentive stock options, nonqualified stock options, stock-settled stock appreciation rights (collectively, "option awards"), restricted stock awards, restricted stock units (including those that are performance-based), deferred stock awards (collectively, "stock awards") and dividend equivalents up to an aggregate of approximately 42.7 million shares. As of January 29, 2023, there were approximately 6.7 million shares available for future grant. Awards may be granted under the Plan to officers, employees and non-employee 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 1.0 million shares on a per person basis. Stock awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain performance-based awards, which have variable payout conditions based on predetermined financial targets, generally vest three years 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-employee Board members generally vest in one year. Non-employee 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-employee Board member).

*Stock-Based Compensation Expense* 

During fiscal 2022, fiscal 2021 and fiscal 2020, we recognized total stock-based compensation expense, as a component of SG&A expenses, of $90.3 million, $95.2 million, and $73.2 million, respectively. As of January 29, 2023, there was $121.6 million of unrecognized stock-based compensation expense (net of estimated forfeitures), which we expect to recognize on a straight-line basis over a weighted average remaining service period of approximately two years. At each reporting period, all compensation expense attributable to vested awards has been fully recognized.

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*Restricted Stock Units*

The following table summarizes our restricted stock unit activity during fiscal 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | Shares | Weighted Average<br>Grant Date Fair<br>Value | Weighted Average<br>Contractual Term<br>Remaining (Years) | Intrinsic<br>Value <sup>1</sup> |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 30, 2022 | 2384032 | $83.49 |  |  |
| &nbsp;&nbsp;&nbsp;Granted | 538214 | 156.64 |  |  |
| &nbsp;&nbsp;&nbsp;Granted, with vesting subject to performance conditions | 131774 | 162.28 |  |  |
| &nbsp;&nbsp;&nbsp;Released <sup>2</sup> | (995544) | 66.61 |  |  |
| &nbsp;&nbsp;&nbsp;Cancelled | (376789) | 107.79 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 29, 2023 | 1681687 | $117.62 | 2.74 | $213019000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Vested plus expected to vest at January 29, 2023 | 1547297 | $121.24 | 3.19 | $195996000 |

---

*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 $126.67).*

*2Excludes 224,028 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 | For the Fiscal Year Ended | For the Fiscal Year Ended |
| | January 29, 2023 | January 30, 2022 | January 31, 2021 |
| Weighted average grant date fair value per share of awards granted | $157.75 | $172.46 | $59.51 |
| Intrinsic value of awards released<sup>1 2</sup> | $180450000 | $234293000 | $74853000 |

---

*1Intrinsic value for releases is based on the market value on the date of release.*

*2Includes 224,028 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 2022, fiscal 2021, and fiscal 2020, the current tax benefit related to stock-based awards totaled $24.8 million, $36.4 million, and $15.7 million, respectively.

**Note H: Williams-Sonoma, Inc. 401(k) Plan and Other Employee Benefits** 

We have a defined contribution retirement plan, the Williams-Sonoma, Inc. 401(k) Plan (the "401(k) Plan"), which is intended to be qualified under Internal Revenue Code sections 401(a), 401(k), 401(m) and 4975(e)(7). The 401(k) Plan permits eligible employees to make salary deferral contributions up to 75% of their eligible compensation each pay period. Employees 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 50% of each participant's salary deferral contribution, taking into account only those contributions that do not exceed 6% 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 one year of service. Prior to fiscal 2022, for the first five years of the participant's employment, all matching contributions vested at the rate of 20% per year of service, measuring service from the participant's hire date. Thereafter, all matching contributions were vested immediately. Effective July 2022, all matching contributions become vested 100% after one year of service. Our contributions to the plan were $11.4 million, $11.3 million, and $10.0 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

The 401(k) Plan consists of two parts: a profit sharing plan portion and a stock bonus plan/employee 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 employees 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 29, 2023 and January 30, 2022, $38.8 million and $42.3 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

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unsecured obligations. The cash surrender value of these policies was $38.4 million and $46.3 million as of January 29, 2023 and January 30, 2022, respectively, and is included in other long-term assets, net.

**Note I: Commitments and Contingencies** 

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These disputes, which are not currently material, are increasing in number as our business expands and our company grows. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. In view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the case is close to resolution, in which case no reserve is established until that time. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Consolidated Financial Statements taken as a whole.

**Note J: Stock Repurchase Program and Dividends** 

*Stock Repurchase Program* 

During fiscal 2022, we repurchased 6,423,643 shares of our common stock at an average cost of $137.00 per share and a total cost of $880.0 million under our $1.5 billion stock repurchase program approved in March 2022. As of January 29, 2023, there was $690.0 million remaining under our current stock repurchase program. In March 2023, our Board of Directors authorized a new stock repurchase program for $1 billion, which replaced our existing program. As of January 29, 2023, we held treasury stock of $0.7 million that represents the cost of shares available for issuance intended to satisfy future stock-based award settlements in certain foreign jurisdictions.

During fiscal 2021, we repurchased 5,102,624 shares of our common stock at an average cost of $176.27 per share and a total cost of $899.4 million. During fiscal 2020, we repurchased 1,496,100 shares of our common stock at an average cost of $100.26 per share and a total cost of $150.0 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 2022, fiscal 2021 and fiscal 2020, were approximately $216.3 million, or $3.12 per common share, $199.4 million, or $2.60 per common share and $163.3 million, or $2.02 per common share, respectively. In March 2023, our Board of Directors authorized a 15% increase in our quarterly cash dividend, from $0.78 to $0.90 per common share, subject to capital availability. Our quarterly cash dividend may be limited or terminated at any time.

**Note K: Segment Reporting** 

We identify our operating segments according to how our business activities are managed and evaluated. Each of our brands are operating segments. Because they share similar economic and other qualitative characteristics, we have aggregated our operating segments into a single reportable segment.

The following table summarizes our net revenues by brand for fiscal 2022, fiscal 2021 and fiscal 2020.

---

| | | | |
|:---|:---|:---|:---|
| | For the Fiscal Year Ended <sup>1</sup> | For the Fiscal Year Ended <sup>1</sup> | For the Fiscal Year Ended <sup>1</sup> |
| *(In thousands)* | January 29, 2023 | January 30, 2022 | January 31, 2021 |
| Pottery Barn | $3555521 | $3120687 | $2526241 |
| West Elm | 2278131 | 2234548 | 1682254 |
| Williams Sonoma | 1286651 | 1345851 | 1242271 |
| Pottery Barn Kids and Teen | 1132937 | 1139893 | 1042531 |
| Other <sup>2</sup> | 421177 | 404957 | 289892 |
| Total <sup>3</sup> | $8674417 | $8245936 | $6783189 |

---

*1Includes business-to-business net revenues within each brand.*

*2Primarily consists of net revenues from Rejuvenation, our international franchise operations and Mark and Graham.*

*3Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $407.9 million, $426.7 million and $345.7 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively.*

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Long-lived assets by geographic location, which excludes deferred income taxes, goodwill and intangible assets, are as follows:

---

| | | |
|:---|:---|:---|
| *(In thousands)* | January 29, 2023 | January 30, 2022 |
| U.S. | $2361279 | $2020438 |
| International | 96038 | 129444 |
| Total | $2457317 | $2149882 |

---

**Note L: Derivative Financial Instruments**

We have retail and e-commerce businesses in Canada, Australia and the United Kingdom, and operations throughout Asia and Europe, which 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. To mitigate this risk, we hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies. We do not enter into such contracts for speculative purposes. The assets or liabilities associated with the derivative financial instruments are measured at fair value and recorded in either other current assets or other current liabilities. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on whether the derivative financial instrument is designated as a hedge and qualifies for hedge accounting in accordance with ASC 815, *Derivatives and Hedging*.

*Cash Flow Hedges* 

We enter into foreign currency forward contracts designated as cash flow hedges (to sell Canadian dollars and purchase U.S. dollars) for forecasted inventory purchases in U.S. dollars by our Canadian subsidiary. These hedges have terms of up to 12 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.

Changes in the fair value of the forward contract related to interest charges (or forward points) are excluded from the assessment and measurement of hedge effectiveness and are recorded in cost of goods sold. Based on the rates in effect as of January 29, 2023, we expect to reclassify a net pre-tax gain of approximately $0.9 million from OCI to cost of goods sold over the next 12 months.

We had foreign currency forward contracts outstanding (in U.S. dollars) with notional amounts of $18.5 million and $15.5 million as of January 29, 2023 and January 30, 2022, respectively.

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. No gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all hedges were deemed effective for assessment purposes for fiscal 2022, fiscal 2021 and fiscal 2020.

The effect of derivative instruments in our Consolidated Financial Statements from gains or losses recognized in income was not material for fiscal 2022, fiscal 2021 and fiscal 2020.

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 <u>[N](#i11feac0231874f069e6311a641ff37e8_136)[ote M](#i11feac0231874f069e6311a641ff37e8_136)</u>.

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: Fair Value Measurements** 

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy established by ASC 820, *Fair Value Measurement*, which defines three levels of inputs that may be used to measure fair value, as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 1: inputs which include quoted prices in active markets for identical assets or liabilities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 2: inputs which include observable inputs other than Level 1 inputs, such as quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Level 3: inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

The fair values of our cash and cash equivalents are based on Level 1 inputs, which include quoted prices in active markets for identical assets.

*Foreign Currency Derivatives and Hedging Instruments* 

We use the income approach to value our derivatives using observable Level 2 market data at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk ratings. We use mid-market pricing as a practical expedient for fair value measurements. Key inputs for foreign currency derivatives are the spot rates, forward rates, interest rates and credit derivative market rates.

The counterparties associated with our foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration, therefore, we do not consider counterparty concentration and non-performance to be material risks at this time. Both we and our counterparties are expected to perform under the contractual terms of the instruments. None of the derivative contracts entered into are subject to credit risk-related contingent features or collateral requirements.

*Long-lived Assets* 

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 may not be recoverable. We measure property and equipment at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. We measure right-of-use assets on a nonrecurring basis using Level 2 inputs 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.

The significant unobservable inputs used in the fair value measurement of our property and equipment and right-of-use assets are sales growth/decline, gross margin, employment costs, lease escalations, market rental rates, changes in local real estate markets in which we operate, inflation and the overall economics of the retail industry. Significant fluctuations in any of these inputs individually could significantly impact our measurement of fair value.

*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 no transfers between Level 1, 2 or 3 categories during fiscal 2022 or fiscal 2021.

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**Note N: Accumulated Other Comprehensive Income (Loss)** 

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:

---

| | | | |
|:---|:---|:---|:---|
| *(In thousands)* | Foreign Currency <br>Translation | Cash Flow <br>Hedges | Accumulated Other <br>Comprehensive <br>Income (Loss) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at February 2, 2020 | $(14593) | $6 | $(14587) |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | 8195 |  | 8195 |
| &nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments |  | (315) | (315) |
| &nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments<sup>1</sup> |  | (410) | (410) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive income (loss) | 8195 | (725) | 7470 |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 31, 2021 | (6398) | (719) | (7117) |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | (4488) |  | (4488) |
| &nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments |  | (247) | (247) |
| &nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments<sup>1</sup> |  | 1024 | 1024 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive income (loss) | (4488) | 777 | (3711) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 30, 2022 | (10886) | 58 | (10828) |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | (3572) |  | (3572) |
| &nbsp;&nbsp;&nbsp;Change in fair value of derivative financial instruments |  | 932 | 932 |
| &nbsp;&nbsp;&nbsp;Reclassification adjustment for realized (gain) loss on derivative financial instruments<sup>1</sup> |  | (341) | (341) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive income (loss) | (3572) | 591 | (2981) |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance at January 29, 2023 | $(14458) | $649 | $(13809) |

---

*1Refer to <u>[N](#i11feac0231874f069e6311a641ff37e8_133)[ote L](#i11feac0231874f069e6311a641ff37e8_133)</u> 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 29, 2023 and January 30, 2022, the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended January 29, 2023, 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 29, 2023, 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 29, 2023 and January 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2023, 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 29, 2023, 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.

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.

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***Property and Equipment — Refer to Note A and M to the financial statements****.*

*Critical Audit Matter Description*

The Company performs an analysis of the carrying value of 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 a significant decrease in the operating performance of the long-lived asset, or the decision to close a store, corporate facility, or distribution center. 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. As of January 29, 2023, the Company had property and equipment, net of accumulated depreciation, of $1.1 billion, and operating lease right-of-use assets of $1.3 billion, certain of which relate to the Company's stores. Impairment may result when the carrying value of a store's assets exceeds the store's estimated undiscounted future cash flows.

We identified property and equipment 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. Additionally, the measurement of any impairment loss also includes estimation of the fair value of the Company's lease right-of-use asset included within the asset group, which includes estimates of market rental rates. 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, as well as the fair value of the right-of-use asset, included the following, among others:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We tested the effectiveness of controls over property and equipment, including those over management's forecasts of future revenue growth, gross margin, and market rental rates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We evaluated management's ability to accurately forecast revenue growth rates and gross margin by comparing actual results to management's historical forecasts to perform retrospective lookback of recent growth assumptions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We evaluated the methods and inputs used by management to determine the fair value of the lease right-of-use asset, including assessing comparable market rents, survey data, and broker quotes, as well as evaluating management's sensitivity analysis regarding the change in market rents.

*/s/ Deloitte & Touche LLP*

San Francisco, California

March 24, 2023

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

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**ITEM 9.&nbsp;&nbsp;&nbsp;&nbsp;CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

**ITEM 9A.&nbsp;&nbsp;&nbsp;&nbsp;CONTROLS AND PROCEDURES**

***Evaluation of Disclosure Controls and Procedures***

As of January 29, 2023, 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 29, 2023. 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 29, 2023, 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 56 through 57 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 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**ITEM 9B.&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION**

None.

**ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**

Not applicable.

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**PART III** 

**ITEM 10. &nbsp;&nbsp;&nbsp;&nbsp;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 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after January 29, 2023 (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. &nbsp;&nbsp;&nbsp;&nbsp;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.&nbsp;&nbsp;&nbsp;&nbsp;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.&nbsp;&nbsp;&nbsp;&nbsp;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.&nbsp;&nbsp;&nbsp;&nbsp;PRINCIPAL ACCOUNTANT FEES AND SERVICES**

Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID #34), is incorporated by reference herein to information under the headings "Audit and Finance Committee Report" and "Proposal 3 — 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.&nbsp;&nbsp;&nbsp;&nbsp;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** |
|  |  | <u>[Consolidated Statements of Earnings](#i11feac0231874f069e6311a641ff37e8_79)</u> | <u>[37](#i11feac0231874f069e6311a641ff37e8_79)</u> |
|  |  | <u>[Consolidated Statements of Comprehensive Income](#i11feac0231874f069e6311a641ff37e8_82)</u> | <u>[37](#i11feac0231874f069e6311a641ff37e8_82)</u> |
|  |  | <u>[Consolidated Balance Sheets](#i11feac0231874f069e6311a641ff37e8_85)</u> | <u>[38](#i11feac0231874f069e6311a641ff37e8_85)</u> |
|  |  | <u>[Consolidated Statements of Stockholders' Equity](#i11feac0231874f069e6311a641ff37e8_88)</u> | <u>[39](#i11feac0231874f069e6311a641ff37e8_88)</u> |
|  |  | <u>[Consolidated Statements of Cash Flows](#i11feac0231874f069e6311a641ff37e8_91)</u> | <u>[40](#i11feac0231874f069e6311a641ff37e8_91)</u> |
|  |  | <u>[Notes to Consolidated Financial Statements](#i11feac0231874f069e6311a641ff37e8_94)</u> | <u>[41](#i11feac0231874f069e6311a641ff37e8_94)</u> |
|  |  | <u>[Report of Independent Registered Public Accounting Firm](#i11feac0231874f069e6311a641ff37e8_142)</u> | <u>[56](#i11feac0231874f069e6311a641ff37e8_142)</u> |
| (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. |  |

---

**<u>Exhibit Index</u>**

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;**CERTIFICATE OF INCORPORATION AND BYLAWS** | &nbsp;&nbsp;&nbsp;&nbsp;**CERTIFICATE OF INCORPORATION AND BYLAWS** |
| 3.1 | <u>[Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed with the Commission on May 25, 2011, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312511150431/dex31.htm)</u> |
| 3.2 | <u>[Amended and Restated Bylaws of Williams-Sonoma, Inc., effective June 3, 2020 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed with the Commission on June 9, 2020, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312520164672/d887906dex31.htm)</u> |
| &nbsp;&nbsp;&nbsp;&nbsp;**INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES** | &nbsp;&nbsp;&nbsp;&nbsp;**INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES** |
| 4.1 | <u>[Description of Registrant's Securities (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2020 as filed with the Commission on March 27, 2020, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312520088937/d856872dex42.htm)</u> |
| &nbsp;&nbsp;&nbsp;&nbsp;**FINANCING AGREEMENTS** | &nbsp;&nbsp;&nbsp;&nbsp;**FINANCING AGREEMENTS** |
| 10.1 | <u>[Eighth Amended and Restated Credit Agreement, dated September 30, 2021, between the Company and Bank of America, N.A., as administrative agent, letter of credit issuer and swingline lender, Wells Fargo Bank, National Association, as syndication agent and the lenders party thereto (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended October 31, 2021 as filed with the Commission on December 6, 2021, File No. 001-14077](https://www.sec.gov/Archives/edgar/data/0000719955/000162828021024590/exhibit104-credit_agreemen.htm)</u> |
| **STOCK PLANS** | **STOCK PLANS** |
| 10.2+ | <u>[Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit A to the Company's definitive proxy statement as filed on April 16, 2021, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312521119450/d108438ddef14a.htm#toc108438_15)</u> |
| 10.3+ | <u>[Form of Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Restricted Stock Unit Award Agreement for Grants to Non-Employee Directors (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended May 5, 2019 as filed with the Commission on June 14, 2019, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312514234823/d712968dex101.htm)</u> |
| 10.4+ | <u>[Form of Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Restricted Stock Unit Award Agreement for Grants to Employees (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended August 4, 2019 as filed with the Commission on September 12, 2019, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312519244032/d775044dex101.htm)</u> |

---

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| | |
|:---|:---|
| 10.5+ | <u>[Form of Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Performance Stock Unit Award Agreement for Grants to Employees (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2014 as filed with the Commission on April 3, 2014, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312514129974/d659151dex1015.htm)</u> |
| **OTHER INCENTIVE PLANS** | **OTHER INCENTIVE PLANS** |
| 10.6+ | <u>[Williams-Sonoma, Inc. 2021 Incentive Bonus Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended May 2, 2021 as filed with the Commission on June 9, 2021, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/0000719955/000071995521000007/exhibit101fy2021q12021ince.htm)</u> |
| 10.7+ | <u>[Williams-Sonoma, Inc. Pre-2005 Executive Deferral Plan (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2009 as filed with the Commission on April 2, 2009, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312509071708/dex1040.htm)</u> |
| 10.8+ | <u>[Williams-Sonoma, Inc. Amended and Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 29, 2018 as filed with the Commission on June 8, 2018, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312518188149/d576497dex101.htm)</u> |
| 10.9+ | <u>[Williams-Sonoma, Inc. Director Compensation Policy (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended August 1, 2021 as filed with the Commission on September 9, 2021, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/0000719955/000162828021018335/exhibit102williams-sonomax.htm)</u> |
| 10.10+ | <u>[Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Non-Employee Director Deferred Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended August 1, 2021 as filed with the Commission on September 9, 2021, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/0000719955/000162828021018335/exhibit103williams-sonomax.htm)</u> |
| **PROPERTIES** | **PROPERTIES** |
| 10.11 | <u>[Memorandum of Understanding between the Company and the State of Mississippi, Mississippi Business Finance Corporation, Desoto County, Mississippi, the City of Olive Branch, Mississippi and Hewson Properties, Inc., dated August 24, 1998 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the period ended August 2, 1998 as filed with the Commission on September 14, 1998, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/0000950149-98-001568.txt)</u> |
| 10.12 | <u>[Olive Branch Distribution Facility Lease, dated December 1, 1998, between the Company as lessee and WSDC, LLC (the successor-in-interest to Hewson/Desoto Phase I, L.L.C.) as lessor (incorporated by reference to Exhibit 10.3D to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1999 as filed with the Commission on April 30, 1999, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/0000950149-99-000820.txt)</u> |
| 10.13 | <u>[First Amendment, dated September 1, 1999, to the Olive Branch Distribution Facility Lease between the Company as lessee and WSDC, LLC (the successor-in-interest to Hewson/Desoto Phase I, L.L.C.) as lessor, dated December 1, 1998 (incorporated by reference to Exhibit 10.3B to the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2000 as filed with the Commission on May 1, 2000, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000095014900000965/0000950149-00-000965.txt)</u> |
| 10.14 | <u>[Second Amendment, dated March 1, 2018, to the Olive Branch Distribution Facility Lease between the Company as lessee and WSDC, LLC (the successor-in-interest to Hewson/Desoto Phase I, L.L.C.) as lessor, dated December 1, 1998 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 29, 2018 as filed with the Commission on June 8, 2018, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312518188149/d576497dex102.htm)</u> |
| 10.15 | <u>[Lease for an additional Company distribution facility located in Olive Branch, Mississippi between Williams-Sonoma Retail Services, Inc. as lessee and SPI WS II, LLC (the successor-in-interest to Hewson/Desoto Partners, L.L.C.) as lessor, dated November 15, 1999 (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2000 as filed with the Commission on May 1, 2000, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000095014900000965/0000950149-00-000965.txt)</u> |
| **EMPLOYMENT AGREEMENTS** | **EMPLOYMENT AGREEMENTS** |
| 10.16+ | <u>[Amended and Restated Employment Agreement with Laura Alber, dated September 6, 2012 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended October 28, 2012 as filed with the Commission December 7, 2012, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312512495336/d426549dex104.htm)</u> |
| 10.17+ | <u>[Amended and Restated Management Retention Agreement with Laura Alber, dated September 6, 2012 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period ended October 28, 2012 as filed with the Commission December 7, 2012, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312512495336/d426549dex105.htm)</u> |
| 10.18+ | <u>[Amended and Restated 2012 EVP Level Management Retention Plan](https://www.sec.gov/Archives/edgar/data/719955/000162828022007494/exhibit1018evpmanagementre.htm)</u> |
| **OTHER AGREEMENTS** | **OTHER AGREEMENTS** |
| 10.19+ | <u>[Form of Williams-Sonoma, Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 2011 as filed with the Commission on September 9, 2011, File No. 001-14077)](https://www.sec.gov/Archives/edgar/data/719955/000119312511244225/d212431dex101.htm)</u> |
| **OTHER EXHIBITS** | **OTHER EXHIBITS** |
| 21.1\* | <u>[Subsidiaries](exhibit211fy2022subsidiari.htm)</u> |
| 23.1\* | <u>[Consent of Independent Registered Public Accounting Firm](exhibit231fy2022consentofi.htm)</u> |

---

------

**<u>[Table](#i11feac0231874f069e6311a641ff37e8_10)[of](#i11feac0231874f069e6311a641ff37e8_10)[Contents](#i11feac0231874f069e6311a641ff37e8_10)</u>**

---

| | |
|:---|:---|
| **CERTIFICATIONS** | **CERTIFICATIONS** |
| 31.1\* | <u>[Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended](exhibit311fy202210kceocert.htm)</u> |
| 31.2\* | <u>[Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended](exhibit312fy202210kcfocert.htm)</u> |
| 32.1\* | <u>[Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002](exhibit321fy202210kceocert.htm)</u> |
| 32.2\* | <u>[Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002](exhibit322fy202210kcfocert.htm)</u> |
| 101\* | The following financial statements from the Company's Annual Report on Form <br>10-K for the fiscal year ended January 29, 2023, 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.&nbsp;&nbsp;&nbsp;&nbsp;FORM 10-K SUMMARY**

None.

------

**<u>[Table](#i11feac0231874f069e6311a641ff37e8_10)[of](#i11feac0231874f069e6311a641ff37e8_10)[Contents](#i11feac0231874f069e6311a641ff37e8_10)</u>**

**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. | WILLIAMS-SONOMA, INC. |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | &nbsp;&nbsp;&nbsp;&nbsp;By | /S/&nbsp;&nbsp;&nbsp;&nbsp;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.

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;SCOTT DAHNKE |
|  | Scott Dahnke |
|  | Chairman of the Board of Directors |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;LAURA ALBER |
|  | Laura Alber |
|  | Chief Executive Officer and Director |
|  | (principal executive officer) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;JEFFREY E. HOWIE |
|  | Jeffrey E. Howie |
|  | Chief Financial Officer |
|  | (principal financial officer) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;JEREMY BROOKS |
|  | Jeremy Brooks |
|  | Chief Accounting Officer |
|  | (principal accounting officer) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;ANNE FINUCANE |
|  | Anne Finucane |
|  | Director |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;ESI EGGLESTON BRACEY |
|  | Esi Eggleston Bracey |
|  | Director |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;FRITS VAN PAASSCHEN |
|  | Frits van Paasschen |
|  | Director |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;PAULA PRETLOW |
|  | Paula Pretlow |
|  | Director |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: March 24, 2023 | /s/&nbsp;&nbsp;&nbsp;&nbsp;WILLIAM READY |
|  | William Ready |
|  | Director |

---

## Exhibit 21.1

**Exhibit 21.1**

**SUBSIDIARIES**

The following is a list of subsidiaries of Williams-Sonoma, Inc., omitting subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of January 29, 2023:

---

| | |
|:---|:---|
| **<u>Subsidiary Name</u>** | **<u>Jurisdiction/Date of Incorporation</u>** |
| Williams-Sonoma Stores, Inc. | California, October 11, 1984 |
| Williams-Sonoma Direct, Inc. | California, August 9, 1999 |
| Williams-Sonoma DTC, Inc. | California, October 26, 2000 |
| Williams-Sonoma Singapore Pte. Ltd. | Singapore, April 11, 2008 |

---

## Exhibit 23.1

**Exhibit 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the incorporation by reference in Registration Statement No. 333-39811, No. 333-58026, No. 333-134897, No. 333-105726, No. 333-118351, No. 333-169318, No. 333-176410, No. 333-207362, No. 333-227240, and No.333-260115 each on Form S-8 of our report dated March 24, 2023, relating to the consolidated financial statements of Williams-Sonoma, Inc. and its subsidiaries, and the effectiveness of Williams-Sonoma, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Williams-Sonoma, Inc. for the fiscal year ended January 29, 2023.

*/s/ DELOITTE & TOUCHE LLP*

San Francisco, California

March 24, 2023

## Exhibit 31.1

**Exhibit 31.1**

**CERTIFICATION**

I, Laura Alber, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Annual Report on Form 10-K of Williams-Sonoma, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: March 24, 2023 |  |  |
|  | By: | /s/&nbsp;&nbsp;&nbsp;&nbsp;LAURA ALBER |
|  |  | Laura Alber |
|  |  | Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

**CERTIFICATION**

I, Jeffrey E. Howie, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Annual Report on Form 10-K of Williams-Sonoma, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: March 24, 2023 |  |  |
|  | By: | /s/&nbsp;&nbsp;&nbsp;&nbsp;JEFFREY E. HOWIE |
|  |  | Jeffrey E. Howie |
|  |  | Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION BY CHIEF EXECUTIVE OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report on Form 10-K for the period ended January 29, 2023 of Williams-Sonoma, Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Laura Alber, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

---

| | | |
|:---|:---|:---|
| Date: March 24, 2023 | By: | /s/&nbsp;&nbsp;&nbsp;&nbsp;LAURA ALBER |
|  |  | Laura Alber |
|  |  | Chief Executive Officer |

---

## Exhibit 32.2

**Exhibit 32.2**

**CERTIFICATION BY CHIEF FINANCIAL OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report on Form 10-K for the period ended January 29, 2023 of Williams-Sonoma, Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey E. Howie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

---

| | | |
|:---|:---|:---|
| Date: March 24, 2023 | By: | /s/&nbsp;&nbsp;&nbsp;&nbsp;JEFFREY E. HOWIE |
|  |  | Jeffrey E. Howie |
|  |  | Chief Financial Officer |

---

<br>