We're extremely proud to deliver yet another quarter of outperformance with comps of 16.9%, building to an accelerated two-year stack of 41.3% and operating margin expansion of 60 basis points.
As a result, we are raising our full year outlook to reflect revenue growth of 22% to 23% and operating margins of 16.9% to 17.1%.
We are one of the strongest market players and have incredible opportunity to capture more of an almost $1 trillion market opportunity.
In fact, almost 70% of consumers today want to support brands that are purpose-driven and doing good in the world we share.
And as a result, approximately 85% of our holiday receipts have already been received.
West Elm delivered a 22.5% comp, with all categories driving strong growth.
Pottery Barn delivered another high-performance quarter, with a comp of 15.9%, driven by strong growth in all product categories, including our seasonal decorating business.
Pottery Barn Kids and Teens grew with a comp of 16.9%.
Pottery Barn, we're excited to share that our B2B growth initiative continues to produce record performance with our largest quarter ever, generating over $200 million of sales, nearly double that of last year.
Significant accomplishments of the business include an increase of 44% in new clients over last year, an acceleration of our contract grade lineup as businesses reopen and growth and diversification in our large project pipeline.
With almost 70% of our volume derived from e-commerce, we understand the importance of first-party data in the cookie less future that is rapidly approaching.
We are proud to announce that in the third quarter, we raised minimum wages again to at least $15 an hour for all of our employees.
Additionally, we also announced new goals to both expand our purchase of next ethically handcrafted products to 50 million and to nearly double our investments in fair trade certified products to 10 million by 2025.
We continue to be confident in our outlook of at least mid- to high single-digit comps, accelerating our revenues to 10 billion by 2024, with operating margins at least that of fiscal 2021.
95% of our products are proprietary or exclusive to our brands.
We have a vertically integrated digital first but not digital-only operating model that is nearly 70% e-commerce in an industry that primarily consists of brick-and-mortar or pure e-commerce players, and we are a sustainable and values-led company.
Net revenues grew 16% to $2.048 billion, with comparable brand revenue growth of 16.9%, with comps accelerating to 41.3% on a two-year basis.
In fact, against tougher compares, our e-commerce business accelerated to over 67% of our total revenues from the second quarter and was our highest two-year comp ever at 64%.
By brand, West Elm delivered a 22.5% comp, taking year-to-date revenues for the brand to over $1.5 billion.
Pottery Barn, our largest brand, drove their fifth consecutive quarter of double-digit comps with a 15.9% comp.
Pottery Barn Kids and Teen grew at a comp of 16.9% and had their highest two-year comp ever.
Williams-Sonoma drove a 7.6% comp accelerating from the second quarter and on top of 30.4% last year.
And our emerging brands, Rejuvenation and Mark and Graham combined continue to drive significant growth at a 26.5% comp, and all brands grew nearly 40% or higher on a two-year basis.
Gross margin expanded 370 basis points to 43.7%.
Our selling margins drove 280 basis points of this expansion.
And relative to 2019, our selling margins are up 430 basis points, in line with our first half results, despite higher ocean freight costs incurred during the quarter.
Occupancy cost leverage was also a factor in our gross margin expansion, leveraging approximately 90 basis points, resulting from higher sales and low occupancy dollar growth.
Occupancy costs were approximately $183 million, up 5.1% year over year and relatively in line with our second quarter growth.
SG&A in the third quarter was in line with the prior quarters at 27.5% of net revenue.
Year over year, SG&A deleveraged 320 basis points, driven by higher advertising spend coming off of our substantially reduced costs in 2020 and our decision to incrementally invest in advertising.
Operating income grew to a record $333 million, resulting in an operating margin of 16.3%, expanding 60 basis points over last year.
This resulted in diluted earnings per share of $3.32, up 30% from last year's record third quarter of $2.56 per diluted share.
In fact, year to date, we are tracking to a 28% comp or 41% on a two-year basis, with 400 basis points of operating margin expansion at a 16.3% operating margin and over 85% growth in earnings.
We ended the quarter with strong liquidity levels and a cash balance of almost $660 million.
The strength of our business has generated operating cash flow of almost $790 million year to date, which is approximately $60 million over last year's elevated cash flow levels.
This cash flow strength has allowed us to fund the operations of the business to invest over $140 million in capital expenditures and to return almost $790 million to our shareholders in the form of over $135 million in dividends and over $650 million in share repurchases.
Moving down the balance sheet, merchandise inventories, which includes inventory and transit, were $1.272 billion, representing an increase of 13% over last year.
Inventory on hand and available for sale was up 3% year over year.
We are raising our 2021 outlook to reflect revenue growth from high teens to low 20s to now 22% to 23%, and operating margins from 16% to 17% to now 16.9% to 17.1%.
Additionally, we are also reiterating our longer-term outlook of revenues accelerating to $10 billion by 2024, with operating margins at least in line with our raised fiscal year '21 levels, which implies at least a mid- to high single-digit comp with margins at least holding over the next three-plus years.
We saw comps accelerating even before the pandemic as a result of our growth initiatives to a tie the 10% comp in February 2020.
And our results every quarter this year have halted a two-year comp of approximately 40%, despite accelerating tougher year-over-year compares.

Summary:
We're extremely proud to deliver yet another quarter of outperformance with comps of 16.9%, building to an accelerated two-year stack of 41.3% and operating margin expansion of 60 basis points.
As a result, we are raising our full year outlook to reflect revenue growth of 22% to 23% and operating margins of 16.9% to 17.1%.
Pottery Barn Kids and Teens grew with a comp of 16.9%.
Net revenues grew 16% to $2.048 billion, with comparable brand revenue growth of 16.9%, with comps accelerating to 41.3% on a two-year basis.
Pottery Barn Kids and Teen grew at a comp of 16.9% and had their highest two-year comp ever.
This resulted in diluted earnings per share of $3.32, up 30% from last year's record third quarter of $2.56 per diluted share.
We are raising our 2021 outlook to reflect revenue growth from high teens to low 20s to now 22% to 23%, and operating margins from 16% to 17% to now 16.9% to 17.1%.
Additionally, we are also reiterating our longer-term outlook of revenues accelerating to $10 billion by 2024, with operating margins at least in line with our raised fiscal year '21 levels, which implies at least a mid- to high single-digit comp with margins at least holding over the next three-plus years.