Release Date: August 26, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong Q2 performance with comp sales up 6.2% and total revenue growth of 6.7%, exceeding expectations.
- All brands delivered positive comps, including significant improvement at Pottery Barn (5.1% comp) and continued strength at West Elm (6.4% comp).
- B2B segment grew 14.5% with record-breaking demand, driven by strength in both contract and trade.
- Raised full-year guidance for both top-line and bottom-line, reflecting confidence in momentum and execution.
- AI initiatives, such as the Olive and Otto shopping assistants, are driving higher engagement and conversion rates, with Olive engagement up 700% and revenue up 620%.
Negative Points
- Gross margin declined 160 basis points year-over-year due to tariff impacts, with merchandise margins down 230 basis points.
- Higher oil prices continue to pressure transportation and supplier costs, impacting overall profitability.
- The company faces ongoing macroeconomic uncertainty, including war, rising interest rates, and a stagnant housing market.
- Q4 will face a challenging comparison due to a 150 basis point benefit from a shrink accrual last year, which will partially offset tariff relief.
- Inventory levels are up only 1% despite revenue growth of 6.7%, indicating potential supply constraints and inability to fully meet demand.
Q & A Highlights
Q: Can you unpack what drove the significant acceleration at Pottery Barn in Q2, particularly in the DTC channel?
A: Laura Alber, President and CEO, attributed the improvement to a multi-faceted strategy. The company focused on enhancing product discovery and storytelling on the DTC platform, improving the photographic layer with both AI and new in-house shots to create a warmer, more aspirational brand feel. The furniture category, a large part of the business, saw significant improvement with new multi-step finishes and authentic materials. This, combined with better pricing versus competition and the performance of new and remodeled stores, is driving the brand's momentum. Alber emphasized that while pleased, the company sees this as a multi-year path with more work to do.
Q: How are you thinking about deploying the residual tariff refunds outside of the vendor reimbursements and 401(k) contributions?
A: Laura Alber stated that the company is appreciative of the refund and felt it was right to reward employees and reimburse vendor partners for their support during the tariff crisis. Regarding the remaining funds, there are no specific new deployment plans. The company will continue its standard practice of investing in the highest-returning initiatives, and the refund provides more financial flexibility. Alber noted that the company has not felt starved for capital and will continue to look for the best ROI opportunities.
Q: Should we model gross margin degradation in the back half of the year, and where do you see the model generating expansion in 2027?
A: CFO Jeffrey Howie clarified that while they don't guide specific lines, the midpoint of their raised operating margin guidance is slightly above last year's back-half performance. The puts and takes include moderating tariff pressure, offset by higher fuel costs and a difficult comparison against a shrink accrual benefit in Q4. Laura Alber added that looking to the future, there is significant runway for growth and margin expansion through continued market share gains, supply chain efficiencies, AI implementation, and a major focus on improving inventory accuracy, which they have not yet fully deployed against.
Q: Can you speak to the cadence of your comps throughout the quarter and the plans for the 1% to 3% store count growth next year?
A: CFO Jeffrey Howie stated that while they don't provide monthly cadence, comps accelerated from Q1 to Q2 on both a one and two-year basis, marking six straight quarters of positive comps. On store growth, the company will end fiscal 2026 essentially flat, but expects 1% to 3% unit growth per year starting in fiscal 2027. This growth will be across all banners, including Pottery Barn, West Elm, and Williams Sonoma, with opportunities to infill major markets. For Rejuvenation, the company will build out the brand slowly and methodically, focusing on the right locations to achieve its goal of becoming a billion-dollar brand.
Q: Can you provide more color on the Williams-Sonoma brand's outperformance and whether it's driven by new customer acquisition or higher wallet share?
A: Laura Alber highlighted the brand's strong results across all kitchen divisions, with positive food trends and exciting results from Williams-Sonoma Home. The strategy includes a robust pipeline of product innovation and collaborations, such as Hill House and Sanderson, which drive buzz and new customer acquisition. The brand is also increasing its presence at tastemaker events like Bottlerock and Nantucket by Design, which builds brand equity and excitement that translates into store traffic and sales.
Q: Can you size the impact of collaborations on the business and how that has changed over the past couple of years?
A: Laura Alber described collaborations as the "icing on the cake," noting they are not the bulk of the comp but are crucial for attracting new customers and generating social buzz. Collaborators bring their own following, which helps with customer acquisition, as seen with Emma Chamberlain bringing younger customers to West Elm. While some brands like Kids and Teen have long-term mega collaborations, other brands are just getting started. The strategy is to have exciting collaborations every season, and they are seeing success in selling out quickly, creating opportunities for future seasons.
Q: Can you discuss the puts and takes for the second-half sales outlook?
A: CFO Jeffrey Howie explained that the raised top-line guidance reflects the strong momentum in the business. The midpoint of the range assumes a continuation of current one and two-year trends, while the high end assumes continued acceleration driven by strong traction in initiatives and a strong holiday season. The low end contemplates less traction and a softer holiday. Overall, the business is strong, and the guidance raise reflects the acceleration from Q1 to Q2.
Q: Given the impressive growth in B2B, are you moving up the target for when the channel can reach $2 billion in revenues?
A: CFO Jeffrey Howie acknowledged the B2B team's outstanding performance, with contract growing 20% and trade growing 12% in Q2. The company continues to see a clear path to grow to $2 billion over the next several years but has not provided a specific timeline. They are focused on capturing market share in the fragmented $80 billion B2B market, with a particular focus on the contract side, which accounted for 36% of the B2B business.
Q: What are you excited about in technology for the back half of the year?
A: Sameer Hassan, Chief Technology and Digital Officer, highlighted the impact of AI on the business. The AI-powered shopping assistant, Olive, has seen engagement up 700% and revenue up 620% since the beginning of the year, with customers converting at three times the rate. They also launched Otto for the Pottery Barn brands, which is showing early success with over 70% of engagements resolved without human intervention. E-commerce personalization is also accelerating, with personalized visits generating roughly nine times the revenue of an average visit, up from 2x last year. These AI initiatives are being applied across customer-facing and internal operations, driving significant results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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