Williams Sonoma: 2Q26 Immediate Call Postmortem

Laura believes that they have now proven the business can succeed regardless of the housing market. Home furnishings industry was essentially flat during the quarter, so all their growth was market share gains. Took that share while increasing full price selling. Positive comps in both furniture and non-furniture with even stronger furniture comp than in Q1. “This is purely an operational raise in our guide” – not including tariff refunds like many others are.

Laura is very confident because “our growth strategies are working, as are our operational strategies, and there is still a lot of runway”. She stated nobody has a better portfolio of brands to address the TAM of this highly fragmented industry (true). Have enough new brands growing double digits to sustain growth in the future (true).

Product theme of this call was collaborations. We heard that word countless times as Laura discussed the various brands. McShane asked about it with the first question. Still a lot of categories they think they can get better in with newness. In 2H are going after some of these categories in a bigger way than in 1H and have some “very exciting” collaborations coming they can’t discuss yet. Core product is being lifted by newness but also channel strategies and storytelling strategies.

Pottery Barn strength reflected the continued focus on newness. Children driven by same thing but also life stage leadership and differentiated collaborations like LoveShackFancy (eh, Target has that collab too…). Very pleased with relaunch of Dormify. West Elm summer and fall newness each delivered double digit comps that drove full price selling and Emma Chamberlain collection also continues to be one of brand’s most successful collaborations. Williams Sonoma brand saw strength throughout assortment across categories and price points.

Recently launched next AI powered shopping assistant, Otto, which brings agentic discovery experience to Pottery Barn. Both Otto and Olive are helping customers with product recommendations. Engagement with Olive up 700% since beginning of year, revenue is up 620%, and customers who engage with it convert at a three times higher rate. We extensively dig into Olive in our note to subs on 12/7/25.

Rejuvenation had double digit comps and strong profitability. Strength in project led categories, including cabinet, hardware, bath lighting, utility, and mirrors. Customer acquisition accelerated with strong engagement in both consumer and trade customers. We extensively dig into Rejuvenation in our note to subs on 10/6/25 - we think most people are sleeping on this opportunity and what it represents. Somewhat related, B2B grew 14.5% with record breaking demand during the quarter. Max tried to get them to share the internal timeline of B2B getting to $2 billion which Jeff just laughed at and repeated what they have said before.

Overall gross margin landed in line with expectations as accelerating growth and supply chain efficiencies absorbed roughly a third of the hit from tariffs. This quarter was peak tariff impact on their business and pressure will moderate from here. Jeff made a point to “underline” that they grew operating income and EPS during the peak quarter of tariff pressure. “Still a lot of room in supply chain”. We have extensively discussed why they still have supply chain driven gross margin opportunities in our research over the past year.

Peter Keith asked about the acceleration in Pottery Barn. They have improved the photographic layer with both AI and live shots. There is a “warmth” to PB that is dreamy and relevant. I feel like people don’t understand how both PB and Arhaus largely focus on creating that “warmth” feeling versus the coldness of Restoration Hardware (RH).

Giving a large portion of the tariff refunds back to their vendors should only “further solidify the special partnership we have with them versus our competitors”. This is the type of thing you can do when you are operating from a position of strength – pay attention Gary Friedman.

*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Williams Sonoma and other retail/consumer research) at our website here: M Squared Capital

Originally posted on X and Substack.