Ladies and gentlemen, thank you for standing by. Welcome to the Williams-Sonoma, Inc., Fourth Quarter and Fiscal Year 2011 Earnings and Fiscal Year 2012 Guidance Conference Call. [Operator Instructions] This conference is being recorded. I would now like to turn the call over to Steve Nelson, Vice President of Investor Relations, to discuss non-GAAP measures and forward-looking statements.

Good morning. This morning's conference call should be considered in conjunction with the press releases that we issued earlier today. Our press releases and this call contain non-GAAP financial measures that exclude the impact of unusual business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, and an explanation of why these non-GAAP financial measures are useful, are discussed in Exhibit 1 and elsewhere in the earnings release. The forward-looking statements included in this morning's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, guidance, growth plans and prospects of the company in 2012 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current press releases and SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the conference over to Laura Alber, our President and Chief Executive Office -- Officer, to discuss our fourth quarter and fiscal year 2011 results and our outlook for 2011 -- for 2012.

Good morning, and thank you for joining us. With me today are Pat Connolly, our Chief Marketing Officer; and Julie Whalen, our Acting Chief Financial Officer. I'll begin by going over our fourth quarter results. Fourth quarter net revenues increased 6% and non-GAAP diluted earnings per share increased 8% to a record $1.17 per share. Throughout the quarter, the strength of our merchandising strategies and flexibility of our multi-channel operating model drove increased sales and profits despite a more promotional environment during the holiday period. Post holiday, we saw a progressively stronger retail environment, and through highly effective marketing and stronger-than-expected operational execution, we exceeded our revised January guidance on both the top and bottom lines. During the quarter, comparable brand revenues increased 7% and e-commerce revenues increased a better-than-expected 18%. Strong product assortments, including an increased gift assortment in each of our brands, were enhanced by highly targeted promotions and e-marketing initiatives in all channels. In our home furnishings business, total fourth quarter comparable brand revenues increased a robust 12%, including 35% growth in West Elm; 11% growth in Pottery Barn; 6% growth in Pottery Barn Kids; and 1% growth in PBteen. In Williams-Sonoma, comparable brand revenues declined 2.3% due in part to a 60 basis point impact from planned SKU reductions in the Williams-Sonoma Home business. Excluding that impact, Williams-Sonoma comparable brand revenues declined 1.7%. I would now like to review our full year results. Fiscal 2011 was a year of record earnings for Williams-Sonoma, Inc. It was a year where we saw increases in revenues and profitability and it was a year where we budgeted for and executed key elements of our long-term strategy to be the leading multi-channel retailer of home furnishings and housewares in the world. Through strong execution and a superior multi-channel strategy, we…

Thank you, Laura. And good morning. As Laura shared earlier, we did reach new milestones in financial performance in the fourth quarter. Net revenues increased 6% to $1.27 billion, with 14% growth in the direct-to-customer channel and 1% comparable store sales growth in the retail channel. Non-GAAP diluted earnings per share increased $0.09 to a record $1.17 versus $1.08 in the fourth quarter of 2010. Versus January guidance, stronger sales trends, favorable revenue recognition, higher-than-anticipated selling margins and strong expense management drove these better-than-expected results. Gross margin decreased 100 basis points to 41.3% versus last year. This decrease was driven by lower selling margins particularly in the Williams-Sonoma brands and a 40 basis point prior-year nonrecurring benefit related to Williams-Sonoma Home inventory cost recoveries, partially offset by 80 basis points of occupancy cost leverage. Non-GAAP occupancy costs in the fourth quarter declined $3 million to $127 million. Non-GAAP SG&A improved 90 basis points to 25.7%, driven by lower incentive compensation costs, reductions in other general expenses and greater advertising productivity, partially offset by higher employment costs associated with planned growth investments in e-commerce, global expansion and business development. Catalog circulation increased 1% and catalog pages circulated remained flat due to increase versioning. I would now like to comment on our fourth quarter non-GAAP operating margin in each of our business segments. At the total company level, our non-GAAP operating margin decreased 10 basis points versus last year to 15.6%. This decline was driven by a 70 basis point decrease in the retail segment to 20.4%, a 10 basis point decrease in the direct-to-customer segment to 22% and a 40 basis point improvement in the corporate unallocated segment to 5.4%. The 70 basis point decline in the retail segment was driven by lower selling margins, including a 50 basis point prior-year…

Thank you, Julie. In the Williams-Sonoma brand, net revenues for 2011 were $994 million, including a comparable brand revenue decline of 0.3%. In the fourth quarter, comparable brand revenues declined 1.7% when we exclude the impact of planned SKU reductions in Williams-Sonoma Home. During the holiday season, the promotional environment was heavier than we anticipated. We take proactive measures to remain competitive and maintain our market share, but it put pressure on both the top and bottom lines. We saw the most promotional activity on nationally branded products particularly in the retail channel, with the greatest initial impact in cookware and cook's tools. As the season progressed, it expanded to other non-exclusive products as well. Where we had exclusivity on products and categories, our business was unquestionably stronger. In terms of customer engagement, our investments in the online customer experience and social media drove increased traffic to the brand. We also saw a strong performance from our Williams-Sonoma Reserve and co-branded Visa loyalty programs measured by the number of new customers in the programs, the frequency of the purchase, the average order size and the average annual spend. The brand's mission, to be the leading multi-channel retailer in cooking and entertainment world, has not changed. What has changed and what we want to outline for you today is how we will achieve our mission in 2012 and beyond given an increasingly competitive marketplace. The 3 areas of transformational change are product innovation, marketing and our in-store experience. Product innovation is at the core of our overall strategy. Customers shop our brands because we are the trusted authority in cooking. We recognize, however, that we cannot rely solely on our heritage to drive our future. Within product, we are intensely focused on 3 areas. The first is freshness and innovation. We…

[Operator Instructions] Our first question today will come from Budd Bugatch with Raymond James.

Julie, good luck to you on your role. And first, let me just thank Sharon for all of her help over the years and wish her well in her future endeavors, as with you. Just my question really goes to the guidance and the operating margin. And recognizing that we've got an extra week next year and some of the initiatives going on, can you perhaps parse the competitive situation in Williams-Sonoma, particularly? Can you kind of give us some feel or color as to how gross margin will look year-over-year and what's incorporated into the guidance?

Thank you, Budd, for the question. I'm going to let Julie talk about our guidance for next year. We have, as you may have noticed, stopped guiding our margin. We believe that it is competitive to give the specifics on gross margin and SG&A because they signal pricing strategies and advertising intentions. And we believe we provided you the best metrics for evaluating our businesses and brands, including sales by brand now. We also know that sometimes these small variances to our previous guidance metrics have created a little unwarranted volatility in our stock with no correlation to actual performance. But I'm happy to have Julie talk to you about how we built our 2012 guidance.

So again, I think you alluded to it, but on the operating margin in particular. If you back out the benefit of the 53rd week and the impact of our growth investments, the operating margin guidance will actually be going up 30 to 40 basis points. And if you think about that, the -- what that's driven from is the continued sales leverage of our fixed occupancy costs; greater operational efficiencies in our supply chain, as Laura previously discussed; and a higher percentage of total company revenues being generated from more profitable direct-to-customer channel.

Our next question will come from Colin McGranahan with Bernstein & Company.

I guess I just kind of wanted to go to the elephant in the room here and hope that maybe you could provide a little bit more color on Sharon's departure. It was relatively abrupt and, I think, widely unexpected. So any help you can give us as to what her plans are and what your plans are, whether Julie is going to be the acting CFO or whether she's in line to be the permanent CFO, and just a little bit more color about the transition here.

Thanks for the question, Colin. It's an important question and I want to be very open about it. First, I want to begin by saying, as Budd did, that I represent the entire management team in thanking Sharon for her many contributions over the past decade: leadership, operational leadership, financial leadership. Sharon has made the decision to retire. She's taking some time and going to move to new things, and we all wish her the very best in her future endeavors. Our financial organization and leadership team is very strong across the brand and across the board in the financial area and also in the other areas that reported to Sharon. We have a team that has been with the company mostly over 10 years, and each of them can do more. We also have a company-wide mindset and process that is deeply ingrained to drive operational and financial excellence. And we are all aligned to pursue our winning strategy. I'm going to let Julie tell you about herself in a minute. Julie's been here for a long time and is extremely well-versed, as you will learn quickly, in our business and also very strategic about how she sees our future earnings being driven. And in terms of intention for new CFO, of course we will do a worldwide search for the best CFO possible, and of course, Julie is a candidate for that position as well. Julie, do you want to tell everybody a little bit about yourself?

Sure. Thanks, Laura. First of all, I'm thrilled to be on the call today. I couldn't be more excited to be here at Williams-Sonoma at this time to help drive continued strong financial performance and a successful execution of our strategy. My 10.5 years of experience here at Williams-Sonoma in planning as a controller, treasurer, give me a comprehensive picture of our financials. And I'll use all of my skills and experience, including my public accounting experience with KPMG, my law degree, CPA, to drive operational excellence in our finances. I look forward to meeting you.

Our next question will come from Matthew Fassler with Goldman Sachs.

My question relates to the CapEx and the incremental SG&A. I guess this is the second year in a row that you ramped up SG&A investment kind of in an isolated way. And your CapEx was higher this year, too. So is this -- are these investments going to be recurring investments? In other words, does this investment go away? And similarly, what is the long-run run rate for CapEx, is it closer to the $130 million that we saw in 2011 or the $220 million that we're seeing in 2012?

Sure. It's Laura. And I want to say again that we are committed to investing in future growth and supply chain optimization initiatives for at least the next 3 years. And we believe that they will be within this range and that this year's level of investment will continue. As I said earlier, the investment is in 5 areas: e-commerce, the multiyear development of our global IT supply chain in retail networks, retail expansion of West Elm, remodel of high-profile stores in our current brands and a multiyear replacement of our conveyable mail order distribution fulfillment operations.

Our next question will come from Brian Nagel with Oppenheimer.

I have a question -- more of a philosophical question around the guidance. Williams-Sonoma is, I think, known amongst most investors as typically providing conservative, or guidance with an air of conservatism in it. If you will look at today and the multiple announcements you've made, obviously with the significant management change, the reacceleration in spending. A 2-part question for me. One is, is there an extra error [ph] of conservatism in the guidance given maybe some of the shifts at Williams-Sonoma and within the business model and the spending? And then second off, Sharon, who -- how instrumental was she in putting together this guidance?

I'm going to let Julie take the first piece about our guidance that we have provided.

We, we're confident about the guidance we have provided today. Our guidance, as you know, is based on our brand opportunities that Laura spoke to earlier. And of course, takes into consideration the macro environment we see today and there are uncertainties over which we have no control. But at this point, we feel very confident about the guidance we have provided today. I think the other thing you have to take into consideration throughout as you're looking at this guidance, as we said in our prepared remarks, is the net impact of the benefit from the 53rd week and our incremental SG&A spend for our planned growth initiatives. If you take those 2 into consideration, our operating margin guidance would actually be 30 to 40 basis points higher and our EPS would be at 8% to 13% growth versus 6% to 10%.

And in regards to Sharon and her role, Sharon did a lot of wonderful things for the company. We have an incredible team of people here who've been here a long time. I'm hoping to have you all meet some of them over time, including Dean Miller, who runs our supply chain logistics transportation and who has driven so many of our company's supply chain initiatives and cost reduction programs, as well as many others in the brands who are both focused on the creative and innovative part of our business but also highly disciplined financial executives who are very focused on profitability.

We'll move on to Joe Feldman with Telsey Advisory Group.

Congratulations, Julie, in the new role for now. The question about -- as you've reduced the stores this year and continue to do so going forward, I know in the past you've given us some examples how you've been able to maintain and even expand market share in some markets, and I'm just wondering, are you still seeing that trend, for one? And two, with the shift, is the operating margin expansion that we have been seeing or should see still because of the shift to Internet? Or is it because more of the cost control efforts that you've done? Or is it because of the leverage on occupancy that you've had?

Sure, Joe. The company has a very disciplined approach to our real estate, as you know. We set very high profitability levels for each store and we regularly conduct market-by-market reviews of our fleet. This has resulted in a very profitable real estate portfolio over the years, and it's ongoing process. As I said earlier, this year we plan to permanently close 16 stores and we're going to remodel 13. And we will continue to conduct these market-by-market reviews to optimize our portfolio as opportunities present themselves. The second part of the question, I just wanted to have you clarify again, if you would, what you're asking.

I guess, just on the margin side of things as you've closed stores. The -- I know we've seen the occupancy leverage, but that's kind of somewhat fleeting, right, when you get the leverage for the year. And I guess, on an ongoing basis, it's there, but does it really drive the expansion, I guess, of the margin that you are shifting to the direct channel?

Yes, as we said earlier, the operating margin improvement assumes continued sales leverage of our fixed occupancy costs, so that will continue. But we also have greater operational efficiencies in our supply chain and the fact that we have a higher percentage of the total company revenues generated in the DTC channel. So it's all of those combined.

Our next question will come from Neely Tamminga with Piper Jaffray.

I just feel compelled to also add my thanks to Sharon for the years of partnership with the investment community. She definitely leaves a legacy of integrity. So all the best to her and her move towards retirement. And welcome, Julie. I was wondering a little bit more if we could get some of the puts and takes on some of the key cost components. I'm particularly interested in gas price levels and what that can mean to fuel surcharges as well as your freight outlook for 2012. If you could give us a little bit more detail around that, that'd be really helpful. [Technical Difficulty]

I'm sorry, it's hard to hear in the call. Steve, can you turn the call up?

Sure.

I'm sorry to ask you again, Neely. I heard, like, the cost components -- what?

It's okay, Laura. Just the key costs we're looking for especially with gas price activity being on in the press these days. Just wondering what the fuel surcharges might be, if that's already been going on, just your freight outlook in general for 2012.

All of that is inherent in our guidance.

We'll move on to the next question from Matt McGinley with International Strategy & Investment Group.

I have a question about how you manage your brand portfolio and the investments that you make in that. How do you think about the investment required to support or fix the Williams-Sonoma brand versus the investment you're going to spend in new concepts like West Elm or some of the more mature concepts like Pottery Barn? Where is your investment, going forward in 2012, focused on?

It's a great question. We have a mindset to build a strategy, have a road map to execute the strategy and then to measure, measure, measure the whole way through to make sure that we're on the right path. I think the best example of that was what we did with West Elm. In the beginning, you remember, when we were not pleased with our performance, that we laid out the strategy and we said we're going to really make sure that we're identifying and diagnosing the right problems and the right solutions before we just go full bore. We have a very important brand, Williams-Sonoma, with high customer satisfaction and a very profitable model. And while we were not pleased with the decline that we saw over the holidays period, negative, very low digit, is not exactly reason for to believe that it's a crisis. It is a opportunity, as we see it, to compete even more effectively and grow this brand into the future. And so similar to the approach that we had on West Elm, we have the 3 key areas I talked about: product strategy, marketing transformation, in-store experience. And we have been working on this for a while now. If you go back and listen to previous calls, we hinted at some of it. We didn't lay it out as clearly as we did today. But because we have been working on it, you're going to see the pipeline of these projects -- the pipeline of products and these projects coming through, and we will continue to tell you about our progress on each of them. And based on the results, we will fund immediately more investment where we're getting the return.

Our next question will come from Alan Rifkin with Barclays.

This is actually Helen Pan filling in for Alan Rifkin. I just wanted to follow up on the West Elm concept and dig a little deeper into why you're planning for the 4 store closures, slash, remodels for 2012 and if you have any further updates on the unit economics for the concepts as well.

Sure. We are always looking for the best locations. So there are some locations where we want to be in the town but we don't want to be in that exact spot. And we have found opportunities to improve our fleet. And we are always looking for in-store fixture pack [ph], remodel pack [ph] that drives real results, and so that is what we're doing in West Elm. And West Elm just continues to have momentum beyond what we planned. Or as I said earlier, we see a very bright future for West Elm and we are going to continue to aggressively grow it.

Your next question will come from Christine Rapalje with SunTrust Robinson Humphrey.

My question is just more general about the current mood that you're seeing with the customer. A lot in the past year, you've emphasized having to maintain a strong value message. I was just wondering if you're sensing any kind of lift there, any increased confidence by the consumer maybe, a move upscale, et cetera.

Yes, I think it's a little early to call that. There's still a lot of uncertainty out there. There's good news, there's bad news on any given day, but the strength of our brands and our proven track record in flexing our business in times that are choppy gives us confidence in our ability to drive our business and deliver the guidance that we provided today.

Our next question will come from Anthony Chukumba with BB&T Capital Markets.

Somewhat a related question to the last one. Was just wondering if you could comment at all on the promotional environment. I know you've said earlier that you're seeing increased promotional activity among some of the big box stores and some of the department stores, and I was just wondering what you've seen post holiday and also post fourth quarter.

It's -- I'll answer the question a little bit differently this time to give you guys some more insights on how we think about it. We're very lucky to have a portfolio of brands. Each of them has different positioning, Williams-Sonoma being more premium and West Elm being a more value-driven brand. And so our promotional plans for this year are -- it's hard to generalize them because they are different by brand. And so of course you see the least amount of promotions in Williams-Sonoma and you will continue to see more in West Elm. And we also believe and are committed to driving traffic and growing our brands through planned promotions that complement our innovative and exclusive product introductions. And to the extent that the macro environment becomes more promotional, we will adjust our strategy.

Our next version will come from Scot Ciccarelli with RBC Capital Markets.

It's Scot Ciccarelli. Can you talk about -- you were -- it was fortunate that we -- you broke out revenue by brand. Can you talk about how different that mix is particularly for the Williams-Sonoma brand in the fourth quarter? I'm also curious why you broke out the $15 million to $20 million of spending as a separate line item during the year.

Thanks, Scot. We did make the decision after we really listened to everyone in the investment community that it would be helpful for us to give brand revenues, and I hope that it is and it's -- it puts everything -- it helps you understand why we're so confident in growing this business dramatically over the next 3 to 5 years. In terms of going through it by quarter, I think that's highly competitive, and I'm sorry but I'm not going to go through that now. We've always, when we had a bigger-than-expected investment year, tried to make that really clear to you, which we did this year, so you could look at the strength of our underlying business.

And our next question will come from Brad Thomas with KeyBanc Capital Markets.

This is actually Jason sitting in for Brad today. I was wondering if you can comment a little on the long-term potential of the West Elm brand. I mean, you're rolling unit growth this year double digit. I was wondering where you see that long-term kind of retail footprint. Does that approach something like the Pottery Barn, or is that going to be more limited?

It's a great question. We believe and can see clearly a path to $1 billion by growing both direct and retail, both store expansion and also comp store sales growth. And as we go into -- when we go to markets with multi-stores, we need to understand better how -- the evolving retail opportunity and whether we can have less stores in a market than we did previously and drive more profitable growth online. And so for me to break it out by channel might be premature because we're continuing to use our data to understand exactly how many we can see and open profitably. But $1 billion is our sight domestically, that is, for West Elm. And I'll say that, of all of our brands, we believe that West Elm probably has one of the biggest international opportunities because of its aesthetic, its value proposition and the small-scale size of its furniture which is very appropriate for a lot of the global markets, as you know.

We'll move on then the queue to Peter Benedict with Robert W. Baird.

Just first, a clarification, Laura, just the expectation for $15 million to $20 million of additional SG&A this year. Did I hear you correctly in saying that you should -- we should be expecting something similar in each of the next 3 years and that CapEx should remain above $200 million for the next 3 years? That's just kind of a clarification. And then my question is, the stock-based compensation outlook for this year's up a bunch from last year. Is there anything in there for Sharon, exit costs or anything on those lines, and if not, are there any costs associated with Sharon's retirement that we should be aware of?

Sure, let me take all those. So first, the clarification. I was referring to CapEx when I was talking about expecting it to be within this level, not on the SG&A side. And so we didn't give any -- I didn't give any outlook for that for the next 3 years. On stock-based compensation, Sharon's separation agreement is not in that number that we have announced today. We have filed an 8-K that you can review.

And that will be non-recurring and non-GAAP.

And our last question today will come from Kate McShane with Citi Investment Research.

I was wondering if you could walk us through just a little bit more on your Williams-Sonoma brand strategy, going forward. And I know you've already given a lot of details for some new initiatives, but I wondered if you could quantify a little bit more what the strategy will be for. How much Williams-Sonoma product will be increasing as a percentage of mix? And also, it's with -- in light of the price promotions, will there be a new value message as well for the Williams-Sonoma banner being conveyed?

Sure, I'll take the question. It's Laura. And the Williams-Sonoma strategy, as I said before, is focused on 3 areas: product, marketing and in-store experience. And we have a pipeline of products and marketing strategies and retail store initiatives, systems support as well as store of the future initiatives that we will be launching and this you will see [ph] both this year and beyond. It is a multiyear strategy. In terms of pricing, we are sitting in a very premium position. We carry the best of everything. That doesn't mean we're expensive. It means that we don't carry -- if there's a large range of KitchenAid products, we only carry the top of the range; or All-Clads; or any of the branded products. As it relates to percentages branded, exclusive, non-exclusive, it's highly competitive. As I said earlier, the area that you can affect most quickly is in the private label area and increasing that mix as a percent of total. And then you'll also see us launch branded products that are exclusive for longer periods of time and indefinitely. And then you will also see us launching more specifically Williams-Sonoma-branded outside of the table top and entertaining areas throughout the next quarters and coming years.

And that concludes our question-and-answer session for today. I'll now turn the conference back over to Ms. Alber for any additional or closing remarks.

Well, I want to thank you all for joining us and for your continued support.

Thank you. And that does conclude our conference for today. We thank you for your participation. You may now disconnect.