Gross Margin (Q1 2025)

+680 basis points (excl. adjustment); +290 bp benefit from adjustment

Improved merchandise margins (up 470 bp) and supply chain efficiencies (up 240 bp) drove a 680 bp gross margin improvement, with an additional 290 bp boost provided by a $49 million out‐of‐period freight expense adjustment correcting prior accrual errors. " " "

Operating Margin (Q1 2025)

19.5% with adjustment; 16.6% without adjustment (370 bp higher YoY)

The operating margin improved by 370 basis points YoY due to cost efficiencies and the beneficial impact of the out‐of‐period adjustment, despite SG&A increases, leading to operating income gains from adjusted freight expense accruals. " "

Earnings Per Share (EPS Q1 2025)

+$0.59 from adjustment

EPS benefited by $0.59 directly from the $49 million freight adjustment, reflecting the positive impact on earnings by correcting historical accruals and improving margin metrics. " " "

Net Revenues (Q1 2025)

-4.9% decline (from $1.755B to $1.66B)

Net revenues fell by 4.9% due to a decline in comparable brand revenue performance, with notable underperformance in key brands such as Pottery Barn and West Elm, despite improvements in other areas. " "

SG&A Expenses (Q1 2025)

+310 basis points rise (reached 28.8% of revenues)

SG&A expenses increased mainly due to higher advertising expenditures and performance-based incentive compensation, which drove costs up by 310 basis points compared to the previous year. "

Net Revenues (Q1 2026)

+$69.8 million increase (up 4.2%)

Q1 2026 net revenues increased by $69.8 million (4.2% growth) driven by strong non-furniture sales, a turnaround in furniture sales (for the first time since Q4 2022), and effective collaborations boosting overall performance. " "

Operating Margin & EPS (Q1 2026)

Operating margin at 16.8%; EPS at $1.85 (8.8% EPS growth YoY)

Operating results improved with an operating margin of 16.8% and an 8.8% increase in EPS (excluding prior out-of-period adjustments), supported by tighter SG&A control and improved cost management, even as the industry faced headwinds. " "

Gross Margin (Q1 2026)

360 basis points lower including prior adjustment; 60 bp lower excluding prior adjustment

The Q1 2026 gross margin of 44.3% was lower by 360 basis points relative to the previous year when accounting for a 300 bp prior out-of-period adjustment, or 60 bp lower when excluding that effect, mainly due to higher ocean freight and tariff mitigation costs. " "

Supply Chain Efficiency (Q1 2026)

Saved 120 basis points

Supply chain improvements, including enhanced manufacturing, warehousing, and logistical processes, reduced costs by 120 basis points, partially offsetting increased input costs and supporting margin performance. " "

Furniture Sales (Q1 2026)

Turned positive (first time since Q4 2022)

Improved consumer response and product assortment led to positive comparable growth for furniture sales in Q1 2026, marking a turnaround for a segment that had been under pressure in previous periods. " "

Comparable Brand Revenue Growth

FY 2025

flat to positive 3% " "

2% to 5% " " "

raised

Total Net Revenue Growth

FY 2025

down 1.5% to positive 1.5% "

0.5% to 3.5% " "

raised

Operating Margin

FY 2025

17.4% to 17.8% "

17.4% to 17.8% " " "

no change

Capital Expenditures

FY 2025

$250 million to $275 million "

$250 million to $275 million "

no change

Dividend

FY 2025

$0.56 per share "

$0.66 per share "

raised

Share Repurchase Authorization

FY 2025

$1.1 billion "

$900 million "

lowered

Interest Income

FY 2025

no prior guidance

$30 million "

no prior guidance

Effective Tax Rate

FY 2025

no prior guidance

26.5% "

no prior guidance

Revenue Growth (Long-Term)

Long-Term

mid- to high single-digit growth "

mid to high single-digit growth "

no change

Operating Margin (Long-Term)

Long-Term

mid to high teens "

expected to remain in mid to high teens "

no change

Tariff Mitigation

Across Q1, Q4 2025 and Q3 2025, the company consistently discussed a six‐point plan that included vendor cost concessions, re‐sourcing goods, targeted price increases, and expanding U.S. production as methods to offset tariff impacts. " " " "

In Q2 2026, management again stressed their six‐point mitigation strategy—with added emphasis on addressing higher tariff impacts (e.g., doubling incremental tariff rates) and maintaining strong vendor partnerships to protect gross margins. " "

There is a heightened emphasis on actively countering sharper tariff pressures with renewed focus on vendor collaboration and cost controls.

Tariff Volatility

Previous discussions in Q3 and Q1 highlighted uncertainties and policy revisions – noting that unpredictable tariff changes required constant adaptation. " "

In Q2 2026, tariff volatility is underscored by the doubling of incremental tariffs (from 14% to 28%) with ongoing uncertainty about future levels, increasing pressure on margins. " "

Concerns over tariff volatility have grown, leading to more proactive mitigation measures to shield margin performance.

Sourcing Strategy

Earlier periods emphasized diversification away from China, double and triple sourcing, and expansion of domestic manufacturing capabilities to reduce tariff risk. " " "

Q2 2026 continues this focus by reaffirming flexibility in sourcing and expanding the “Made in USA” assortment alongside diversified supplier strategies to better manage costs. " "

The approach remains consistent, though there is a slight refinement toward further domestic expansion and enhanced flexibility in sourcing.

Operational and Margin Performance Management

Q1, Q4 2025 and Q3 2025 discussions detailed improvements in gross and operating margins through supply chain efficiencies, cost control, and effective promotional management, with steady progress in operational metrics. " " "

In Q2 2026, the narrative is bolstered by strong operational discipline, notable margin improvements (e.g., a 220 basis point increase in gross margin), and additional benefits from AI integration to drive efficiency. " "

Sentiment has become more positive, with stronger margin performance now accentuated by AI-driven efficiency alongside traditional cost controls.

AI and Innovation Investments

Previously, Q1, Q3 and Q4 2025 discussed AI integration in personalized customer experiences, digital design enhancements, and backend operations to support product innovation and supply chain improvements. " " "

In Q2 2026, there is an amplified focus on embedding AI end‐to‐end across customer service, supply chain management, and internal processes, with measurable benefits in conversion, cost savings, and productivity. " "

There is growing strategic emphasis and clear evidence of measurable benefits from AI investments, reinforcing innovation as a key competitive differentiator.

Supply Chain Efficiency and Vendor Dependence

Earlier calls (Q1, Q3, Q4 2025) highlighted significant cost savings through improved manufacturing, reduced returns, and effective vendor cost concessions, all supported by a vertically integrated sourcing model. " " "

In Q2 2026, the company reported record customer service metrics, integrated AI to further enhance forecasting and inventory accuracy, and continued strong vendor partnerships as central to their tariff mitigation efforts. " "

The focus remains on operational excellence with a slight shift toward AI-enabled optimization while maintaining robust vendor relationships.

Pricing Strategy and Demand Elasticity

Across Q1, Q3, and Q4, the company maintained a consistent focus on full‐price selling, selective item-by-item price adjustments, and reduced promotional activity, noting that differentiated products were less price sensitive. " " "

In Q2 2026, management reiterated a balanced pricing approach—ensuring customer value through strategic price testing and selective increases amid tariff pressures, while monitoring category-specific demand elasticity. " "

The disciplined pricing strategy persists with subtle refinements to address new cost pressures, maintaining a careful balance between price and value.

B2B Expansion Opportunities

Q4 2025 and Q3 2025 discussions revealed record revenues and double-digit comp growth across trade and contract segments, underpinned by significant project wins in hospitality and commercial sectors. " " "

In Q2 2026, the B2B segment is noted to have grown 10% with continued momentum globally, further validating the strategic positioning and long-term expansion potential of the segment. " "

The positive sentiment and robust growth in B2B remain consistent, reinforcing it as a major growth driver with steady expansion opportunities across regions.

Consumer Demand Trends and Retail Footprint

Prior periods (Q1, Q3, Q4 2025) showed mixed trends with furniture comp improvements driven by new products and stronger non-furniture and seasonal performance; retail store optimization (remodels and relocations) also received strong mention. " " "

In Q2 2026, consumer demand is strong—supported by innovation-led growth in furniture (despite macro challenges), improved in-store experiences, and enhanced retail initiatives (e.g., pickup near campus and new store openings) driving channel comps. " "

There is an overall improvement in consumer response and retail performance, with strategic store investments and innovative product offerings offsetting some furniture softness.

Inventory Management Risks

Q1 2026 and earlier periods discussed proactive pull-forwards to mitigate tariff impacts and maintain in-stock levels, emphasizing that most products are non-seasonal, thus reducing markdown risk. " "

Q2 2026 does not explicitly address risks but notes that strategic pull-forward receipts and controlled inventory levels help position the company for sales growth, implicitly managing risk. " "

Proactive inventory management practices continue; no new risks have emerged, and strategic measures remain in place to mitigate potential tariff-related exposures.

Macroeconomic and External Market Risks

Q1, Q3 and Q4 2025 consistently referred to uncertainties from a weak housing market, high interest rates, geopolitical tensions, and unpredictable tariff policies, with careful cost management strategies in place. " " "

In Q2 2026, external risks—geopolitical uncertainty, high interest rates and ongoing tariff volatility—are still acknowledged, yet strong operational results and strategic initiatives help underscore resilience. " "

While external risks persist, the company’s resilience and strategic actions have maintained steady performance, demonstrating cautious optimism amid uncertainties.