Welcome to the Williams-Sonoma, Inc.'s Q4 and fiscal year 2021 earnings conference call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining our Q4 and fiscal 2021 earnings call. I'd like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including guidance for fiscal 2022 and our long-term outlook. Although we believe these statements reflect our best estimates and all available information, we cannot make any assurances that these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results.
A reconciliation of non-GAAP measures to the most directly comparable GAAP measure, along with an explanation of how and why we use these measures, appears in Exhibit 1 to the press release we issued earlier today. This call should also be considered in conjunction with our periodic and annual filings with the SEC. Finally, the call is being recorded and a replay will be available on our investor relations website. Now, I'd like to turn the call over to Laura Alber, our President and Chief Executive Officer.
Thank you, Jeremy. Good afternoon, everyone, and thank you all for joining us. We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points. These results reflect the resilience in our business model as we successfully navigated unprecedented challenges within the supply chain, material and labor shortages, and capacity limitations from our incredible consumer demand. This resilience, coupled with continued execution in our growth initiatives, fueled an annual comp of 22%, operating margin expansion of 350 basis points, and EPS growth of 64% to $14.85 per share.
Our three key differentiators are in-house design, our digital-first channel strategy, and our values continue to provide the framework for execution, both in our core business and in our growth areas like B2B, marketplace, cross brands, and our global business, which excitingly have all gained traction faster than predicted and demonstrate to us that we are well-positioned to continue to take share in this industry. First, let's spend some time on our top-line performance in the Q4 . Throughout fiscal 2021, we continued a deliberate reduction in our site-wide promotional cadence in all of our brands. Instead, we shifted our focus on delivering aspirational and inspirational content, and our customers clearly responded. This pricing power is entirely a function of our differentiated and sustainable product offering that our customers know and love.
Further, despite the highly promotional environment in the Q4 , we made a conscious decision to maintain this pricing integrity and not pursue incremental top line at the cost of our merchandise margins. In fact, we delivered gross margin expansion of 290 basis points in the quarter. Further, this pricing power has allowed us the flexibility to absorb supply chain costs and aggressively fund marketing efforts. Our bottom-line performance in the Q4 speaks for itself. We drove operating margin of 21% and a 37% increase in EPS, both of which demonstrate the durability of our earnings power through execution in our core and growth initiatives, which I'm excited to update you on now. Our B2B business continues to outperform, building its book of business to $750 million in 2021.
B2B is an underserved and fractured industry. As we continue to take share in this white space, servicing businesses that need high quality, sustainable furnishings at good price points. Furthermore, our in-house design capabilities offering the wide breadth of aesthetics across our brands, coupled with our industry-leading global sourcing and supply chain operations, allows us to take this service to the next level. Our B2B business has tremendous potential to contribute to our results. Our growth targets continue to climb as we unlock new opportunities. Not only is our B2B business model accretive to our growth margin, but even more accretive to op margin as a result of its fixed operating costs. We continue to exceed our own expectations for this business, and longer term, we believe this is one of our biggest opportunities. Another contributor to our success has been our global strategy.
We're franchised first with strong retail and digital execution. During 2021, we globally achieved record revenue up 23% over last year with strong earnings growth. Core company-owned markets of Canada and U.K. achieved record results for the year and the quarter. Franchise continues to be a growth vehicle with the critical markets of the Middle East, Mexico, and India providing a large, diverse growth base. With our systems investment in our new digital platform and large cost reductions in warehousing, transportation, and delivery, we expect to exceed our record results in 2022. Marketing is another component that sets us apart and drove results in FY 2021. Customers who shop across our brands generate three-four times more revenue than the single-brand customer. We've seen incredible results this past year due to our continued marketing efforts.
In fiscal 2021, approximately 60% of our sales came from cross-brand customers, a record high in terms of percent to total. Our cross-brand customer counts grew faster than those of the single-brand customer. While new customer acquisition is always a priority and continues to grow, we believe we have even more upside by increasing our share of wallet with our existing customer base. Core to this strategy are three things. First, our cross-brand loyalty program, The Key. We continue to see record levels of customer engagement and an all-time high membership. Second, our recently launched cross-brand credit card. This card reached its six-month anniversary, producing cardholder spend and cross-brand activity that has exceeded our expectations. Third, we are focused on personalization efforts in our digital marketing.
We continue to leverage our in-house managed first-party data across our brands, which positions us for the cookieless future that is rapidly approaching. Remember, our multifaceted loyalty program generates benefits across our portfolio and is a clear competitive advantage few of our peers offer. As a digital-first company, we are in constant pursuit of incremental improvement to our customers' shopping journey online. We've improved several product finding and purchasing experiences on our websites, from improved room styling, native registry applications, and the removal of friction in the checkout process. Additionally, we relentlessly focus on continued optimization and automation in our DCs and logistics networks to improve our service time. On the sustainability front, we take great pride in the progress we are making with our impact initiatives and ESG leadership across the home furnishings industry.
Notable accomplishments in this quarter included our second annual inclusion in Bloomberg Gender-Equality Index, being recognized as number 21 on Barron's 100 Most Sustainable Companies, and receiving an A rating from CDP for leadership in supplier engagement and our work with suppliers on tackling climate change. These commitments are reflected in the high-quality, sustainable products that we offer our customers and continue to distinguish our company and our brands. Our values are both central in our actions and embedded in our products. We always want to provide our customers with transparency, and each day, we commit ourselves to maintaining the highest level of integrity and ethical standards. We are deeply saddened by the war in Ukraine, and we stand with Ukrainians and all people who oppose war and its atrocities on family and the home. Related to products and business with Russia, we have no operations in Russia.
As the situation between Russia and Ukraine escalated, our team identified a handful of products of Russian origin, which we are no longer selling. Now let's turn to the performance of our brands. West Elm delivered an 18.3 comp in the Q4 , with all categories driving strong growth. Customers responded well to new products, including bestsellers in bedroom, dining, storage, and occasional categories. Additionally, new categories such as bath, kids, and kitchen also contributed to incremental growth. On the full year, West Elm delivered a comp of 33.1%, building to a 48.3% on a two-year basis and continuing to build velocity in its mission to become a $3 billion brand. Pottery Barn delivered another high-performance quarter with a 16.2% comp, driven by strong core franchises in key categories.
Q4 results were enhanced by a strong seasonal decorating business and inspiring seasonal bedding and entertaining. On the full year, Pottery Barn celebrated a record year with a comp of 23.9%, building to a 39.1% on a two-year basis. Also, we're delighted to report that Pottery Barn has surpassed the halfway mark on its commitment to plant 3 million trees in three years to restore vulnerable forests. Our partner, Arbor Day Foundation, follows the best practices and the latest science to ensure maximum impact and promote biodiversity. Even better, based on the tremendous success of this program, our other brands have joined the effort, doubling our commitment to planting 6 million trees by 2023. We couple this with commitments to responsibly harvest wood and a robust sustainability story. Now I'd like to talk about Pottery Barn Kids and Teen.
As we indicated during our Q3 call, we were not entirely immune to the ripple effect from delays resulting from the supply chain disruption around the world. In particular, the shutdown and related backlogs from Vietnam had a larger impact on our children's home furnishings business, which ran a negative 6.1% comp for the quarter. Unfortunately, we expect to feel this impact at least through the Q2 this year. Despite the supply chain pressure, strength in the business includes our baby business, which is delivering growth through our offering of GREENGUARD Gold furniture, along with additional volume from our in-store and online baby registry. Also, we delivered record results in our seasonal trend business as customers enjoyed the holidays. Pottery Barn Kids and Pottery Barn Teen delivered a full year comp of 11.6%, building to a 28.2% on a two-year basis.
Our Williams-Sonoma business drove a Q4 comp of 4.5% on top of a 26.2% comp last year, with growth driven by demand for entertaining at home and gift-giving. We continue to focus our strategy on expanding our exclusive product and Williams-Sonoma branded product to drive growth. We are pleased with improvements in the digital experience on the website that are driving conversion, and our store optimization strategy is working. Our high-impact store remodels and our market consolidation efforts are driving improved operating margins. On the full year, Williams-Sonoma delivered a comp of 10.5%, building to a 34.3% on a two-year basis. One of our key components of growth is our Williams-Sonoma Home business.
Given the strength of the Williams-Sonoma brand name, our expertise in the furniture category, and the clear opportunity in the high-end home market, we believe that Williams Sonoma Home is one of our biggest growth opportunities. In summary, we're immensely proud of our accomplishments and record results this fiscal year. I am confident that we will continue to raise the bar and extend this momentum in fiscal 2022. So far in the Q1 , we continue to see strong sales and margins. We have a robust lineup of growth initiatives and operational improvements planned for this year. As we look further, we are confident in our long-term outlook, driving at least mid- to high single-digit comps with top line growth to $10 billion by 2024 and operating margins relatively in line with fiscal 2021.
Before I pass the call to Julie to go through the financials in more detail, I wanna thank our entire team for never slowing down. I'm endlessly grateful for their outstanding work, their creative energy, and their relentless focus. I am privileged to work alongside this talented group of people. With that, I'd like to turn the call to Julie.
Thank you, Laura, and good afternoon, everyone. We are pleased to report another quarter and fiscal year of outstanding financial results with revenues and profits at the highest levels we have seen. The demand for our proprietary products remains strong. Our growth strategies continue to thrive. Our operating model, which is difficult to replicate, continues to set us apart from the competition. All of this, plus our proven ability to dynamically operate in a complex macro environment, continues to demonstrate that we are well-positioned to succeed long term in this industry. Moving to our Q4 results in more detail. Net revenues surpassed $2.5 billion with another quarter of double-digit comparable brand revenue growth at 10.8%.
These strong top-line results were across both channels, including retail at a 20% comp and e-commerce at a 7.2% comp on top of last year's 47.9% for a 55.1% two-year stack. By brand, West Elm delivered an 18.3% comp on top of 25.2% last year. Pottery Barn accelerated from the Q3 to a 16.2% comp. Williams Sonoma drove a 4.5% comp on top of last year's 26.2%. Our emerging brands accelerated to a 30.3% comp. In the children's home furnishings businesses, Pottery Barn Kids and Teen comps were a -6.1%.
This is below their Q3 year-to-date trend of approximately 20%, as these brands were the most impacted during the Q4 by the supply chain issues from the COVID-related closure of Vietnam. Moving down the income statement. Gross margin came in at a record 45.0%, a 290 basis point expansion over last year. The strength of our merchandise margins drove almost all of 270 basis points of this expansion. Our strategic decision to preserve our pricing integrity by eliminating site-wide promotions was once again a clear success. This pricing power enabled us to absorb increased freight and product costs while still delivering strong, profitable merchandise sales. Occupancy costs at 7.7% of net revenues leveraged approximately 20 basis points, resulting from another quarter of higher sales and lower occupancy dollar growth.
Occupancy dollars increased 6.7% to approximately $193 million, which includes a full quarter of incremental costs from our new East Coast distribution center to further support our customer demand, partially offset by our ongoing retail optimization efforts from additional store closures and reduced rent. In fiscal year 2021, we closed an additional 37 stores and are on track to close approximately 25% of our total retail fleet. SG&A also leveraged 20 basis points to a historical low of 24%, despite absorbing higher year-over-year advertising costs from our reduced spend last year. Leverage was driven by employment and general expenses, which includes lower incentive compensation during the quarter due to timing and the year-over-year benefit from our ongoing retail recovery, various operational efficiencies during the holiday season, and overall strong financial discipline throughout.
As a result, we delivered another quarter of record profitability with operating income growth of 28% to $525 million. Our highest ever operating margin at 21%, expanding 310 basis points over last year and approximately 500 basis points higher than our last three quarters this year. This resulted in diluted earnings per share of $5.42, up 37% from last year's record Q4 earnings per share of $3.95. These Q4 results, combined with our outperformance we have seen throughout 2021, allowed us to deliver another year of substantial growth and outperformance.
On the top line, these full year highlights include an additional $1.5 billion in net revenues, growing to over $8.2 billion, including comparable brand revenue growth of 22% on top of last year's 17% or a 39% two-year stack. E-commerce growing to a 14.3% comp and a 58.8% two-year comp with our e-commerce mix at 66% of total revenues. Retail growing at a 43.2% comp despite traffic levels at -16% to 2019. A second consecutive year of double-digit growth across all brands with significant acceleration across our two largest brands with West Elm at a 33.1% comp, Pottery Barn at a 23.9% comp, Williams-Sonoma at a 10.5% comp on top of last year's 23.8%.
Our emerging brands, Rejuvenation and Mark and Graham combined, delivering another year of accelerating double-digit growth. Our global business growing 23% over $425 million. Our cross-brand initiatives outperforming with our business-to-business division growing 109% to over $750 million in demand and contributing approximately 500 basis points to our total company comp. On the bottom line, this top-line strength and strong financial discipline throughout enabled us to grow 2021 operating income to $1.5 billion, over half a billion and 52% higher than last year. Operating margin at 17.7% on the year expanded 350 basis points over last year and was more than two times higher than our 2019 and prior operating margin levels.
This was driven by gross margins expanding to record levels of 500 basis points above last year to 44% despite increased costs associated with supply chain disruptions throughout the year. This operating income strength resulted in EPS of $14.85, which was $5.81 or 64% above last year, and drove our return on invested capital to an all-time high at 57.9%. On the balance sheet, we ended the year with strong liquidity levels with a cash balance of $850 million and no debt or amounts outstanding on our line of credit.
The strength of our business generated operating cash flow of almost $1.4 billion during fiscal year 2021, which has allowed us to fund the operations of the business to invest over $225 million in capital expenditures, primarily in technology and supply chain, and to return nearly $1.1 billion to shareholders in the form of $188 million in dividends and $900 million in share repurchases. These decisions reflect our confidence in the sustainability of our growth and our commitment to maximizing returns for our shareholders. Moving down the balance sheet, merchandise inventories were $1.246 billion, increasing 24% over last year, which includes inventory in transit. Inventory on hand increased 14.8% but was still -13% on a two-year basis.
Given the significant macro supply chain disruptions throughout the year and the ongoing strong customer demand, we are still below optimal levels. As a result, we expect to see elevated backorder levels continue until the back half of 2022. Now let me turn to our expectations for the future. As Laura said, we remain very optimistic in the long-term outlook of the business. Our business remains strong as we enter Q1 with momentum in our core businesses and our growth initiatives continuing. As a result, for both fiscal year 2022 and beyond, we are reiterating our previously provided financial outlook of mid to high single digit comp growth with operating margins relatively in line with fiscal year 2021.
We estimate revenues will reach $10 billion by fiscal year 2024, with our brands accelerating or reaching our prior committed targets faster, including Pottery Barn expanding to $3.5 billion in revenues, West Elm adding $1 billion in revenues to over $3.3 billion, Williams-Sonoma will reach almost $1.6 billion in revenues, and our Pottery Barn Kids and Teen businesses will grow to $1.4 billion. This expected top-line growth will also be fueled by growth across our strategic initiatives, such as our B2B business doubling to $1.5 billion in revenues, our marketplace business growing 20% annually to nearly $700 million, our emerging brands expanding to a combined revenue of over $600 million, and our global operations continuing to expand in size to $700 million.
We are confident we can drive this top-line growth profitably due to leverage across the P&L from ongoing higher sales growth, additional accretion from our accelerating growth initiatives that have a higher operating margin profile, an accelerating shift online where the operating margin is higher, strong merchandise margins from the pricing power our proprietary and vertically integrated products provide, continued occupancy leverage from further store closures and reduced rents, various long-term supply chain efficiencies such as automation and better in-stock inventory levels, and leverage from overall strong financial discipline throughout, keeping expense growth below sales growth. Our capital allocation plans for 2022 will continue to first prioritize investments into the business and then return excess cash to our shareholders.
We expect to invest approximately $350 million in the business, with over 80% of the spend prioritized on technology and supply chain initiatives, primarily to support e-commerce, including the addition of a new automated distribution center in Arizona. We also expect to return excess cash to our shareholders in the form of increased quarterly dividend payouts and elevated share repurchases. For dividends, we announced earlier today another double-digit increase in our quarterly dividend up 10% or $0.07 to $0.78 per share. We also announced our board has approved a new share repurchase authorization to $1.5 billion, which will replace the remaining amount outstanding under our prior authorization. We continue to believe that our stock price remains undervalued given our projections for growth and profitability.
This new authorization will allow us the flexibility to opportunistically invest in our own stock and drive long-term financial returns. As we begin our next fiscal year, our focus remains on executing against our opportunities to drive long-term elevated top and bottom line growth. We believe we are uniquely positioned to continue to take market share and profitably. Long-term macro trends should continue to favor our business, including a strong housing market driving ongoing investment in the home, an accelerating shift to e-commerce, and the increasing importance to the consumer of sustainability and being a values-driven company. This, combined with our accelerating growth initiatives, our strong operating cash flow and liquidity, and a proven track record of strong financial discipline, give us the confidence to reiterate our accelerated long-term growth and profitability outlook and to drive strong financial returns for our shareholders.
I would now like to also thank all of our associates and business partners for all that they do for our company. It is their ongoing commitment that has enabled us to deliver another year of financial outperformance and to reward all of our stakeholders. I would now like to open the call for questions. Thank you.
Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. Our first question comes from Max Rakhlenko of TD Cowen.
Great. Thanks a lot, and thank you for all the color. Just curious, on the new businesses, what can you share about how much higher margins those businesses are? As they continue to grow over time, how much do you think that they'll contribute to the business, longer term and offset any un-normalization that we'll see otherwise? Thanks a lot.
Yeah, these businesses are incredibly accretive to op margin. We haven't disclosed the amounts, but it's something that we're super excited about because as you can see, for example, with B2B and the volume that is driving and the bigger piece that is becoming of our comp, it has a significant benefit to the operating margin at the same time into our earnings. We're very excited about that growth trajectory.
I thought, Max, that you were asking the question about some of our smaller brands. In the case of those brands, they're still so small that there's actually runway for improvement in their profit profiles because we still aren't big enough to get the great sourcing leverage that we do in our larger brands. They're very profitable, as you would imagine they are today. We see a really strong opportunity to improve these margins further as they grow.
Our next question comes from Anthony Chukumba of Loop Capital Markets.
Thank you so much for taking my question, and congrats to a strong finish to an incredibly strong year. My first question, you know, you talked about the cross-brand and, you know, you've got The Key, cross-brand loyalty program. Can you just give us an update in terms of the number of members that you have? If I recall correctly, the last number that I at least have in my notes is about 12 million members.
Yeah, yeah. Hi there, Anthony, it's Felix. You know, I can tell you I don't believe we're sharing the numbers, but I can tell you they're significantly up. As Laura said, program to date, life to date, we're at an all-time high. You know, with the introduction of the credit card this year, this past August, we're starting to see our dividends pay off in a big way in terms of cross-shopping. You know, we believe this is one of our biggest opportunities as a company is increasing our share of wallet and The Key, both from a multi-tender loyalty perspective and the credit card are key drivers for that initiative.
Got it. Just if I can get one quick follow-up. Is there any way to kind of dimensionalize, I guess, lost sales in kids and teen given the global supply chain issues? I mean, it's just such a stark slowdown as you pointed out.
Yeah. I mean, I think if you did the math, what I said on, you know, in my script, that their year-to-date run rate was about, you know, 20%. But for, you know, sort of these supply chain issues, we had no reason to believe that their business wouldn't remain as strong. If you know, you can do the math on that and come up with how much it meant to the Q4 . Certainly had they delivered where they had come in, we would have been at the higher end of our implied guidance. It was a decent impact to the Q4 , unfortunately.
Got it. Thank you, and keep up the good work.
Our next question comes from Cristina Fernandez of Telsey Advisory Group.
Good afternoon, and thank you for taking my question. I wanted to ask, you know, when you think about mid- to high-single-digit growth in 2022, how are you thinking about industry growth, if any, demand for the home furnishings industry versus market share gains?
Sure. You know, we all acknowledge there's a great deal of uncertainty in the world we live in today, from rising interest rates to global conflicts. What gives me confidence is that we operate in an industry that is really large and fragmented, and still more than half of the sales are generated from smaller brick-and-mortar retailers. This provides us a huge opportunity. As we enter the endemic, two things are clear to us. People have reprioritized what's important to them, and people love their home. There's no doubt they're gonna continue to entertain, cook, and work more in their homes. In talking to a lot of CEOs, I believe hybrid work is really here to stay.
You know, whether the total industry grows or not, the macro shifts and changes in the way we live, combined with our key differentiators and our long-term growth prospects, leads us to believe that we're gonna have the ability to continue to take market share and grow. Honestly, I believe there's no one in a stronger position to disrupt the home furnishings industry than us.
Thank you for that. As a follow-up, perhaps for Julie. In your, you know, the ability to maintain the operating margin this year, should we think about, you know, the gross margin and expenses both being in line with 2021, or will one be, you know, better improvement year-over-year versus 2021? Thanks.
Yeah, I mean, obviously, we're not providing guidance on the line items. We're focused on maintaining our operating margin at these incredibly elevated levels. As I think you know I said, they're more than two times where we were in 2019, our commitment is to be able to maintain these levels. Through all the different line items that I went through, we have that opportunity to do it. Some may go up, some may go down, but at the end of the day, because we have the ability to leverage the P&L with the higher sales, we've got the accelerating growth initiatives that you know I just answered a question about, that as those continue to move forward, like with B2B, we have the opportunity to drive that operating margin to maintain the same levels.
We've got our merchandise margins that are incredibly strong. Given our proprietary products and vertical integration, we can maintain those despite, you know, higher prices on product and freight, and supply chain efficiencies and on and on. There's many things, many levers that we're using to continue to maintain these elevated, op margins, and so it'll depend, you know, which line it lands on. I would say for modeling purposes, I would hold them flat at this point.
Our next question comes from Chuck Grom of Gordon Haskett.
Hi, this is Greg Sommer on for Chuck Grom. Thanks for taking my question. My first question is just if you could maybe give us some color on the cadence of demand throughout the quarter. Along those lines, if you've seen any indicators of trade down or fatigue by the customer. Then I have a quick follow-up.
Yeah. I mean, we did see a really strong start to the Q4 . We saw a little bit of a dip during the holiday, you know, selling weekend, where I think, you know, that was pretty common amongst most retailers. We came out of that, even stronger in January. As we ventured into the Q1 , you know, we made a strategic decision to not chase the sales, and that's the reality. We could have, you know, been much more promotional, and we didn't do any site-wide promos. At the end of the day, you know, we still delivered, you know, whatever, 10.8 double-digit comps with incredible operating margins and earnings. That is what we remain committed to continue to do, and we're just excited to see that strength is continuing.
Okay, thanks. Just quick follow-up. Did you guys provide a demand comp for 4Q?
We didn't, but it's relatively in line. Again, on that, doesn't mean that we don't have elevated back orders. We still have elevated back orders. We're still incurring supply chain challenges, as Laura alluded to. The reality is that we haven't been able to bring down those back orders to the level that we'd like. So therefore, we're continuing to hold those and continuing to hold demand in line with net, which obviously we're always paying attention to. The most important thing is our customer and making sure they get the product in a timely fashion. From a financial perspective, certainly it's you know, opportunity as those products come in for delivery.
Okay, thank you.
Our next question comes from Simeon Gutman of Morgan Stanley.
Hi, everybody. This is Michael Kessler on for Simeon. The first question. You know, for many retailers, the expectation for 2022 is that transactions or units are probably not growing, but you have price as an offset and a driver. We're hearing anywhere, 5%, 10%, 15%, 20%, you know, year-over-year price growth. So your sales guide is quite good, guiding to growth. We're assuming there's maybe potential for some real price inflation within that, which means units could be down. I guess, is that the right framework? And if it is, how should we feel about that? Does it mean there's more risk or more upside to the guide? And does it mean, if that's true, that growth could slow in 2023 if pricing normalizes? So I guess, what does that tell you?
How do you frame that?
Sure. Good question. As you know, it's really important to us that we provide our customers a product that is well-designed, sustainable, and the best value in the market, and that's where we've won. Of course, costs have gone up. We not only did we stop site-wide promotions, but we've strategically taken price increases carefully where we could. If prices to us come down, we would give our customers a break on some products because we always wanna offer them the best value. Right now, I will tell you that I believe that we are doing that, and that's why our sales growth is higher than our industry and versus our peers. It's something we're gonna stay very humble about, and we check it all the time.
We're constantly checking our product and our prices versus our competition and innovating to ensure that we have products that our customers can't buy at the competitors. This is a really key part of our strategy. As it relates to units versus AUR growth, I expect even though we saw increase in units last year to see it to be more flat this year on the unit growth. That's my expectation. That's what's implied in this guidance. We are very confident in this guidance for all the factors that we've gone through already, both our differentiators, our growth initiatives, and the reality that we have a big backorder log that needs to come in sometime. You know, it hasn't come in yet, but it should come in.
We're thinking, you know, unfortunately, and I hate to move this date out constantly, but the supply chain issues continue to be, you know, many and varied, that we think it's gonna be the back half of this year now because, you know, everyone I know is reading the same news, and there's all sorts of things that continue to go on. Our focus continues to be to really give our customer great service. To that point, while I have the floor, I'll just also make the comment that we are seeing our customer calls be reduced and less escalations from our customers.
I think despite these disruptions that we all know are occurring, we are still competitively offering faster lead times, and we are doing a good job communicating with our customers or a better job, I should say, communicating with our customers about the push out.
Okay. Great. That was all really helpful. Thank you. If I could just ask one quick follow-up. This is maybe more of a technicality type of question. I think your prior language had been talking about the long-term operating margin guidance being at least levels of 2021. I think now you're saying more relatively in line, at least for 2022. Obviously, base is now higher than where it was a quarter ago or where you guided a quarter ago.
Yes.
Is there anything else?
Yeah.
to read into that or just, you know, kind of basic language?
No. You got it. Yeah, you got it.
Okay. Thank you.
Thank you.
Now we can go to Jason Haas of Bank of America.
Great. Good afternoon. Thanks for taking my question. The first one is just on the B2B business. I'm curious just what trends you're seeing there and how you're thinking about that in 2022.
Awesome. As we said, B2B grew over 100%, and it just continues to go. I think I've revised my estimates every time I've gotten on this call. I've decided not to give estimates anymore, because I keep undershooting it, and that's embarrassing as well. The market for B2B is enormous. As I said earlier, no one's really doing a very good job. Because we have in-house design products which allow us to do specific product developments for our clients and also our supply chain, we can deliver it together and give them a great experience. You know, just a couple fun different projects, pipeline book of business. Our stadium and arena work continues to build momentum. We had big projects for the San Diego Padres and the New York Mets.
In hospitality, we're seeing a promising and encouraging return of our large Marriott brand standard business. In healthcare, we're building a strong relationship with a big account. I don't think we can say the name yet, but we're excited about that. We are working with large residential developers, like Related Companies. A fun one that I really think is great is Churchill Downs, and we're working with Woodford Reserve on that. Then the last, which is also awesome and really relevant, is Under Canvas, which is a premier luxury glamping company, and we're furnishing their camps across the country adjacent to the leading national parks. That just gives you a sense of what we're doing.
There's new book of business, and then there's the businesses that just continue to go because we have more units and there's also replacement.
Thanks. That's great color. Just as a follow-up, I wanted to ask about the inventory on the balance sheet being up. I know I think, Julie touched on it in the prepared remarks, but just curious if you could give any color in terms of how much of that is just, you know, inventory being stuck out in the ports, versus what you have on hand and just sort of overall how you feel about your inventory position.
Yeah, I said in my prepared remarks that about 14.8% of the 24% increase is on-hand inventory. The delta is what's in transit of that 24%. A sizable portion of it is still on the water. You know, obviously, there's been some delays in bringing that inventory in for a myriad of reasons that certainly with our scale and sophistication, we're much better at maneuvering through that and getting it in a lot quicker, more effectively than others. We're, you know, not immune to it, and so we're definitely working through those factors. Certainly, we're nowhere near where we want to be. We're not at optimal levels with a -13% of on-hand inventory on a two-year basis.
You look at our sales growth at a 39% comp on a two-year basis. We have a lot of room to go. It's a huge opportunity for the company. You know, hopefully by the back half of the year, we'll be in a much better position.
Thanks. That's helpful.
The next question comes from Adrienne Yih of Barclays.
Great. Thank you very much, and congratulations to the entire team. The year was fantastic, the quarter was fantastic. Laura, I wanna go back to the competitive landscape, and I'd like to hear your thoughts on how much of the industry was in sort of small chains and independents pre-pandemic, where have they gone? Then, you know, other competitors, and I'll just name, like RH has moved higher pricing and maybe create some white space. I'm curious, when you say competitors, can you help us understand, like, who is the national chain that you compete against for West Elm, for Pottery Barn? 'Cause when I think about kind of where people would go, it really comes down to, you know, those two names and not a lot of others. That's my first one.
Sorry, it's so long-winded. Julie, can you help us out with Q1 shaping? It seems like if you look at normal seasonality, there's more opportunity in Q1 from an op margin standpoint. Thank you very much.
Thanks, Adrienne . You know, I wish there was better market data, frankly. I mean, you know, we try to piece it together. Before the pandemic, we saw an even higher amount being done on the street with brick-and-mortar retailers, and it was part of a, I think, investor deck like three years ago that we said, "It's not gonna be 80% done brick-and-mortar, you know. It's gonna be moving online." Even before the pandemic happened, we were talking about the opportunity as people move online to be one of the clear winners online. You know, that is about as much data as I have. I mean, you can see it in your local towns where it's changed a lot on the street.
Now, in terms of head-to-head competition, it's really hard to find somebody who does what we do, which is great. There's a lot of people selling pieces and parts. You know, people talk about the specialty people, but truly, you know, we're thinking about the really big ones who tend to have value-priced products that are not anything like our products, nor do they put the whole house together. I'm resisting the temptation to call them by name, but you know who they are.
Yep.
The specialty retailers, a lot of the specialty retailers, first of all, they don't have the same digital capabilities. They don't have multiple brands. They don't have multiple aesthetics. Also they don't design their own products, which, you know, it may appear that they do. They do a lot of other things, I think, well, but they don't necessarily have products that you can't find elsewhere if you try hard enough. That's really one of the most important competitive differentiators. Add to it that there's nobody else who even makes that Barron's list who's in home furnishings. Not a one. We're the only home furnishings retailer on the Barron's list of top sustainable companies. We know our customers care about that, and they'd rather buy from someone who is also sustainable.
Frankly, they're happy to spend a little bit more because it's important to them to know how their products are made and what you know what chemicals are used and all those things. You know, I hope everybody saw the new impact report that we put out and all the pieces and parts of improving our footprint, and we're certainly not done, but we're gonna continue to step it up and announce even bigger goals when we get up to Earth Day, and I'm excited about those goals. There's a lot of work to be done there, but we're ahead. We're in a leadership position already, and we intend to stay there on sustainability and high quality, durable products.
All right, Adrienne, on the Q1 question, I mean, obviously, you know we don't provide guidance on a quarter basis. I'm sure you're asking from a directional standpoint. I don't think there's anything that's really, you know, noteworthy to call out that's different than sort of the normal run rate. So I don't think there's anything to highlight at that point. We're super excited, obviously, about the incredible guidance we gave on the year.
Yes.
The fact that here we are, you know, committed to holding operating margins on the year. I think that's our focus.
Julie, just one short follow-up. What is the criteria for closing stores? 'Cause clearly you are closing four-wall profitable stores, which is for a retailer, a very, very difficult, you know, decision to make. Laura, I know you talked about this before, having a hurdle rate for profitability, and that's how you keep driving the profits up. When you're looking at that 25% of square footage or stores, how are you making that decision each year?
Yeah, I mean, I think one of the first things that makes us different, obviously, is the size of our e-commerce business. When you look at other retailers, they don't have that choice. You know, we're making decisions. One of the decisions we're looking at is the profitability on our e-commerce business and comparing that to the retail store. You know, do we want that sale in retail, or do we want it on the e-commerce side? That's one factor. We're also looking at the store, and is it brand enhancing? Is there other reasons to have the store? Because certainly stores are incredibly important to us from a service aspect for our customers. You know, we haven't given out the exact metric, but I would say that's one way to think about it.
You know what our operating margins have been historically in e-commerce, and I think that's sort of an interesting spot to think about. We definitely wanna make sure that the sale is profitable. We're really happy to see that, as I said, you know, specifically in Sonoma, but really across the board, our retail optimization strategy is really working. We're seeing the new stores, the remodeled stores beat our expectations, and we're seeing better transfer from the closed stores. Then our fantastic real estate team has, you know, last year, I mean, we renegotiated 90% of our leases that came up for renewal. There's a lot of good stuff going on with the retail profitability, and our teams at retail continue to innovate.
I mean, we've talked about how strong they were during the pandemic and helping us do design chat and design services even though our stores were closed, and we kept them employed. You know, they have paid us back in spades with loyalty and passion and creativity, and they continue to be really the face of our brands. So much of our business is done with these design appointments, and we're doing it now virtually too, and that's something. I mean, we're not just dabbling.
It's you know a big piece of our business, and it's supported by ever-improving tech capabilities so that people can really imagine how things will look in their home when they're making the purchasing decision and eliminate mistakes that so many of us make when we do a whole room or a whole house. Fantastic. Looking forward to seeing you in person. Bye. Can't wait.
Bye. Thanks.
The next question comes from Brian Nagel of Oppenheimer.
Good afternoon. Congrats on another nice quarter.
Thank you.
My question, and I know we've talked about supply chain a bunch already, but I wanna just talk about it more. As you look at the supply chain dynamic that's impacting Williams-Sonoma, is it? Do you think, you again, recognizing how fluid the situation is out there, are dynamics getting worse or are they staying the same? And then as you think about the duration of this, and we talked, you know, now about it, you know, the issues persisting, you know, pretty far into 2022. Are there levers that Williams-Sonoma could pull that they've not pulled yet that, you know, from an internal standpoint could help to mitigate some of these pressures?
I mean, you know, it's so funny. Are dynamics worse? You know, we were talking about this the other day, and our perspective is that this year is gonna be about the same as last year, and we thought nothing could be worse than last year. I would say it's as bad as last year. Is that? It's a horrible comment, but I mean, we're realists about this. We're expecting it to be, you know, stops and starts. We see all sorts of things, you know, COVID stop and starts. We see material labor shortages. You know, now the terrible war will have some impact. So these are all things that are happening to everyone, in the industry and all consumer businesses.
The reason we are so confident is that we have an incredible team and scale. We're the 13th largest container importer. We have great relationships with our vendors and our shippers that allows us to expedite production and inventory flow. We tend to be very worried about what could happen and create contingency plans for these things as much as we can. We're also at the same time looking at how do we control what we can control better, i.e., time to process an order, and to get it to our customer. That is why we're continuing to regionalize our distribution network, so we're closer to our customers, and we give them incredible service with even fewer damages. There's a lot.
I think Julie gave a great summary of all the operating margin levers that we have in our company. As well as we've done, we believe there's still a lot of room to improve, particularly in the supply chain. I don't think that we have to, you know. We can do. There's many of them that I expect to happen this year, but we also know that there's some things that we haven't predicted yet that are likely to come our way as well.
No, thanks, Laura. That's helpful. As a quick follow-up, and I guess somewhat related to that, you talked about the, I guess, I would say lack of promotions, lack of widespread promotions as a driver of upside to the margins here in the quarter. I think we've discussed this before, but how do you think about the sustainability? Is the ability of Williams-Sonoma now to drive better, say, full price sell-through more a function of internal initiatives such as the merchandising, or are you still really benefiting from the supply chain constraints in a way, this lack of product being within the channel?
No, it's really, I say more than even either one of those things, it was a mindset shift that, you know, it wasn't a good idea to have a price go up and down on a product that you're selling on a regular basis. You will see us take markdowns. We will miss on fashion. We will have things that are overstock. You know, I know that you've seen us take markdowns. Those are not what I'm talking about. Where we've been talking about not running site-wide promotions that you see others run, you saw many people run during the holiday season. You can still pull them up and look at them now. Really, it's a measure. Our pricing power is a measure of our merchandise and product initiatives, internally and the strength of our brands.
All right. I appreciate it. Congrats again. Thank you.
Thank you.
Thank you.
We can go to Seth Basham of Wedbush Securities.
Hi, this is Matt McCartney on for Seth. Thanks for taking my question. Just real quick, wanna revisit the price volume sort of equation for this year. Is it fair to kinda think about volumes being down in the first half, given the supply chain issues, and then sort of picking up in the back half, maybe even growing, and then kinda coming out to that flattish balance for the full year?
Sorry, are you talking about units? What are you talking about?
I'm talking about units.
Make sure I understand the question.
Just pricing aside. Just, yeah, just units first half versus second half, given the supply chain issues.
No, I wouldn't assume that at all. You know, I think it's just a function of, you know, we have incredibly strong sales that we've been, you know, chasing inventory on for a long period of time, and so we're continuing to chase that inventory, which is maintaining elevated back order levels. But we're still having strong sales going forward, there'll still be unit sales that occur, as we, you know, move throughout the year. I don't think there's anything to tie the, you know, number of units to relative to inventory, receipts with supply chain in the first half.
Okay. Thank you. That's helpful. Just one last question here. Just wondering about your ability to sort of pass on price. I know you're mentioning your pricing power. Is there any sort of a differentiation on a brand level where you're seeing perhaps more pricing power or maybe even less pricing power?
No. We've been very careful, and there's a fine line. We want to make sure, as I said, that we're giving our customers great value. It's a judgment by product category, and we're doing a lot of testing in every single brand. We are seeing, you know, success in the pricing increases that we've had to take because cost increases have gone up as well. We also, at the same time, remember, because we care so much about keeping our range of customers, we continue to increase the amount of opening price point products. Even though something might have to go up in price, we also are bringing in a bunch of opening price point products, so we can really keep pushing our customer acquisition.
We have worked with our vendors to really value engineer and still build our same quality and sustainability profiles into these products so that we don't just become a very expensive set of brands.
Ladies and gentlemen, that's all the time we have for questions today. I'd like to hand the call back to the management team for any additional or closing remarks.
Well, thank you all. I really appreciate your questions and your enthusiasm and your engagement, and can't wait to see you all in person.
Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.