Sharon L. McCollam - Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Director and Member of Incentive Award Committee Patrick J. Connolly - Chief Marketing Officer, Executive Vice President and Director Laura J. Alber - Chief Executive Officer, President, Director and Member of Incentive Award Committee Stephen C. Nelson - Vice President of Investor Relations

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division Scot Ciccarelli - RBC Capital Markets, LLC, Research Division Anthony C. Chukumba - BB&T Capital Markets, Research Division Joseph Feldman - Telsey Advisory Group Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division Christopher Horvers - JP Morgan Chase & Co, Research Division David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division Alan M. Rifkin - Barclays Capital, Research Division Matthew J. Fassler - Goldman Sachs Group Inc., Research Division TJ McConville Greg Melich - ISI Group Inc., Research Division Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division Janet Kloppenburg - JJK Research Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Williams-Sonoma, Inc. Third Quarter 2011 Earnings 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. Stephen C. Nelson: Good morning. This morning's conference call should be considered in conjunction with the press release that we issued earlier today. Our press release 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 financial measures, and an explanation of why these non-GAAP financial measures are useful, are discussed in Exhibit 1 of the press 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 2011 and beyond and are subject to certain 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 call over to Laura Alber, our President and Chief Executive Officer, to discuss our third quarter 2011 results and our fourth quarter and fiscal year 2011 outlook. Laura J. Alber: Good morning, and thank you for joining us. With me today are Pat Connolly, our Chief Marketing Officer; and Sharon McCollam, our Chief Operating, Chief Financial Officer. The third quarter was another strong quarter for the company as we continue to gain market share and drive enhanced profitability. During the quarter, comparable brand revenues increased 7% as direct-to-customer revenues increased 10% and retail comp store sales increased 6%. Non-GAAP diluted earnings per share increased 17% to a third quarter record of $0.41. Innovative merchandising, personalized and event-triggered marketing and a higher level of customer engagement drove these better-than-expected results as we continue to attract new customers to our brand. Non-GAAP operating margin climbed 60 basis points to a Q3 record of 7.9% as higher revenues drove increased sales leverage in fixed occupancy and advertising costs. Throughout the quarter, we continued to invest in our key long-term growth initiatives, including driving growth in our direct-to-customer channel, expanding the reach of West Elm, increasing our global presence and executing against our business development strategy. Within the direct-to-customer channel, e-commerce revenues increased 15%. A continued focus on traffic and conversion drove these results, including the ongoing optimization of paid search and natural search, improved relevance of targeted marketing and an enhanced online customer experience. In West Elm, comparable brand revenues increased 27% on top of 24% last year as new customer accounts continued to rise. Also during the quarter, we added 5 additional franchise stores in the Middle East. This brings our total Middle East franchise stores to 13 with plans for expansion in 2012 and beyond. We're also continuing to work on our long-term global expansion strategy. In business development, we acquired Rejuvenation Inc. on November 1, which is in our fourth quarter. Headquartered in Portland, Oregon, Rejuvenation is a leading manufacturer and multichannel retailer of custom configured and authentic made-to-order lighting in addition to high-end door and cabinet hardware. An excellent complement to our portfolio of brands, Rejuvenation is marketed through e-commerce, catalog and 3 stores. While not currently material to our total revenue or earnings, we expect Rejuvenation to become a more meaningful contributor over time as we leverage our multichannel marketing and supply chain logistic capabilities with Rejuvenation's high-quality specialty products. In our supply chain during the quarter, we continue to drive ongoing customer service and cost reduction benefits through our Asian sourcing, distribution, transportation and packaging initiatives. We also completed the transition of our North Carolina upholstered furniture operations to our new state-of-the-art facility as our demand for high-quality exclusive upholstered products continues to grow. As we enter into the fourth quarter, the consumer response to our seasonal merchandising assortments has been positive despite volatility in the overall economy. This response, combined with our strong value proposition and a greatly enhanced multichannel shopping experience, leaves us well-positioned to continue to gain market share and deliver another highly profitable quarter. As such, we are reiterating our fourth quarter non-GAAP EPS guidance of $1.15 to $1.20 and we are increasing our full year guidance for the $0.02 outperformance we delivered in Q3. This brings our fiscal year 2011 revenue growth to a range of 5% to 6% and our non-GAAP diluted EPS to a range of $2.21 to $2.26 versus $1.95 last year. I will now turn the call over to Sharon for more details on the third quarter and our guidance. Sharon L. McCollam: Thank you, Laura. Good morning, everyone. As Laura said earlier, Q3 was another strong quarter for the company. Net revenues increased 6% to $867 million, significantly better than the industry and comparable brand revenues increased 7.3%. Non-GAAP diluted earnings per share increased 17% to a third quarter record of $0.41 per share, which was $0.02 above the high end of our guidance. Incremental revenues, higher productivity of advertising costs and benefits from our ongoing occupancy cost reduction initiatives drove these better-than-expected results. Gross margin increased 10 basis points to 38.3%. This increase was primarily driven by sales leverage at fixed occupancy expenses and a decrease in occupancy cost, partially offset by lower year-over-year selling margins and the margin impact of our international franchise operations. For the quarter, occupancy expense dollars decreased $1 million to $125 million. In SG&A, expenses decreased 50 basis points to 30.4% on a non-GAAP basis. This decrease was primarily driven by lower advertising costs, a reduction in other general expenses and sales leverage from increased net revenues, partially offset by higher employment costs. The employment increase was reflective of our planned incremental investment in our e-commerce, global expansion and business development growth strategies. From a segment reporting perspective, the Q3 total company earnings before tax operating margin expanded 60 basis points on a non-GAAP basis to a record 7.9%, driven by 140 basis point improvement in the direct-to-customer segment and a 20 basis point improvement in the retail segment. These improvements were partially offset by a 20 basis point impact in the non-allocated expense segment, driven by incremental investments in our longer-term growth initiatives. In the direct-to-customer segment, the 140 basis point improvement in the operating margin was driven by increased productivity and advertising costs, sales leverage of fixed occupancy expenses and ongoing benefits from supply chain. These improvements were partially offset, however, by the selling margin impact of increased promotional activity and planned incremental investments in e-commerce. The 20 basis point improvement in the retail segment was driven by sales leverage of fixed occupancy expenses, lower occupancy costs due to store closures and sales leverage of fixed SG&A expenses again partially offset by the selling margin impact of increased promotional activity. From a balance sheet perspective, cash and cash equivalents decreased $10 million to $379 million after returning over $205 million to shareholders through share repurchases and dividends over the past 12 months. Merchandise inventories increased $40 million or 7% to $627 million. Back orders at the end of the quarter, however, continue to be higher than last year due to strong sales in several runaway categories that we are working aggressively to replenish. And customer deposits increased $11 million to $208 million, primarily due to an increase in customer shipments in transit at the end of the quarter. I'd now like to briefly discuss our fourth quarter and fiscal year 2011 guidance. As Laura mentioned, we are encouraged by the early consumer response to our seasonal and holiday merchandising and marketing strategies. As such, we are increasing our full year guidance for the outperformance we saw in Q3 and are reiterating our top and bottom line guidance for Q4. In Q4, net revenues are expected to be in the range of $1.24 billion to $1.26 billion and non-GAAP diluted EPS is expected to be in the range of $1.15 to $1.20 versus $1.08 last year. This assumes revenue growth of 4% to 6%, comparable brand revenue growth of 5.5% to 7.5% and non-GAAP diluted EPS growth of 6.5% to 11%. For the full year, net revenues are expected to be in the range of $3.69 billion to $3.72 billion and non-GAAP diluted EPS is expected to be in the range of $2.21 to $2.26 versus $1.95 last year. This assumes revenue growth of 5% to 6%, comparable brand revenue growth of 6.5% to 7.5% and non-GAAP diluted EPS growth of 13% to 16%. In both the fourth quarter and the full year, our non-GAAP diluted EPS guidance, even at the low end, represents record profitability for the company as we leverage our multichannel business model and grow DTC as a percentage of our mix. At the same time, it includes our ongoing investment in our next phases of growth including e-commerce, global expansion and business development. From a uses of cash perspective, our business model continues to generate significant cash flow, and we have virtually no debt. So we are well-positioned to invest in growth like the Rejuvenation acquisition while at the same time return excess cash to our shareholders. As such, we will continue to do both as we strive to further enhance long-term shareholder value. I will now turn the call over to Laura to discuss the performance of our Williams-Sonoma, Pottery Barn and West Elm brands. Laura J. Alber: Thank you, Sharon. I would like to begin by discussing the performance of the Williams-Sonoma brand. Comparable brand revenues in Williams-Sonoma grew 0.1% in the third quarter led by growth in the direct-to-customer channel. In the retail channel, we experienced a more promotional competitive environment but offset it with a greater level of online customer engagement and stronger e-marketing initiatives. Another initiative during the quarter, was the consolidation of the Williams-Sonoma and Williams-Sonoma Home website to create a more engaging and holistic brand experience for our customers. We also expanded our Williams-Sonoma Home cable, chair and kitchen island assortments in our larger Williams-Sonoma stores to provide a more inspiring backdrop to showcase our tabletop and entertaining category. Also during the quarter, we expanded our Williams-Sonoma loyalty initiatives by rolling out our new cobranded Visa signature card. While it is still early in the launch, the consumer response is exceeding our expectations and combined with our reserve shipping program, we believe we are entering the fourth quarter with one of the most compelling loyalty offerings in the housewares and home furnishing category. From a merchandising perspective during the quarter, we continue to see growth in the departments where we had the greatest concentration of new product introductions and strong traffic generating promotional calendars including electrics, entertaining and linens. These increases were partially offset, however, by cook's tools and cookware. As we enter into the fourth quarter, we have a significant number of new merchandising, targeted marketing and customer engagement initiatives that we did not have 1 year ago. In merchandising, the fourth quarter assortment offers a significantly higher percentage of new and exclusive products, particularly in seasonal, cooking and entertaining, electrics and food. We're also offering our customers a greatly expanded number of gifting options, both personalized and preselected, which we believe are not only under-penetrated categories but also important customer service offerings. In marketing, we are increasing our in-store and online messaging behind our Williams-Sonoma exclusive product offerings and our enhanced value proposition. In addition, we'll be capitalizing on the new marketing opportunities that the reserve shipping and co-branded Visa loyalty programs offer. We'll also be driving increased customer engagement in our retail stores by leveraging our just launched clienteling initiative in the Williams-Sonoma brand. Additionally, we are launching our strongest ever in-store event calendar for the holiday season. We believe that all these initiatives will enhance the multichannel shopping experience for our customers and further advance the brand's authority as the premier destination for high-quality cooking accessories, gift-giving ideas and home-entertaining essentials throughout the fourth quarter and beyond. I would now like to talk about Pottery Barn. In the Pottery Barn brand, comparable brand revenues increased 7% on top of 16% last year with strong results across both channels. From a merchandising perspective, all key categories particularly textiles, furniture and tabletop delivered impressive growth during the quarter. An innovative merchandise assortment relevant to how our customers live, decorate and entertain and a strong value proposition drove these better-than-expected results. From an operational perspective, optimized advertising and occupancy expenses and lower supply chain costs, combined with strong revenue growth, drove one of the highest third quarter operating margins in the brand's history. As we enter into the fourth quarter, we are encouraged by the positive consumer response we are currently seeing to our seasonal and holiday merchandise assortments and confident in the strategies we have planned for the fourth quarter, including delivering a cohesive and value-sensitive merchandising strategy around exclusive, innovative and artisanal products; creating an engaging in-store experience for our customers through decorating events, clienteling and complementary design services; and making our website the broadest expression of our brand by blending commerce, content and ease of use to deliver a superior shopping experience across all channels. All these initiatives are driving new customers to the brand and represent ongoing opportunities to increase market share. Now I would like to talk about the Pottery Barn Kids brand. Pottery Barn Kids' comparable brand revenues increased 5% on top of 12% last year as direct-to-customer sales climbed to a record 55% of net revenue. From a merchandising perspective, all key categories delivered positive growth during the quarter, with particular strength in furniture, textiles and decorative accessories. Our expanded baby offering and a brand-wide focus on product excellence, visual display and the customer experience drove these strong results. From an operational perspective, product sourcing initiatives and a strategic promotional calendar, combined with tight inventories and strong expense management, offset lower selling margins that resulted from a more promotional competitive environment. As we enter into the fourth quarter, we are encouraged by the positive consumer response we are seeing to our seasonal holiday merchandise assortments and are continuing to focus on initiatives that will drive customer acquisition, customer engagement and strong multichannel growth. These initiatives include: Marketing our expanded gifts assortment to establish Pottery Barn Kids as top-of-mind gift-giving destination for children; leveraging our multichannel and operational strength to deliver a seamless and engaging customer experience across all channels; and driving e-commerce growth through compelling content, improved search, increased conversion and enhanced social platform. I would now like to talk about the PBteen brand. Comparable brand revenues in PBteen increased 6% on top of 17% last year as operating profitability reached new highs and our dorm and back-to-school strategies drove incremental sales and new customers to the brand. From a merchandising perspective, we saw particular strength in decorative accessories and textiles. As we enter into the fourth quarter, we are continuing to focus on those initiatives that are driving enhanced brand awareness and a greater level of customer engagement, including: Increasing traffic and conversion in e-commerce through highly targeted marketing campaigns and a strong promotional calendar; expanding our gifting assortment and further positioning the brand as a design resource for innovation, quality and unique gifts; broadening our reach through new customer acquisition and an expanded presence in social networks; and testing our first pop-up store, which opened to a strong consumer response earlier this month. All these initiatives will allow us to further engage the teen customer in new ways and continue to drive strong earnings for the brand. Lastly, I would like to talk about West Elm. The West Elm brand delivered another record quarter as net revenues and operating profitability again reached new highs. During the third quarter, comparable brand revenues increased 27% on top of 24% last year with both channels driving impressive year-over-year growth. From a merchandising perspective, new product introductions, an enhanced value proposition and a highly targeted multichannel marketing strategy drove strong results across categories. Textiles, furniture, decorative accessories and tabletop were top-performing categories as the rebalance of the product mix continues to drive increased frequency of purchase and engage new customers in the brand. From a customer engagement perspective, our commitment to a seamless cross channel connection with our customers has taken service in the brand to a new level. To achieve this, we provided our customer with great product, great design, deep product information and expert advice across channels. Additionally, we have introduced a new store design with our Seattle store, which opened this quarter and launched the most compelling website redesign in our history of the brand. Both of these initiatives are providing the customer with a real, tangible and vital expression of the brands in every interaction. As we enter into the fourth quarter, we are encouraged by the positive consumer response to our broadened assortment and compelling value proposition. We believe the brand's vision of offering unique, affordable and approachable products that help our customers express their own personal style at home is resonating with our customers. And we are continuing to focus on those initiatives that are taking the business to the next level. These initiatives include: diversifying the product assortment and aesthetic to broaden the appeal of the brand; expanding the assortment of textiles, gifts and entertaining products at a compelling value; establishing westelm.com as a hub of the online design community through relevant product, cutting-edge original content and design inspiration; and continuing to evolve the retail service model by offering a complete brand experience in-store. We're also aggressively pursuing the expansion of our retail footprint as premier locations become available, including today's opening of our new store in Los Angeles. I would now like to open the call for questions.

[Operator Instructions] And we will go first to Budd Bugatch with Raymond James.

This is TJ filling in for Bud. Laura, you referenced several times throughout the call the promotional environment and the heightened level of promotion. Can you give us maybe a little color about how that -- how you think that relates to -- is relative to last year, one; and then maybe two, how that relates to what you saw -- what you thought you would see 3 months ago? Laura J. Alber: Thank you, TJ, great question. The promotional environment continues as we expected from the beginning of the year and including last year, we said that we are going to continue to be relevant in a time where customers are looking for value. But it is not just about value for us. We're focused on innovative products, we're focused on compelling display and presentation across all channels and incredible service. There's no change in my mind between what we saw 3 months ago and today, and we believe that it's very important to continue to be relevant so that you can take market share in this time where we believe there's opportunity to do that.

And we will go next to Matt Nemer with Wells Fargo Securities. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Williams-Sonoma had the lowest brand growth in the quarter, and just wondering what leaves you confident that, that brand can experience the seasonal ramp that it needs to from Q3 to Q4. Laura J. Alber: Thank you for the question. Williams-Sonoma is one of those brands that I believe is absolutely top of mind when you think about getting ready for the holidays, both in terms of entertaining and gift-giving. Our product strategy is to continue to introduce a higher percentage of exclusive goods into our brand, which we have done for this fourth quarter. We're working closely with our vendors and our design team to drive this innovation. The other place we see opportunity at Williams-Sonoma is e-commerce, where we have a lot of initiatives to add content and to build the community around food. The Recipe section of our website is a great example of that. In our stores, we continue to focus on our rich store experience as I mentioned. We have more culinary events, we're increasing our cooking education and we are recruiting a higher level of talent into our store team to augment what I think is possibly the most high-service retail atmosphere in the malls. We're also focused this year on seamless shopping. We've talked a lot about how we've invested in e-commerce. But I want to make sure that I stress on this call today that, that investment in e-commerce is also driving our sales at retail.

And we will go next to Alan Rifkin with Barclays. Alan M. Rifkin - Barclays Capital, Research Division: A question for Sharon. Sharon, on the DTC side, you seem to have had a significant increase in the EBIT margins in this quarter, which were up 140 basis points despite the fact that revenue growth in the DTC channel at 9.9% was the slowest growth in quite some time. Have we really crossed that threshold now where we should, going forward, continue to see incrementally more leverage on the DTC side of the business? And then secondly, using PBK where you have 55% penetration on DTC, do you think that's a proxy of where the whole company can ultimately get to with respect to the breakdown between retail and DTC? Sharon L. McCollam: Well, we talked about the -- in the DTC segment, we had an improvement of 140 basis points and that was driven by really 3 things. It was the productivity and advertising costs and the sales leverage of fixed occupancy expenses and then, of course, the ongoing benefit that we're seeing from supply chain. So now those improvements were partially offset by the more promotional environment and our incremental investment in e-commerce. So that lays the groundwork for how the quarter came out at the EBT margin. So as we look forward, we are going to continue, Alan, to invest in the growth of e-commerce and the growth of our total direct channel as well, including supply chain. So as we think about it, we believe that the brand has -- the segment has a lot of potential, but we're going to continue to invest. So at this point, what we're focused on is driving increased revenues, increased profits and we just don't, again, want to get nailed down on to a 1 metric related to that channel. So -- and then, Laura, you want to add to that? Laura J. Alber: I would just say you asked a question about PBK as a proxy. Each brand has a unique opportunity and as I said earlier, we're really using our e-commerce to drive all channels. And I really see a future where that becomes even bigger part of what we do to further differentiate ourselves from others who have either a very large store base compared to their total DTC sales or conversely, only in online play. And so PBK as one of our newer brands in the cycle has more online. They also are driving that as a larger percent by new category growth that's offered online, not in our stores, because our stores are smaller square footage stores. And each one of our brands has a unique opportunity. We've said that we are going to take the total company's e-commerce revenues up and we could see depending on the customer channel preference that they go over 50 over time. But right now the focus is seamless shopping and making easy for our customers to shop wherever they want on multiple screens, multiple devices, anywhere, anytime.

And we will go to our next question from Colin McGranahan with Bernstein. Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division: Just on selling margins, it looks like you came in kind of maybe down 80 or 90 basis points and I know the international franchise revenue impacts that. But certainly a fairly significant decline in selling margins and it looks like the gross margin outlook for the year is a little bit lower. Is that just all the change in the promotional environment and obviously you've inched your guidance down, so something turned out a little bit differently than maybe you'd expected there. Laura J. Alber: We continue to want to help everyone understand the power of our operating model. With a large percent of our business in direct, we have an opportunity to drive increased profit, increased revenues versus our competition by reducing selling prices to get the customer to further engage with us. When we do that, we don't need to spend as much in advertising costs and it leverages our SG&A, which is what you've continued to see. And it's been a choice that we've made because we believe it is so important to be cognizant of what's going on with the consumer and to give them great value in a time where they're very careful of how they're spending their money. Patrick J. Connolly: Colin, this is Pat, I just wanted to add. There are a lot of numbers underneath that direct business I think that we're very excited about. Visitor growth was up almost 19% in the quarter. Conversion continues to climb on our website and orders were up over 20% and revenue per visitor remained essentially flat. So supporting what Laura said, we have a number of levers that we can pull to drive sales in the company. And these investments that we're making especially... not only on the site but also in e-marketing, are driving increased traffic to our retail stores as well. It's not just the 200 basis point increase that direct had as part of the total.

And next we will hear from Brian Nagel with Oppenheimer. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: So I wondered -- my question, I want to focus on sales and include the brand comps. You outperformed your guidance and showed a nice improvement from the last couple of quarters. But if we look below that, the dynamic between the direct-to-customer sales and the retail sales -- the retail store sales. It seems as though this quarter, we saw somewhat of an acceleration in retail store sales than moderation, a bit of a moderation in direct-to-consumer. So how should we think about that dynamic, particularly given the overall focus if Williams-Sonoma were to be pushing more and more online? Laura J. Alber: I'd like you to think about the total growth and the total profit improvements. Our e-commerce initiatives are driving sales in e-commerce and they're driving sales in our stores. Our stores have an incredible suite of initiatives to give our customers better service than anyone else in our space. We just launched an online clienteling program this quarter that is successful and continues to build on the initiative that we talked about last year to give our customers more personalized service to help them decorate and entertain at home. And so as you think about the future of retail and particularly the business that we're in, you're going to see us continue to make investments in places that improve the customer experience. And while we know that the customers' channel of choice continues to be online and growing faster than anything else, we also believe in retail as a key component of our strategy because it's that rich experience that makes you remember brands and really puts them in your mind in a differentiated place than other people who don't have retail stores.

And moving on, we have a question from Joe Feldman with Telsey Advisory Group. Joseph Feldman - Telsey Advisory Group: I wanted to ask you about West Elm a little bit. I was wondering if -- as you think about the real estate, has your strategy changed at all in terms of where you want to put the stores and I guess the reason I ask is, the assortment is a lot broader at this point. It's a lot more, it has tabletop, it has gift and it has other things in the store. It's a lot less urban in some respects? And I know the look and feel might still be somewhat urban, but I'm wondering if that trends play out in a mall situation or if you still want to just be Main Street type shops? Laura J. Alber: Thank you for the question, Joe. Absolutely it widens the opportunity for West Elm, where you're seeing stores across the country perform very well. And what remains the same I guess is our pickiness about incredible locations. So we are aggressively looking for those perfect locations, the Seattle store, our Los Angeles store are both prime examples of very good real estate where we believe our customer is and architecture within those boxes that really is a great backdrop to the product that we have. So we see more stores in our future than we would have said several years ago, absolutely.

And we will go next to Matthew Fassler with Goldman Sachs. Matthew J. Fassler - Goldman Sachs Group Inc., Research Division: I'd like to ask you to put your domestic selling margin in a longer-term context just to refresh us on where it stands today versus the ranges that you have seen. And in addition to the promotional cadence, if you could also address the impact of concept mix on that selling margin given that clearly the business is moving a bit towards or at least for the moment, moving a bit moving towards Pottery Barn and its offshoots and a bit away from Williams-Sonoma. Sharon L. McCollam: Matt, this is Sharon. When you -- the selling margin, when you look back over history, we are still better than many of the years and let's just take the last 10 years. However, it's not recovering as quickly as we might have expected from the recession. So the 2008, 2009 timeframe, we don't look anything like that. We look very much like our pre-experience but we're still slightly short of that. You guys have the occupancy numbers. You know that we still have getting back to our closed-peak margin if we want to call it that. We've still got 120, 130 basis points to get back to our occupancy leverage from those days. So you can see with the selling margin we've had improvement in that area. So we have a ways to go and it's an opportunity. But in this environment, we believe again that we want to get also this one particular metric and really focus on what it's doing for us. We're delivering record profitability in both -- in the DTC channel, total company, record profitability. It's driving new customers to our brands. Pat just gave you a list of numbers and that's what it's doing for us. So I think it is short-term focused to think that a immediate acceleration of the selling margin is the path to long-term growth for a retailer today in the U.S. in this economy.

And next we will go to Janet Kloppenburg with JJK Research. Janet Kloppenburg - JJK Research: I'd love to shift gears for a little bit. West Elm is continuing to outperform and I know that you've done 1 pop-up store or 2, Laura. And I think that's been very successful and I'm wondering if could update us on the prototype changes that you might be making to West Elm and how that might influence your ability to open more stores as we look to the future. Laura J. Alber: Sure. I love to talk about West Elm. We're trying a lot of new things and we believe that we're going to continue to improve the brand through this innovative mindset. The pop-up stores are performing very well both because they're driving profit but also because they're helping us test new markets and grow our brand awareness in those markets where we haven't been able to secure a long-term lease. The prototype in Seattle that we just opened has some minor modifications that I think would be -- when you go in, you just notice that it looks better and you'd wonder why. Areas of the store are more differentiated, some real artistic moments that stop you and make you just -- they just inspire you, as well as I've said category dominance in areas like bedding, lighting. We have design lab, part of our store that we continue to improve so that we can service our customers in the store, help them choose things to decorate their home in their own personal style with tools at their fingertips, in-store and fabric swatches together. And if you go to the store, you can see that. So it's just better, is what I would say on both design of the store itself, the fixtures in the store and some moments that are just spectacular. I wish I could send you a picture.

And moving on, we have a question from Greg Melich with ISI. Greg Melich - ISI Group Inc., Research Division: I wanted to follow on a little bit on the sales trends. Back in the second quarter, you guys mentioned in the press release about the increased ceiling[ph], a certain macro outlook and you didn't put that in this release. Just curious have you seen something that is sort of changing your business that left it out and then who are the real incremental buyers of your products? Are you seeing your core customers buy more or are you continuing to build the customer base at the same rate? Laura J. Alber: I mean, I wouldn't overthink the lack of the macro comment in the press release. The macro is continuing to be uncertain and that is what I said in my remarks that we're prepared that the holiday season will be one where the customer is very picky about what they want to spend their money on. And that is the strategy that we're executing against. It is still choppy, it is still uncertain. We do continue to deliver record earnings in this environment through our strategies. I'm going to let Pat talk about incremental sales buyers, top of the file, bottom of the file. Patrick J. Connolly: Sure. Greg, I think we're seeing -- we look at the entire customer file when we mail or when we do our e-marketing activity and we're seeing consistent performance from top to bottom. The other thing is I'd point out in reference to your question about new customers, we're seeing very, very strong new customer growth. A couple of our brands had almost 50% new customer growth in Q3, not going to tell you which ones but we're very excited about that. But every brand had very good new customer growth in that quarter.

And next we will hear from David Magee with Suntrust Robinson Humphrey. David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division: The question I have has to do with the promotional environment at the Williams-Sonoma brand, and I know that the exclusives that you all do is an important way you sort of fight that. My question has to do with -- can you give us some color about how relevant those -- the exclusives are, the distinction of the features that make it perhaps more desirable and less susceptible to price discounting? Laura J. Alber: Sure. Our focus is on a differentiated product assortment that is well priced. Our customer wants the best of everything. We continue to prove that over and over as we try to introduce different types of products. They want the highest-quality version of the knife that is sold and we need to make sure that we are not overpriced in those categories. At the same time, we -- the power of our brands allows us to introduce products that, under the Williams-Sonoma brand, that no one else does. And our food assortment is a good example of that where we continue to innovate and bring new things into our stores that are relevant to how the customer lives. So our studio is very -- Doll Collection is a good example of that. We also are focused on how we can use our services to further differentiate the Williams-Sonoma brand from others. So for example I'm very excited about our ability now to personalize knives. We can put your name on a knife. What a great Christmas gift to give someone with her name monogrammed on a beautiful chef's knife. And that is something our competitors are not doing. So it's both in the product themselves, the service -- the services, the personalization service that we offer but also in the trust that our customers have for the brand that they know that we are going to stand behind their purchase and it's going to be high-quality and that we're going to be there for them if anything goes wrong. And that is a very important part of our value equation, I don't know that we've talked about enough.

And next we will go to Anthony Chukumba with BB&T Capital Markets. Anthony C. Chukumba - BB&T Capital Markets, Research Division: I want to switch gears a little bit, talk about the recent acquisition of Rejuvenation. I know it's quite early, but I was just wondering what your initial thoughts were on the brand in terms of potentially opening more stores or increasing your catalog circulation or trying to improve the e-commerce experience. I was also wondering what your thoughts were in terms of running it just completely standalone as opposed to maybe integrating some of the products into some of your other brands, particularly your Pottery Barn brands. Laura J. Alber: Thank you for the question. Rejuvenation represents all that we've talked about as we've hinted around about what we're looking for in terms of an acquisition. We said we wanted a great quality brand with a wonderful founder, a culture that is consistent with ours and a clear opportunity for expansion. They have a product line that is I think is going to be increasingly relevant as people want to custom configure so much of their lives and the authenticity of what they do and the quality. Everything you know is made in Portland, U.S. manufacturing. That allows them to have a lot of differentiation in finish and scale. The team is extremely talented there. They've been standing on their own feet. They just -- they didn't have the resources to grow like we can help them grow. We also know that we can use our platform, our hubs [ph] file, our logistics, our contracts to not just drive revenue but increase profit. Our integration is going very well with them and we are cognizant of not trying to go too fast because they are a small company and we want to make sure that we do everything without swamping them, without swamping their small boat. But there is so much opportunity there, and we're really enjoying working with that team.

And we will go next to Scot Ciccarelli with RBC Capital Markets. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: Scot Ciccarelli. I guess the question is you've mentioned the increasingly promotional environment and people have kind of asked questions about this. But I guess with all the companies in your industry that have basically gone away over the last few years, I'm curious specifically where -- who the competitive pressures are coming from. Laura J. Alber: Just on this promotional thing, I think it's important to recognize that our business is very -- it's a very high percent of right price. So while there's been I think an overemphasis on promotional activities, the reality is I think if you compare to our right price selling to anyone, it's significantly higher than what you probably expect in our competition and while I can't give you that number, I will tell you that it's a very high number. So I think we need to put the comment, the discussion about promotions in context with that fact. The competition, we are -- we recognize that anyone with a cash register is competition both in the home business but also as you go to the holiday season, apparel is competition and if you shop in any mall today and you walk the malls, you'll see people with family and friends, full window of posters advertising family and friends to everyone that walks through the door. We do not do that. You see a lot of the apparel retailer with huge percentages of their products on sale. And so the customer has -- it is strange to think about promotions and expect to have the best value. And so it's not that there's more people that have entered our space, it's that the entire retail market is promotional and the customer, it's very important for them to have value as well as quality, design and service. So we have increased what we've done. We've also reduced the markdowns that are -- deep markdowns. So the very deep 75% off, those markdowns we are seeing less of those which is a good piece of our margin story and those are the most expensive obviously. The way we're using the promotions is also to help people try new categories. So you may not really need new towels but because we're offering a discount on them, you may buy a few of our towels and then you will realize that they're better than anyone else's towels in the market. And so the promotions are also driving increased regular price purchases in the future.

And we will go next to Chris Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: Following up on kind of the how you think about the financial model around the business. So is it fair to say your point is that, yes, we're investing in promotions to drive sales but we're taking advertising dollars down? So you focus on the EBIT margin expansion. So my questions are, is that it and did merchandise margin pressure get fully offset by advertising cost leverage and cost reduction? And then as you think about going forward now that you anniversaried Williams-Sonoma Reserve and considering the way you brand 4Q, how does that relationship look in 4Q and then longer-term, how far can advertising go down to invest in price? Laura J. Alber: Thanks, Chris. We're focused on driving revenue obviously and profitable growth. And there are many ways to do that. The current way we're doing that is exactly what you said, which is we are -- our sales, our leveraging, add costs. We believe it's important to give value to the customer, we are growing both our sales and our bottom line in the percent. So whether that will remain the same model for the future is yet to be seen and highly competitive there. You could see a day where the reverse would be true, the reality. So this is where we are now, and we will continue to deliver better margins, better profits than we have in the past because we have a sophisticated model that allows us to move investments, move different parts of the business to drive more profit. As the result relates to reserves in the 4Q, if you just think about reserves, if you're a reserve customer, you can now send gifts to everyone across the country and not pay shipping. So it becomes an increasingly important part of the holiday equation. And our VISA cardholders get a full free year of reserves which is also a really important part of that loyalty program.

And we will go next to Brad Thomas with KeyBanc Capital Markets. Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division: I wanted to ask about the expense side of the business. I know that 2011 has been a year where you made a number of investments to position yourself for international growth. I was hoping you could just talk about where those expenses are coming in relative to plan and then as we think about 2012, are there incremental investments that you need to make or do you start to lever some of these investments that you've made? Laura J. Alber: Yes. First of all, I'll say this. I hate waste and so at the same time that we're making the investments, we are also looking to do things more efficiently. So you see us have SG&A down with these investments. So you're probably thinking, how are you doing that? Well, we're continually saying to ourselves, how do we do things better. Everywhere across the company, we looked under every rock in 2008. We continue to do the same thing today. So as much as you see the investment, you also see the reductions in some categories or some areas of the company. International, we're just getting started with our development of that team. So you're going to see increased investment in our international expansion efforts and we're going to be talking more about that when we give guidance for next year. E-commerce, we have done a good job of hiring the people that we said we're going to hire. And we continue to look for a few key jobs in that area. IT talent is a very important part of our company and we actually are so focused on being a magnet to attract the best e-commerce talent that we have made investments in things not just the talent but also we have a new building that we have our IT team in that is state-of-the-art workspace for this group that allows them to have more spaces to get together. They have small huddle rooms, they have just a great place for them to work, which is we didn't have that before. We had cramped space for some of these teams and that's a very important part of when we say investments. What does investment look like? It's new people, it's also the best people. So you're going to see us continue to make those investments into the future and as I said, we'll give you more outlook to that when we talk about next year after we finish this quarter.

And next we have Peter Benedict with Robert W. Baird. Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division: I guess this one's for Sharon. I'm focused on the fixed portion of the gross margin of the cost of goods. You mentioned earlier that the occupancy was down about 1% year-over-year in the third quarter. I think the DNA component of that was down around 5% year-over-year. How should we be thinking about those trends in the fourth quarter and then as we move into next year? Sharon L. McCollam: As we -- if you think about fourth quarter, clearly, we expect to lever occupancy expense again and in the third quarter, you've got [indiscernible] Should expect the ongoing exact story and you can see it in the guidance. You've got the margin, the selling margin impact, which we expect to continue into Q4. You've got that offset by the lever of occupancy expense and you're also going to see levers on the SG&A side because of the advertising, the way Laura described the business model. And I think it's going to play out and the guidance proposes that it plays out very similar to Q3.

And that does conclude the question-and-answer session. At this time, I would like turn the conference back to Laura Alber for final comments. Laura J. Alber: Well, thank you all for joining us today. Have a wonderful holiday season, and we look forward to talking to you after it. Thank you.

And, again, that does conclude today's conference. We thank you for your participation.