Willilams-Sonoma's Challenges

Earnings per share came to 24 cents and revenues for the third quarter totaled $722.8 million, accomplishments that the company achieved despite what CEO Ed Mueller called "a difficult retail environment and a challenging performance in the Williams-Sonoma brand," where same-store sales were down 4.2% for the quarter on a year-to-year basis.

Williams-Sonoma is investing substantially in what it calls "emerging brands," including its West Elm stores and its newest catalog, Williams-Sonoma Home. It opened its first West Elm prototype stores during the quarter, launched the new catalog and geared up for the scheduled fourth quarter expansion of its Hold Everything brand, which is expected to launch its first e-commerce website and three new prototype stores in the quarter.

With a number of retail concepts in operation and in the planning stages, the company's financial performance during the quarter featured improvement in some brands and flat or flagging sales in others. It attributed much of its year-over-year sales increase to the Pottery Barn and Pottery Barn Kids brands, but said those results were partially offset by lower sales in the Hold Everything brand, where it reduced the number of stores to seven from 12.

Laura Alber, president of the Pottery Barn brands, said net sales rose 17.3% for the brand and that all channels—retail, Internet and others--performed above expectations. The Pottery Barn retail stores posted a 5.7% increase in comparable sales on top of a 5.4% increase last year, and traffic on the Pottery Barn web site increased more than 30%, Alber said. "We continue to believe that online marketing will be a significant growth opportunity for the brand and a source of new customers for the future," she said.

Pottery Barn Kids net sales rose more than 15% year to year during the quarter, driven both by growth from new stores and "strong momentum" in e-commerce, Alber reported. Williams-Sonoma now operates 85 Pottery Barn stores, compared with 77 at this time last year. Pottery Barn Kids retail store comparable sales rose 5.6% versus 6.3% in last year's third quarter. "What is particularly encouraging is that comparable store sales were positive in both our single store and multistore markets," Alber said.

The quarterly earnings of 24 cents per share produced a total profit of $28.5 million for the quarter, compared with 20 cents per share and $23.9 million in last year's third quarter. Sales totaled $722.8 million versus $632.8 million in the third quarter of 2003. The company's brands include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, Hold Everything, West Elm and Williams-Sonoma Home. Besides its 547 retail stores, it operates eight mail order catalogs and five e-commerce websites.