SAN FRANCISCO-The Williams-Sonoma home furnishings retail chain is still expanding, with plans for 13 new stores this year and expansions at 17 others, but the company reported what it called disappointing results Thursday, blaming the “housing-related macro environment.” The company was especially disappointed with the results at Pottery Barn, which it is targeting for improvement this year after revenue declined at Pottery Barn in 2006.

In the company’s quarterly conference call with financial analysts, Howard Lester, CEO, commented that for 2007, the company will focus on “strategic initiatives that can transform the financial performance of the company over the next few years.” These include the revitalization of the Pottery Barn brand along with operational and cost-containment initiatives “to offset the impact of a difficult macro-economic environment in the home furnishings sector,” Lester said.

He said that results for the fourth quarter and fiscal year ended Jan. 28 “were not where we expected them to be when we entered the year,” but he indicated that the company did turn in a good enough performance that it demonstrated an “ability to aggressively react to a rapidly changing business climate” along with a commitment to optimizing profitability, “even in difficult times.” Other than the changing conditions wrought by the housing-related changes in the economy, the company’s chief challenge during the year was in the Pottery Barn brand, where “revitalizing its performance is our highest priority as we enter fiscal 2007,” Lester said.

“How quickly can we react? Immediately,” the Williams-Sonoma CEO said. But the execution will take some time, he added, explaining that the company is already testing several new merchandising, marketing and store execution strategies. These initiatives need to be proven, however, and the company is saddled with increased inventory levels that “will need to be worked through” before the chain can gain traction.

Despite the bumpy road in 2006, Lester said that the company achieved a number of positive results during the year, reaching new milestones in revenue and operating contribution in its Williams-Sonoma and West Elm brands and opening 18 net new stores. It also implemented new retail inventory management systems in its Williams-Sonoma and Pottery Barn Kids brands.

The company’s diluted earnings per share for the fourth quarter of the fiscal year ended Jan. 28 increased 3.9% to $1.06 versus $1.02 per diluted share in the fourth quarter of fiscal year 2005. Net revenues increased 3.3% to $1.25 billion for the fourth quarter. Diluted earnings per share for the full fiscal year 2006 decreased 1.1% to $1.79 share versus $1.81 per diluted share in fiscal year 2005. Net revenues for the full fiscal year increased 5.3% to $3.728 billion.

Williams-Sonoma’s store formats include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home. It operates 588 stores, seven mail order catalogs and six e-commerce websites.

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