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Williams Sonoma Riding Away From Recession with Record Earnings

SAN FRANCISCO - Williams Sonoma Inc. is seeing the light at the end of the recession tunnel, having posted record earnings for fiscal 2010 and stronger performances in each of its five nameplate brands over the prior year.
     Laura Alber, president and ceo, explained the company "made substantial progress on our longer-term growth and profitability initiatives. We are particularly pleased with the progress we made in merchandising, marketing, customer acquisition, and customer service, as it is these competitive advantages that allowed us to attract new customers to our brands and gain profitable market share all year, including Internet revenue growth of 27%."
     For the quarter, total company net revenues increased 9.7% to $1.195 billion versus $1.090 billion in the year-ago period, including Internet net revenue growth of 27.2% and a comparable store sales increase of 5.2%.
     Non-GAAP diluted earnings per share grew 26% to $1.08 per share. Quarterly retail net revenues increased 5.3% to $729 million versus the prior year's $692 million, primarily driven by the Pottery Barn, West Elm and Williams-Sonoma brands. Retail net revenues represented 61% of total company net revenues in Q4 ‘10 versus 64% in Q4 ‘09. And comparable store sales in the fourth quarter increased 5.2% versus 7.6% in 2009's fourth quarter.
     Comp store sales results by retail concept were as follows: Williams- Sonoma, 2.3%; Pottery Barn, 8.9%; Pottery Barn Kids, 4.6%; Outlets, and 11.4%.
     The company's direct-to-customer segment was a shining star in the fourth quarter, churning a 17.3% increase to $466 million versus $398 million a year ago, primarily driven by the Pottery Barn, Williams-Sonoma, PBteen, Pottery Barn Kids and West Elm brands. Internet net revenues increased 27.2% to $393 million versus $309 million in Q4 ‘09. Direct-to-consumer net revenues represented 39% of total company net revenues in the quarter versus 36% in Q4 ‘09, representing a channel mix shift of 300 basis points.
     For the full fiscal 2010, net revenues increased 12.9% to $3.504 billion versus $3.103 billion in fiscal 2009, including Internet net revenue growth of 26.9% and a comparable store sales increase of 9.8%. Non-GAAP diluted earnings per share grew 105% to $1.95 per share - "a new record for the company," Alber noted.
     Direct-to-customer net revenues for the year increased 18.6% to $1.453 billion versus $1.225 billion, primarily driven by the Pottery Barn, Pottery Barn Kids and PBteen brands. Internet net revenues increased 26.9% to $1.197 billion compared to $943 million in 2009. Direct-to-customer net revenues represented 41% of total company net revenues in the year versus 39% in is fiscal 2009, representing a channel mix shift of 200 basis points. This shift resulted in a 20-basis-point rate improvement in the company-wide operating margin due to the direct-to-customer channel's significantly higher operating margin versus the retail channel.
     Fiscal 2009's retail net revenues increased 9.2% to $2.052 billion, from $1.878 billion the prior year, primarily driven by the Pottery Barn, West Elm and Williams-Sonoma brands, despite a 4.1% year-over-year reduction in retail leased square footage, including 18 net fewer stores. Retail net revenues represented 59% of total company net revenues in FY 10 versus 61% in FY 09. Comparable store sales increased 9.8%.
     Comp store sales results by brand for the full year were: Williams-Sonoma, 4.6%; Pottery Barn, 14.3%; Pottery Barn Kids, 13.0%; and Outlets, 9.8%.
     Merchandise inventories at the end of fiscal 2010 increased 10.1% to $513 million on revenue growth of 12.9%.
     "As we look forward to fiscal 2011, we will remain focused on gaining market share and improving profitability," Alber said. "To gain market share, we will continue to attract new customers to our brands through highly targeted multi-channel marketing; creative, innovative and relevant product offerings; and expansion of our brands into new markets and international geographies. To improve profitability, we will be implementing new efficiencies in our worldwide supply chain; driving increased traffic and higher sales per foot in our retail stores by reinventing the customer experience; and expanding our e-Commerce business - including rolling out international shipping in the back half of the year."
     In the new fiscal year, 2011, the company expects its e-commerce business to "once again be our most profitable and fastest growing channel," she continued.
     As such, Williams Sonoma Inc. is projecting its direct-to-customer segment to reach 43% of total company revenues compared to 41% in fiscal 2010.
     "From an investment perspective in fiscal 2011, we expect capital spending to be in the range of $135 million to $150 million - with over a third of that in e-commerce and supply chain," Alber went on. "We also plan to invest an incremental $25 million in SG&A to support our e-commerce, international, and business development growth strategies. Including all of these investments, we expect fiscal 2011 to be another record financial year - with non-GAAP diluted earnings per share increasing in the range of 8% to 12% and net revenues increasing in the range of 4% to 6%."

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