Williams-Sonoma Profits Flat in 4Q

Don Hogsett, March 28, 2005

San Francisco — Held in check by a change in accounting, thinning margins, higher costs and a slide in same-store sales at its Pottery Barn and Hold Everything units, fourth quarter profits at Williams-Sonoma were virtually unchanged from year-before levels, inching up just 0.5 percent, to $102.6 million from $102.1 million last year.

Williams-Sonoma, like most American retailers, has had its profits reduced by a change in the way it accounts for leases mandated by the Securities and Exchange Commission. In Williams-Sonoma's case, the non-cash charge pulled 9 cents per share away from the bottom line, resulting in a per-share profit of 88 cents. Excluding the charge, profits would have climbed 11.5 percent, to 97 cents per share from 87 cents last year.

Williams-Sonoma sales climbed 7.9 percent during the Christmas quarter, to $1.1 billion from $1 billion last year. Same-store sales edged ahead 1.5 percent, well behind the faster pace of growth a year ago, when same-store sales climbed 4.1 percent.

Acting as a drag on the total, same-store sales at the Pottery Barn division slipped 2.2 percent, following a 4.3 percent increase during the year-before holiday period.

The damage was even greater at the Hold Everything unit, where comps skidded 8.4 percent, worsening after a 2 percent drop during the same period a year ago.

Pottery Barn Kids, on the other hand, made a strong showing with a gain of 8.4 percent, recovering from a slight 1.1 percent decrease last year. But the biggest sales gainer was the outlets, where comps raced ahead 19.9 percent, building on last year's 7.9 percent increase.

Putting earnings under pressure, margins eroded 90 basis points, or nine-tenths of a percentage point, to 43.2 percent from 44.1 percent.


QTR. 1/30 (x000) 2004 2003 % CHANGE
a. Fourth quarter total sales, including retail sales of $680.3 million, up 8.8 percent from $625.1 million during the same period last year; retail shipping fees of $2.6 million, up 9.9 percent from $2.3 million; direct-to-consumer sales of $344.9 million, up 7.1 percent from $322.2 million; and direct-to-consumer shipping fees of $55.9 million, up 2.2 percent from $54.7 million.
b. 12-month total sales, including $1.8 billion in retail sales, up 11.6 percent from $1.6 billion during 2003; $8.5 million in retail shipping fees, up 12.4 percent from $7.5 million; direct-to-consumer sales of $1.1 billion, up 17.5 percent from $966.4 million; and direct-to-consumer shipping fees of $190.9 million, up 15.3 percent from $165.6 million.
Sales $1,083,639a $1,004,281a 7.9
Oper. Income (EBIT) 166,626 165,764 0.5
Net income 102,601 102,116 0.5
Per share (diluted) 0.86 0.85 1.2
Average gross margin 43.2% 44.1%
SG&A expenses 27.8% 27.5%
Sales 3,136,931 2,754,368 13.9
Oper. Income (EBIT) 292,555 254,787 14.8
Net income 180,087 157,211 14.6
Per share (diluted) 1.51 1.32 14.4
Average gross margin 40.0% 40.3%
SG&A expenses 30.6% 31.1%

Fourth Quarter Segment Results

Same-store sales 2004 2003
Williams-Sonoma 2.1% 4.8%
Pottery Barn -2.2 4.3
Pottery Barn Kids 8.4 -1.1
Hold Everything -8.4 -2.0
Outlets 19.9 7.9
total 1.5% 4.1%

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