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Williams-Sonoma in woeful slump   

San Francisco – Williams-Sonoma Inc. experienced progressively declining comp-store sales throughout the second quarter, as well as net revenues declining by greater-than-expected rates, the six-nameplate upscale home furnishings retailer reported during its earnings call today.

Pottery Barn proved the poorest performer and Williams-Sonoma the best.

Howard Lester, chairman and ceo, outlined the results. Among the company’s brands, net revenues decreased 7.6% -- “this decline driven by an 11.5% decrease in the Pottery Barn brand and an 8.1% decrease in the Pottery Barn Kids brand, partially offset by a 1% increase in the Williams-Sonoma brand,” he said.

On the flip side, at Williams-Sonoma Inc.’s emerging brands – West Elm, Williams-Sonoma Home and PB Teen -- net revenues increased 15.9%, “despite the softening in overall economy,” he added.

Overall, diluted earnings per share for the quarter ended Aug. 3 fell 26.1% to $0.17 (including a 9 cent benefit on the sale of a corporate aircraft), vs. $0.23 in the same period one year ago. Excluding the one-time benefit, EPS plunged 65.2%.

Quarterly net revenues fell 4.6% to $819.6 million from $859.4 million last year. Comps were down 11.7%, and worsened through the quarter: “To put this in perspective,” said Lester, “comparable-store sales declined from negative 8.6% in May to negative 14.0% in July.”

Pottery Barn in August suffered a continuation of the trend in declining comp store sales, which in July came in at -18.6%, “noticeably weaker than other months in the quarter,” said Laura Alber, president.

Pottery Barn’s merchandising suffered with year-over-year sales declines across all major categories. “Interestingly, no one category was significantly better or worse than another, with the exception of furniture, which benefited from the success of new product introductions and strong upholstery business,” she said.

Only the PB Teen segment boasted a healthy increase in net revenues, at 25.1% in quarter, “delivering the best year-over-year growth in the company,” she said, adding that all of its key merchandising categories – furniture, textiles and decorative accessories -- saw strong growth.

But she warned, “Even PB Teen saw deterioration in growth rate at the beginning and end of quarter.”

At Williams-Sonoma Home, softness in textiles and furniture offset strength in home furnishings and tabletop, said Dave DeMattei, group president – Williams-Sonoma, Williams-Sonoma Home and West Elm.

While West Elm saw net revenue up, driven by incremental growth from new stores and increased traffic in e-commerce, this was partially offset by weaker sales in existing stores of which about 30% are located in “housing-affected” markets, namely Florida, Nevada and California, DeMattei said.

West Elm’s expanded offerings in textiles, decorative accessories and furniture generally performed well. By yearend, West Elm plans to expand with 10 new units, including its first in Canada. The nameplate will also enhance its e-commerce and refine its merchandise assortment.

The corporation has restated its 2008 earnings outlook.

“We are projecting net revenues for the year on a 52-week to 53-week basis to decline in the range of 7.8% to 9.5% and diluted earnings per share to decline in the range of 34.7% to 41.5%, resulting in annual earnings in the range of $1.03 to $1.15 per share,” Lester stated.

The previous guidance had called for EPS of $1.45 to $1.58; in 2007 EPS was $1.76.

Looking to 2009, Williams Sonoma Inc. expects a continued softness in the economy, and is bracing for it.

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