• Cecile Corral

Williams-Sonoma buoyant in 2Q with gains across the board

San Francisco - Williams-Sonoma Inc. had another day in the sun during the second quarter thanks to several multi-channel initiatives across its five nameplates as well as the return of the more affluent shopper to its cash registers - both in store and online.

The company's total net revenues in the second quarter increased 5.1% to $815 million versus $776 million in the year-ago period. Comparable brand revenue, which includes both comparable store net revenues and total direct-to-customer net revenues, was up 6.5%.

Non-GAAP earnings per share increased 19% to a second quarter record of $0.37 per share; non-GAAP operating margin increased 80 basis points to another second quarter record of 8.0%.

"The second quarter was another strong quarter for the company ... During the quarter, we continued to drive increased traffic and conversion in e-commerce, expand the reach of West Elm and extend our international presence," said Laura Alber, president, ceo and director.

Sharon McCollam, evp, director, coo and cfo, explained, "The high-end consumer is doing well and our high-end products are selling well."
Alber elaborated that "while the economy is doing what it's doing, here we are seeing the consumer engaged."
Additionally, Alber cited an 18% increase in e-commerce net revenues, a 29% boost in West Elm's comparable brand revenues, and the completed launch of the company's international shipping websites across all of its five brands as some of the major highlights in the period.

"While all of these initiatives continue to be in their early stages of development, we believe each of them represents a long-term growth opportunity that we will continue to invest in throughout the year," she added.

By segment, comp brand revenues for the company's core brands - Williams-Sonoma, Pottery Barn and Pottery Barn Kids - increased by 3.5%; and its merging brands - PB Teen and West Elm - saw comp brand revenues leap by 25%.

Retail traffic reached "new highs" in the quarter, Alber went on.

Also in the quarter: direct-to-customer net revenues increased 13.0% to $368 million versus $326 million in Q2 2010, driven by increases across all brands; and e-commerce net revenues increased 18.4% to $317 million compared to $267 million last year. DTC net revenues generated 45% of total company net revenues versus 42% last year, representing a channel mix shift of 300 basis points.

Lackluster in the quarter were retail net revenues, which decreased 0.7% to $447 million versus $450 million, primarily driven by a 4.6% decrease in retail leased square footage that included the closure of our Williams-Sonoma Home stores at the end of the 2010 fiscal year. Excluding the Williams-Sonoma Home stores closures, retail net revenues increased 0.9%, primarily driven by the West Elm brand and international franchise operations.

For the 26 weeks, results included: net revenues up 6.2% to $1.586 billion versus $1.493 billion, including year-to-date e-commerce net revenue growth of 19.5%; a comparable brand revenue increased of 7.7%; and a comparable store sales increase of 4.0%.

"Encouraged by our momentum," she said during the company's earnings call today, Williams-Sonoma Inc. is embarking on more initiatives and expanding on existing successful ones through the back half of this year. These include: expanding the breadth of the product assortment; expanding on gift-giving items at compelling values; enhancing its rapidly growing e-commerce business; and deepening its international reach with five new stores - two Pottery Barn and three Pottery Barn Kids units -- set to open in Saudi Arabia before yearend. Williams-Sonoma Inc. currently has eight franchise stores in Kuwait, Dubai and Saudi Arabia.

"And we continue to aggressively explore profitable opportunities for retail expansion in other regions of the world," Alber added.

Alber also offered during the company's earnings call comments on the performances of the company's five nameplates over the quarter.

Williams-Sonoma "continued to see growth in the high-end assortment," but that gain was partially offset by softness in the outdoor and dinnerware categories.

The strongest performing categories at Pottery Barn, which saw its comps increase 4% and net revenues inch up 2%, were home furnishings, tabletop and decorative accessories. The brand is "encourage by the positive consumer response to our fall assort and we are also confident in our strategic plans in the back half," Alber said, which includes expanded product category offerings and marketing initiatives, engaging in-store events, and "making our website the broadest expression of the brand."

Pottery Barn Kids saw its comp grow a better-than-expected 8%, helped along in part by strong growth in its e-commerce business. Here, textiles and decorative accessories were drivers. For the second half, the company plans to build up its gift assortment, leverage its multichannel presence, and drive e-commerce growth with engaging online content.

Delivering its "best ever" second quarter operating margin was PBTeen. The brand reported better-than-expected 20% gains in both comps and net revenues. This growth stemmed largely from strong results in furniture, textiles and decorative accessories sales. In store for the brand later this year are several initiates, including anted social network efforts.

West Elm had a record quarter with its 29% comp jump and 26% leap in net revenues. Building on that success, the company is looking to rebalance the product mix. Textiles and e-commerce are among the focal points.

When asked by an analyst about high costs impacting the business, McCollam warned that she "would like to say that the worst is behind us with commodities down. But labor is up in China...We do have in our margins the worst of it, with the cotton spike from last year. Those goods are in our pipeline as we speak."

Looking ahead to the third quarter, Alber said she is optimistic for further growth.

"We believe that our innovative merchandising strategies, multichannel marketing reach, strong value proposition, and superior customer service will allow us to continue to deliver leading results in the home furnishings category. While there is clearly more uncertainty in the economy now than in Q2, we are encouraged by the early consumer response to our core and seasonal merchandise assortments."

She continued that "as such, despite macro concerns, we are reiterating our third quarter non-GAAP EPS guidance in the range of 36 to 39 cents per share and increasing our ‘full year guidance' for the 1 cent outperformance we delivered in Q2. This brings our fiscal year 2011 revenue growth to a range of 5% to 6% and our non-GAAP diluted EPS to a range of $2.17 to $2.22 versus $1.95 last year."

Cecile CorralCecile Corral | Senior Product Editor, Home & Textiles Today

Cecile B. Corral has been a product editor with Home Textiles Today since late 2000. She covers the area and accent rug, kitchen textiles, table linens, beach towels, decorative bath and decorative pillow categories, as well as some retail subjects.

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