Strong Sales Boost Profits at Williams-Sonoma

Don Hogsett, May 30, 2005

San Francisco — First quarter profits at Williams-Sonoma Inc. jumped 22.4 percent, to $26.2 million from $21.4 million last year, aided by stronger sales, widening margins and a better in-stock position, notably at the Pottery Barn franchise.

Sales at the diversified retailer climbed at a double-digit pace, improving 12.4 percent, to $720.7 million from $640.9 million during the same period last year. Same-store sales grew 5 percent, driven by big gains in outlet stores, up 19.5 percent; Pottery Barn Kids, up 10 percent; and Pottery Barn, up 6.1 percent. The flagship Williams-Sonoma business backed off 0.5 percent; while the Hold Everything business dropped 16.8 percent.

Driving the big earnings gain, in addition to stronger sales, average gross margin grew substantially, 120 basis points, or 1.2 percentage points, to 39.5 percent from 38.3 percent. Costs climbed somewhat as well, rising 60 basis points, or six-tenths of a percentage point, to 33.5 percent from 32.9 percent.

Ed Mueller, CEO, commented, “Not only did we achieve record sales and earnings, we also continued to make substantial progress on our supply-chain initiatives. In the third and fourth quarters of 2004, we committed to our shareholders that we would work with our vendors to rapidly improve our in-stock positions on core furniture inventories as early as possible in 2005. Our inventory levels, up 23 percent at the end of the first quarter, demonstrate our success in this initiative.”

Mueller said the supply-chain improvements led directly to stronger profits during the opener. “We substantially improved our customer service by fulfilling customer backorders more quickly than we had expected and improving our recent trends in order fulfillment rates. The success of this initiative allowed us to realize revenues and earnings in the first quarter that we had not expected to realize until the second quarter.” Mueller said the moves contributed about one cent to a per-share profit of 22 cents during the period.

Williams-Sonoma Inc.

Qtr. 5/1 (x000) 2005 2004 % change
a. First quarter results include $621,000 in interest income, compared with $136,000 in interest expense during the same period last year.
Sales $720,688 $640,910 12.4
Oper. Income (EBIT) 43,703 34,804 25.6
Net income 26,173a 21,390a 22.4
Per share (diluted) 0.22 0.18 22.2
Average gross margin 39.5% 38.3%
SG&A expenses 33.5% 32.9%

Same-Store Sales by Segment

5/1/05 5/2/04
Williams-Sonoma -0.5% 3.6%
Pottery Barn 6.1 10.2
Pottery Barn Kids 10.0 1.0
Hold Everything -16.8 6.5
Outlets 19.5 12.5

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