Pottery Barn helps mold Sonoma profits

Don Hogsett, June 3, 2002

San Francisco — Helped by stronger margins, lower costs and strong same-store sales at its fast-track Pottery Barn unit, first-quarter profits at Williams-Sonoma Inc. rebounded to $15.4 million from a break-even $492,000 last year.

Sales at the diversified retailer jumped up by 14.6 percent, to $478.4 million from $417.6 million, fueled by gains of 20 percent or more in retail sales and shipping fees, which more than offset slower growth in internet and catalog sales.

Retail sales shot up by 20.0 percent in the period, to $267.6 million from $223.0 million last year And retail shipping fees kept pace, climbing by 20.0 percent, to $1.6 million from $1.3 million

Direct-to-customer sales grew at a more modest pace of 6.3 percent, to $178.3 million from $167.7 million last year. But the company raked it in with direct-to-customer shipping fees, which shot up by 21.2 percent, to $31.0 million from $25.5 million last year.

Same-store retail sales climbed by 6.2 percent in the period, recovering from a 2.8 percent decline during the first quarter of last year. Pottery Barn led the way with a same-store gain of 11.9 percent, followed by Pottery Barn Kids with 4.8 percent and Williams-Sonoma, up 1.7 percent. As expected, same-store sales of Hold Everything fell by 11.0 percent as the company realigned the brand. Sales in outlet stores fell by 5.4 percent, tied to improvement in inventory management and a corresponding reduction in the excess inventory that has historically flowed through the outlets.

Driving the big bottom-line improvement, average gross margin widened by 280 basis points, to 38.0 percent from 35.2 percent the prior year. Gross margin dollars improved by 23.8 percent.

Providing another lift to profits, costs were whittled down by 190 basis points, to 32.8 percent from 34.7 percent a year ago, leveraging the strong sales growth.

In another big assist to earnings, the retailer cut its interest expense by 82.1 percent, to just $264,000 from $1.5 million last year.

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