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Williams-Sonoma 2Q Soars

SAN FRANCISCO - In a period that delivered better-than-expected revenues as well as strong comps and earnings, Williams-Sonoma Inc. singled out its PB Teen and West Elm brands as key drivers of its business and outlined several initiatives to keep up the momentum in the balance of this year.
     Second-quarter earnings rose to $30.8 million, or 28 cents a share, from flat last year. Revenues exceeded expectations, growing by 15.4% to $776 million versus $672 million in the year-ago period.
     Retail net revenues in the second quarter increased 12.4% to $450 million, propelled by growth of 13.6% in comparable store sales, partially offset by a 3.0% year-over-year reduction in retail leased square footage, including 20 net fewer stores.
     Increased net revenues during the quarter were delivered by the company's Pottery Barn, Williams-Sonoma and West Elm brands. By nameplate, second quarter year-over-year comp results included: 8.3% at Williams- Sonoma; 17.3% at Pottery Barn; 18.9% at Pottery Barn Kids; and 8.1% at the outlets.
     Laura Alber, president and ceo, offered more details during the company's quarterly conference call.
     "In our core brands, net revenues increased 15%. Pottery Barn saw the greatest increase, followed by Pottery Barn Kids and Williams-Sonoma," Alber added. "In our emerging brands, including West Elm, PB Teen and Williams Sonoma Home, bet revenues increased 16%."
     She explained that recent initiatives, "including innovative products and great value, e-marketing, and our retail clienteling program were the key drivers of our overall better-than-expected top-line performance."
     In the Williams Sonoma Home brand, the company's restructuring process is ongoing, and the company said it has reduced the brand's year-over-year non-Gaap operating loss from 1 cent per share in last year's second quarter to break-even this year.
     The company has also been able to negotiate the yearend closures and/or rebranding of eight of its 11 stand-alone stores. "As we look forward to next year, we will continue to market the brand through an online and limited store-in-a-store strategy with the Williams-Sonoma brand," she said.
     Pottery Barn saw continued momentum in both the retail and direct-to-consumer channels. All key categories, particularly furniture, textiles and decorative accessories, delivered strong growth.
     Pottery Barn Kids saw strong growth across all major product categories, including textiles, gear and furniture, and nursery, which showed much strength in sales, prompting the company to further tap that in future with a "greatly enhanced" registry service.
     PB Teen continued to be the top-performing nameplate for the company, with strong sales increases across all major product categories "as new entry-prince-point introductions continue to be both top sellers and new customer acquisition vehicles."
     During the quarter, the company launched a new PB Teen mailer, PB Dorm - "to an extremely enthusiastic consumer response. We see this business as a significant growth opportunity and we'll be expanding our merchandise assortment to fill what we believe is white space in this category."
     West Elm enjoyed a "very strong" second quarter "as changes in merchandising, marketing, and visual presentation continue to have an exceptional impact on both top and bottom line," Alber said. New product introductions, planned promotions, and enhanced value drove better-than-expected results.
     The build on this trend, the company is launching several strategic and tactical initiatives in the second half of this year such as remixing assortments and expanding aesthetics to appeal to a wider range of customers, including: a significantly expanded holiday gift assortment and partnering with emerging artists; enhancing customer engagement through multi-channel lifestyle marketing; increasing the penetration of opening price points; and expanding the non-furniture assortment to rebalance the product mix.
     Additionally, the company will continue to reduce West Elm's real estate, closing three underperforming stores this year and opening new sites in new locations "when we have attain sustained retail performance," Alber added.
    Another business segment making strides is e-commerce, which Alber described as the company's fastest growing channel. The company is working to build brand awareness and customer engagement through target email, paid search, affiliate marketing, and mobile technology. The efforts have reduced the company's overall adverting rate by 30 basis points despite a 70- basis-point investment in e-marketing expenses, she said.
     For the first half of the fiscal year, revenues increased 16.3% to $1.49 billion, with comps up 15.2%. Broken down by retail concept, comp results for the first 26 weeks were up in each nameplate were: 9.4% at Williams- Sonoma; 20.1% at Pottery Barn; 20.8% at Pottery Barn Kids; and 2.9% at the outlets.
     Turning to Williams-Sonoma Inc.'s recent international expansion, Alber said the company is pleased with the performance of its four franchised stores in Dubai and Kuwait.
     She added: "While this has little immediate financial upsides, it is a strategic step toward a longer-term international growth plan."
     Five additional international stores are planned for 2011.
     Looking ahead to the third quarter and the balance of the year, Williams-Sonoma Inc. is "extremely encouraged" by the margin trends it is seeing in its business today, particularly in the Pottery Barn and West Elm brands, prompting the company to raise its guidance.
     For the full year, the company sees net revenue rising 9% to 11%, up from its earlier forecast of 6% to 9%. Fiscal-year earnings are forecast at $1.63 to $1.70 a share before items. Its previous outlook was $1.39 to $1.48.
     "Regarding our guidance for the balance of the year, we are continuing to see a positive consumer response to our merchandising and marketing strategies, including our recently introduced fall assortments, as well as the enhanced customer service programs in all of our brands," Alber said.
     However, she added, since the company continues to believe that there could be volatility in the economy over the next several quarters, "we are approaching our guidance with that perspective in mind."

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