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Williams-Sonoma Surges in Q4

Fueled by strong same-store sales and interest earned on banked money, diversified home goods retailer Williams-Sonoma Inc. pushed fourth-quarter profits up by 6.2%, to $120.8 million from $113.7 million last year.

Sales improved by 12.1%, to $1.2 billion from $1.1 billion last year. Direct-to-customer sales, both by internet and catalog, continued to grow at a faster pace than sales in retail stores, growing by 14.1%, to $457.8 million, compared with a 10.8% increase in bricks and mortar, to $756.9 million.

Same-store sales improved by 5.8%, far ahead of a smaller gain of 1.5% last year. Comps were strongest in outlet stores, up 11.9%, and grew by 5.9% in the company's flagship Williams-Sonoma stores. Pottery Barn grew by 5.6%, and Pottery Barn Kids by 3.9%. The Hold Everything franchise still lagged behind; same-store sales fell by 3.2%, but still managed to improve on a deeper decline of 8.4% a year ago.

In addition to stronger comps, $2.1 million in interest income provided a lift to earnings. It was more than triple the $575,000 earned last year.

But acting as a drag, margins thinned during the all-important holiday quarter, narrowing by 120 basis points, or 1.2 percentage points, to 43.6% from 44.8% last year. Operating costs improved slightly, declining by 10 basis points, or a tenth of a percentage point, to 27.7% of sales from 27.8% the preceding year.

Williams-Sonoma Inc.

Qtr. 1/29 (x000) 2005 2004 % change
a. Fourth-quarter results include a $13.5 million pre-tax charge, or $0.07 per share, stemming from asset impairment and lease termination costs associated with the shutdown of its Hold Everything stores, and the consolidation of the brand into other Williams-Sonoma nameplates; and $2.1 million in interest income, compared with $575,000 during the same period last year. The Hold Everything charge reduced gross profit by $4.5 million, reducing average gross margin; and added $9.0 million to operating costs, increasing the expense ratio in both the fourth quarter and 12-month periods.
b. Twelve-month results include the $13.5 million charge tied to the Hold Everything restructuring; and $3.7 million in interest income, compared with $236,000 last year.
Sales $1,214,397 $1,083,639 12.1
Oper. income (EBIT) 192,830 184,040 4.8
Net income 120,783a 113,748a 6.2
Per share (diluted) 1.02 0.95 7.4
Average gross margin 43.6% 44.8%
SG&A expenses 27.7% 27.8%
12 months 2005 2004 % change
Sales $3,539,947 $3,136,931 12.8
Oper. income (EBIT) 345,090 309,969 11.3
Net income 214,866b 191,234b 12.4
Per share (diluted) 1.81 1.60 13.1
Average gross margin 40.6% 40.5%
SG&A expenses 30.8% 30.6%

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