High-end kitchen products retailer Williams-Sonoma Inc. (WSM) announced Thursday better-than-expected results, reporting a profit for the third quarter compared to a loss last year, boosted by higher margins and lower expenses, despite charges and a 3% decline in quarterly revenues. Comparable store sales by also increased 1.7%.
Non-GAAP earnings per share for the quarter significantly topped analysts' expectations. The company also raised its earnings and revenue forecast for the fourth quarter and the full-year 2009, citing favorable impacts of merchandising, marketing and service level changes.
In a statement, chairman and chief executive officer, Howard Lester said, "We are extremely pleased to deliver another consecutive quarter of better than expected results. Throughout the quarter, we saw a progressively stronger than anticipated consumer response to our merchandise and marketing strategies which resulted in significantly improved selling margins. We also saw ongoing benefit from our cost containment and inventory management initiatives, all of which contributed to a $206 million increase in our cash balance versus last year."
Third Quarter Results
The San Francisco, California-based retailer reported net earnings of $7.33 million or $0.07 per share for the third quarter, compared to a net loss of $11.00 million or $0.10 per share in the prior-year quarter.
The results for the latest quarter include $0.06 per share of asset impairment and early lease termination charges for underperforming retail stores, and $0.03 per share of charges related to early exit of excess distribution capacity. The year-ago quarter a net charge of $0.01 per share.
Excluding the unusual business events, non-GAAP earnings for the quarter was $0.16 per share, compared to last year's loss of $0.10 per share. On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $0.05 per share for the third quarter. Analysts' estimate typically exclude special items.
Net revenues for the quarter declined 3% to $729.30 million from $752.05 million in the same quarter last year, but topped fifteen Wall Street analysts' consensus estimate of $686.09 million. Comparable store sales for the quarter increased 1.7%, compared to a 21.4% drop last year.
While reporting second-quarter results back in August, the company expected to report between a loss of $0.03 per share and a profit of $0.01 per share for the third quarter, on revenues between $660 million and $700 million.
Segmental Details
Retail revenues, which were 58.7% of net revenues, edged up 0.9% to $428.29 million from $424.39 million in the year-ago quarter, driven by an increased of 1.7% in comparable store sales and a 2.2% year-over-year increase in retail leased square footage, including four net new stores.
Retail brand wise, Williams-Sonoma reported a 2.1% decrease in comparable store sales, on top of a 11.4% drop in the prior-year quarter, while Pottery Barn's comparable store sales rose 7.6%, compared to a 27.6% drop last year.
Pottery Barn Kids' comparable store sales slipped 3.1%, compared to a 20.0% downside in the third-quarter of 2008. Outlets posted comparable store sales drop of 6.7% on top of a 26.1% drop in the year-ago quarter.
Direct-to-customer revenues, including catalog and Internet revenues, which were 41.3% of net revenues, declined 8.1% to $301.01 million from last year's $327.66 million, reflecting declining net revenues in all brands. Internet revenues were down 7.0% to $230 million from last year.
Other Metrics
Earnings from operations for the third quarter was $9.46 million, compared to $19.38 million in the prior-year quarter.
Gross margin for the quarter was $252.85 million, up from $240.48 million in the year-ago quarter, and gross margin percentage rose 270 basis points to 34.7% from last year's 32.0%, driven by reductions in freight costs and occupancy expense, lower replacements and damages, as well as a decrease in cost of merchandise, including the benefit from reduced markdowns.
As a percentage of net revenues, total cost of goods sold, decreased 270 basis points to 65.3% from a year ago, and selling, general and administrative expenses were 33.4%, a decrease of 120 basis points from last year.
Merchandise inventories at the end of third quarter decreased 21.5% to $545 million from $695 million at the end of prior-year quarter, reflecting continued inventory reduction strategies.
Williams-Sonoma ended the third quarter with cash and cash equivalents of $228.74 million, compared to $22.99 million at end of the prior-year quarter.
Nine-Month Highlights
For the nine-month period, Williams-Sonoma reported a net loss of $10.98 million or $0.10 per share, compared to net earnings of $17.83 million or $0.17 per share in the prior-year period. Excluding unusual business events, non-GAAP earnings for the period increased to $0.08 per share from last year's $0.05 per share.
Net revenues for the year-to-date period declined 14.5% to $2.01 billion from $2.35 billion in the same period last year. Comparable store sales declined 11.6%.
Looking ahead..........
"Our focus on the aspects of the business we could control - merchandising, marketing, working capital, and cost containment - has driven the organization to a higher level of performance and we are optimistic that this performance will allow us to incrementally improve our operating margins over time, despite our belief that macro-economic recovery will be slow and gradual," Lester added.
Williams-Sonoma noted that it is raising its earnings and revenue forecast for the fourth quarter and full-year 2009 in order to reflect the favorable impacts of merchandising, marketing and service level changes made in the business.
For the fourth quarter, the company now expects GAAP and non-GAAP earnings in a range of $0.36 to $ 0.45 per share, up from the prior outlook of GAAP and non-GAAP earnings of $0.27 to $0.36 per share.
The company also raised its guidance for fourth-quarter net revenues to a range of $970 million to $1.03 billion from the previous guidance of $900 million to $960 million. Comparable store sales are now projected be between a decline of 1% and an increase of 4%, compared to earlier expectations of a decline in the range of 6%-11%.
Analysts expect the company to report earnings of $0.38 per share on revenues of $949.92 million for the fourth quarter.
For fiscal 2009, Williams-Sonoma boosted its GAAP earnings forecast to a range of $0.25 to $0.34 per share from its prior outlook of $0.06 to $0.08 per share. On a non-GAAP basis, the company currently anticipates earnings in a range of $0.43 to $0.52 per share, up from the prior forecast of $0.19 to $0.31 per share.
Net revenues for the full-year are currently projected in the range of $2.983 billion to $3.043 billion, up from the prior guidance range of $2.844 billion to $2.944 billion. Comparable store sales for fiscal 2009 is now projected to decline in a range of 6%-8%, compared to the previous guidance that called for a decrease in the range of 12%-15%.
The Street is currently looking for full-year 2009 earnings of $0.33 per share on revenues of $2.92 billion.
The company added that it also continuing to expand on the initiatives that have driven the success, including capturing market share through innovative merchandising and a greater emphasis on opening price points, delivering superior customer service, continuing catalog circulation optimization strategy, driving efficiencies in worldwide supply chain, and maximizing profitability and cash flow.
Stock Quote
WSM closed Wednesday's regular trading session at $21.03, up $0.13 on a volume of 3.57 million shares, higher than the three-month average volume of 2.48 million shares. In the past 52-week period, the stock has been trading in a broad range of $4.35 to $22.25.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.