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Williams-Sonoma swings to loss on declining home furnishings

by and Emily Co
June 03, 2009


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Emily Co/ MEDILL

Williams-Sonoma posts a first quarterly net loss of 18 cents per diluted share, surpassing analysts' expectations of 21 cents per diluted share. 

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In the face of the lagging housing market and the battering of its home furnishings product line, Williams-Sonoma Inc. swung to a fiscal first-quarter loss.

The San Francisco-based home products retailer reported a fiscal first quarter net loss of $18.71 million, or 18 cents per share, for the quarter ending May 3. This compares to a net profit of $10.45 million, or 10 cents per share, in the year-earlier period. Net revenues for the fiscal first quarter decreased 21.8% to $611.6 million from $781.8 million on a year-over-year basis.

Results surpassed analysts’ estimates of a 21 cents per share net loss, as polled by Zacks Investment Research Inc.

The company is trying to cope with the decrease in customer spending and the bleak housing market by reducing costs in areas such as advertising. Effecting strategies such as catalog circulation optimization and an increase in online marketing resulted in a 30 percent reduction in advertising expense. In addition, Williams-Sonoma made budget cutbacks on store leases by negotiating better contracts on leases ready for renewal, closure of underperforming stores and eliminating excess distribution and corporate space.

Howard Lester, chairman and chief executive officer, said in a conference call Wednesday that in comparison with its peers the company’s outlook looks good “based on ongoing competitor announcements of store closings, inventory liquidations and bankruptcy.”

Anthony Chucamba, analyst from FTN Equity Capital Markets Corp. said that although the economic downturn has negatively affected Williams-Sonoma, it has had more effect on the company’s competitors, which typically are “mom and pop stores,” resulting in closings and bankruptcy filings. This places the company at a long-term advantage when economic conditions improve, he said.

With household names like Pottery Barn, Joseph Feldman, analyst at Telsey Advisory Group, said the company’s strength lies in having a lot of brand strength that resonates with consumers. “They controlled expenses very well despite the weak sales transit,” Feldman said.

“Peoples’ homes are still one of their most material assets and they will invest in them over time. And when they do, our brands will be well positioned to capitalize on the opportunity,” Lester said.

Williams-Sonoma is projecting net revenues of $650 million to $675 million for the second fiscal quarter and is maintaining its fiscal 2009 year net revenue projection of $2.81 billion to $2.93 billion.

Shares were trading at $13.31 midday, down 9.5 percent from Tuesday’s close of $14.70.