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Sarah Fentem/MEDILL

Williams-Sonoma revenues have been steadily climbing.

Williams-Sonoma’s strong Q3 results overshadowed by weaker outlook

by Sarah Fentem
Nov 15, 2012

Strong third-quarter earnings weren’t enough to convince investors to hold onto shares of Williams-Sonoma Inc. after the company lowered its profit guidance for the current quarter to $1.21 to $1.28 per diluted share. Analysts had expected fourth quarter earnings of $1.31 per diluted share, according to Bloomberg LP.

Shares of the San Francisco-based housewares and furniture retailer fell nearly 4 percent, or $1.65, to $43.46 Thursday.

Helped by strong sales at its stores open for more than one year, Williams-Sonoma Inc. posted a 13 percent jump in third quarter earnings that were in line with Wall Street expectations.

In the quarter ended Oct 28, the company, which operates the Williams-Sonoma, Pottery Barn and West Elm chains, reported a third-quarter profit of $48.9 million, or 49 cents per diluted share, up from $43.4 million, or 42 cents per diluted share, in the same quarter last year.

Sales rose 8.9 percent to $945 million from $867 million a year ago, bolstered by revenue growth in the West Elm and Pottery Barn brands.

"We are encouraged by initiatives across all brands," said Joan Storms, an analyst at Wedbush Securities.

However, Storms says the stock still might be jittery going into 2013, pointing to competitive lower-priced lines and the big question mark that is the fiscal cliff.

"Macroeconomic uncertainties and other struggling home furnishings retailers keep promotions abundant within the industry," which may make Williams-Sonoma's sales growth unsustainable, she said.

The company's revenues were up across all Williams-Sonoma's chains, with the biggest sales growth in the West Elm, Pottery Barn, and Pottery Barn Kids chains, which were up 13 percent, 11.1 percent, and 10.1 percent, respectively.

West Elm's success could be attributed in part to its strong social media strategy, in particular its presence on the online collage website Pinterest as well as its Twitter feed, which is updated hourly with links to pictures. (Sample tweet: "@westelm: "'Home' is any four walls that enclose the right person."-Helen Rowland")

Last week, the retailer introduced its newest brand, Mark and Graham, which offers shoppers the ability to personalize dishes, tote bags and other home goods with a rainbow of colors and monograms.

In the first nine months of its fiscal year, Williams-Sonoma's profit rose 7.6 percent to $123 million, or $1.21 per diluted share, up from $114 million, or $1.07 per diluted share. Nine-month sales rose 7.5 percent to $2.6 billion from $2.5 billion.