The home furnishings, accessories and cookware company that operates brands Pottery Barn and Williams-Sonoma (NYSE:WSM) stores reported an 8 percent increase in profits for the fourth quarter-ended January 29th. Earnings climbed to $122.6 million, up from $113.4 million for the same period one year ago. Earnings per share improved to $1.17 beating analysts’ estimates of $1.13 per share. The company has had a challenging quarter as it revised its fourth-quarter outlook due to deeper discounting during the holiday shopping season. Revenue for the fourth-quarter reached $1.27 billion compared to $1.12 billion from one year ago, analysts forecasted $1.25 billion. One bright spot: online sales jumped by 18.1 percent as same-store sales increased 6.6 percent in the chain’s 576 stores. Investor’s Business Daily reported that while the company surpassed the expectations of Wall Street for the quarter, there remain concerns about projections going forward.
The Outlook Looks Disappointing
The company forecast earnings per share of 29 to 30 cents which failed to meet analysts’ expectations of 33 cents a share for this next quarter. The retail home furnishing sector is experiencing positive growth, so it comes as a surprise that Williams-Sonoma is not projecting a bigger number. Competitors like Bed Bath & Beyond (NASDAQ:BBY) and Pier 1 Imports (NYSE:PIR) are both trading near their 52-week highs and appear to have weathered the recession better than other retailers. The big retailers like Target (NYSE:TGT) have had a more difficult time as budget-conscious consumers continue to watch their pocketbooks amid a flurry of price promotions and discounting during the recent holiday shopping season that pared margins and profits for many retailers. The retail space is very well segmented by spending levels and the name brands continue to try to capitalize on their strong appeal to their customer base. Even the dollar store retailers have gotten into the act in what has become a more crowded discounting environment.
Concerns About Resignation Of CFO
The company also announced that long-time CFO Sharon McCollam, who also served as Chief Operating Officer, had left the company and will vacate her seat on the Board on March 16th. McCollam was CFO while the company grew from a $1 billion chain to a $4 billion brand machine that is well-respected in the industry for its seven direct-mail catalogs and six online websites. The company has appointed Julie Whalen their SVP, corporate controller and treasurer as acting CFO until a permanent replacement is hired. The markets reacted to the less-than-positive outlook and the change of CFO’s with a 5 percent drop in share price following the announcements. Some analysts are concerned, but Laura Alber, president and chief executive officer stated “We will continue to serve our customer anywhere, anytime by building on the competitive strengths of our multi-channel business.” The company continues to enjoy very strong brand awareness and customer loyalty remains high despite the challenging economic recovery. Many thought that as the real estate market stalled and has since failed to regain its footing that home furnishing retailers would continue to have a tough time. Pier 1 has bucked that trend and Williams-Sonoma looks to be holding their ground, albeit somewhat tenuously as the forecast for the next quarter is less than expected.
Getting Laser-Focused On Customers in 2012
CEO Alber said “In 2012 we will be putting customers at the center of everything we do.” Most retailers are customer-facing and have a good understanding of the needs of their customers. Williams-Sonoma intends to take advantage of their multi-channel businesses and improve the customer shopping experience with store-remodeling and more direct-to-customer fulfillment of orders. To that end the company will increase capital spending to $220 million and may utilize their $500 million cash balance at year-end to continue to reward shareholders via stock additional repurchases and a dividend which was recently increased by 47 percent. Other retailers like Gap stores have continued to press onward with their initiatives during the struggling recovery, only time will tell if Williams-Sonoma is able to remain laser-focused and deliver value to their customers.