Williams-Sonoma Sees 3rd-Quarter Profit Drop

Williams-Sonoma Inc., a kitchen-goods and home-furnishings chain, said Monday fiscal third-quarter profit will fall on lower-than-expected catalog sales and higher costs. The news sent its shares down nearly 30%.

The San Francisco-based operator of Williams-Sonoma, Pottery Barn and Hold Everything stores and catalogs, also said that Chief Financial Officer John Tate, 50, will resign as of Nov. 1 after just 18 months at the job.

Profit in the quarter ending Oct. 29 will be 4 to 6 cents a share. Analysts’ average estimate was18 cents, according to First Call/Thomson Financial.

The company said third-quarter revenue is expected to range from $380 million to $395 million. In the year-ago third quarter, Williams-Sonoma earned 16 cents a share on sales of $324.1 million.

Sluggish demand for products in the company’s autumn and early holiday catalogs hurt sales, forcing the company to mark down prices and boost advertising. Higher interest rates and gasoline prices have prompted shoppers to reduce spending, and analysts expect that third-quarter U.S. economic growth slowed.

“With sales off over all catalogs, we have to believe that the economic environment is having some impact on sales,” Williams-Sonoma Chairman and Chief Executive Howard Lester told analysts on a conference call.

All of the company’s catalogs are performing below company expectations except Chambers, which sells linens and towels, Lester toldanalysts.

“This company has had difficulty in the past making their numbers when things slow down,” said David Magee, an analyst with Robinson-Humphrey who rates the stock “outperform.” “This is another piece of evidence of that.”

A.G. Edwards analysts Brian Postol said Williams-Sonoma’s lackluster sales can be linked in part to an overall slowdown in consumer spending on big-ticket items such as furniture and home decor items such as lamps and vases.

Shares of Williams-Sonoma tumbled $7.88 to close at $19 on New York Stock Exchange trading. The stock has fallen 61% in the last year, exceeding the 13% drop in the Standard & Poor’s composite index.

The company competes with retailers such as Crate & Barrel and Restoration Hardware Inc. as well as the housewares, kitchen and furniture sections of department stores.

Sales will rise to $380 million to $395 million, less than forecast, from $324 million last year, the company said. Magee had expected sales to reach $398 million.

Sales at stores open at least a year will rise 4% to 5%, less than last year’s 9.6%. Williams-Sonoma’s forecast was in line with Magee’s estimate for a 5% gain.

Williams-Sonoma said it could not provide guidance for periods beyond the third quarter, but Lester told analysts he would hope that fiscal 2000 fourth-quarter earnings would come in above the 82 cents earned in the same quarter a year ago.

Analysts had expected the home furnishings retailer to report a fourth-quarter profit of $1.09, according to First Call.

Williams-Sonoma said depressed gross margins in the retail division are primarily due to higher-than-expected promotional activity and increased freight costs, a situation that has dogged the company all year.

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Williams-Sonoma’s Slide

Retailer Williams-Sonoma said it expects third-quarter earnings per share to be 60% to 75% lower than a year ago, causing shares to lose 30% Monday. The stock is off from its 52-week high of $60.31.

Weekly closes and latest for Williams-Sonoma on the NYSE

Monday: $19, down $7.88

Source: Bridge News