Chief Executive Dale Hilpert delivered a solid holiday performance for Williams-Sonoma Inc., but the upscale San Francisco-based retailer abruptly replaced him Thursday.
Hilpert, 59, joined the company less than two years ago after running the Foot Locker Inc. chain. But on the same day that the operator of Williams-Sonoma and Pottery Barn stores announced that it had a fine holiday season, the company said telecom veteran and board member Edward Mueller was immediately taking over as CEO.
The company's chairman said it was time for a leadership change. But the move took Wall Street by surprise, causing Williams-Sonoma shares to plunge as much as 14% in New York Stock Exchange trading before recovering to close down $2.26, or 8%, at $25.73.
"The company was successfully executing, so why would someone resign?" said Kristine M. Koerber, an analyst with WR Hambrecht & Co. in San Francisco.
Koerber said she would keep her "buy" rating on the company for now, but expressed some doubt about William-Sonoma's future. "They are taking on someone with no retail experience."
Mueller, 55, has been a director at Williams-Sonoma since 1999, serving as chairman of the board's audit committee. In March, he retired as chief executive of SBC Ameritech, a unit of telecommunications giant SBC Communications Inc. As recently as October, he was reportedly under consideration to take the helm of troubled telecom giant WorldCom Inc.
Hilpert's departure came despite a run of strong financial numbers from Williams-Sonoma, including a solid 2.7% increase in holiday sales at stores open at least a year.
Hilpert was known for pushing aggressively into new retail areas such as children's furnishings. In April, he oversaw the company's launch of West Elm, a furniture catalog a few notches down in price and quality from Pottery Barn.
Nonetheless, the company's stock has been languishing in recent months. And on Thursday, William-Sonoma's terse statement on the CEO change fueled rumors on Wall Street about personnel conflicts at the company or that there may be more serious hidden troubles such as accounting irregularities.
But in an interview, Chairman Howard Lester denied that there were any such problems looming. "We are so clean," he said.
Lester described Hilpert's departure as a mutual decision with the board, saying, "He's not mad about this. We're all happy here."
"Dale was immensely helpful in the two years he was here," Lester added. "But what happens is the board continues to push for improvements in leadership, and you start to think about what leadership you want for the next 10 to 15 years. You decide it's in the best interest for everyone for a change here."
Hilpert could not be reached for comment.
The company said Mueller was not available for an interview, and efforts to reach several other board members, including founder Charles E. Williams, were unsuccessful.
John A. Baugh, an analyst with Charlotte, N.C.-based Wachovia Securities, speculated that Hilpert's departure was the result of a personal rift or philosophical differences with other executives. "This is a company where the division heads wield a fair amount of power," he said.
Lester, 67, who has committed to one more year as chairman, said he would work closely with Mueller. "He's got great skills," Lester said. "The only thing he's missing is retail experience. We're convinced he can learn that."
The executive change will cost the company $3.6 million in the form of a buyout of Hilpert's five-year contract. The retailer said that would shave 2 cents a share off its fourth-quarter profit outlook; it now expects to earn 64 to 65 cents a share in the period.
Williams-Sonoma stood by its fourth-quarter revenue target of $848 million to $858 million, although it offered a cautionary outlook for 2003 because of the weak economy. The company also authorized a stock repurchase of up to 4 million shares.