Williams-Sonoma profit falls 21%
Gourmet-cookware retailer Williams-Sonoma Inc. on Thursday reported the biggest profit drop in five years and lowered its fourth-quarter forecast, sending its shares to their lowest level since 2002.
Third-quarter net income fell 21% to $29.1 million, or 25 cents a share, from $37.1 million, or 31 cents, a year earlier as the San Francisco-based company cut prices at its Pottery Barn home-furnishings chain.
Williams-Sonoma reduced its fourth-quarter profit forecast by 15 cents a share to as little as $1 a share and said sales at stores open at least a year might fall 1%.
Pottery Barn sales fell 2.5%, the biggest decline since the quarter that ended in May 2003. Williams-Sonoma Chief Financial Officer Sharon McCollam said the retailer would keep discounting items at Pottery Barn to clear out its swollen inventories.
“I was a little surprised to see the magnitude that they were taking down the fourth quarter,” said Joseph Feldman, an analyst with Telsey Advisory Group in New York. “It certainly indicates that sales have been soft.”
Williams-Sonoma shares declined $3.48, or 9.9%, to $31.70 for their biggest drop since July 2002. They are down 27% this year.
Williams-Sonoma said it was reducing forecasts at all its home-furnishing chains amid a push by rivals to lure customers with lower prices.
“We have been copied so aggressively by so many people,” Chief Executive Howard Lester said. Rivals then sell the copied merchandise at reduced prices, he said.
The level of promotions from other retailers in the quarter was unprecedented, Pottery Barn President Laura Alber said.
Williams-Sonoma operates 255 of its namesake stores, 193 Pottery Barns, 91 Pottery Barn Kids, 20 West Elms and seven Williams-Sonoma Home stores.
Total revenue rose 3% to $852.8 million in the three months through Oct. 29. Sales at stores open at least a year, a key measure of retail health, were unchanged after growing 4.4% a year earlier.
Gross margin, or the percentage of sales left after subtracting the cost of goods sold, narrowed to 38.2% from 39.4%.
Selling, general and administrative expenses rose to 33.1% of sales from 32.2% a year earlier, the company said.
