Williams-Sonoma takes cautious view of year's end

CHICAGO Thu Aug 19, 2010 3:56pm EDT

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CHICAGO (Reuters) - Williams-Sonoma Inc (WSM.N) stuck with a forecast for the end of the year, including the holiday shopping season, that fell short of Wall Street's expectations, and its shares fell as much as 6 percent.

The operator of Williams-Sonoma cookware stores and the Pottery Barn furniture chain posted higher-than-expected second-quarter earnings on Thursday and raised its forecast for the third quarter. But it did not change its outlook for the fourth quarter, raising questions about its momentum.

"They're one of those companies that has been lapping some very easy year-over-year comparisons," said Peter Wahlstrom, an analyst with Morningstar. "That makes this quarter's sales look very, very good. In the back half of the year, comparisons aren't so easy."

Williams-Sonoma chain raised its third-quarter profit forecast to a range of 26 cents to 30 cents per share but left its outlook for the fourth quarter unchanged at 84 cents to 89 cents.

Analysts on average were expecting 91 cents for the fourth quarter, according to Thomson Reuters I/B/E/S.

Investors also worry that a now-expired U.S. tax credit for home buyers boosted sales disproportionately in earlier quarters. Without the incentive, consumers would buy fewer homes and do less redecorating, and furnishings companies could suffer as a consequence, said Jennifer Milan, an analyst at Sterne, Agee and Leach.

New data on the U.S. economy added to those concerns, with the new jobless claims hitting a nine-month high. Retailers that sell home goods and other discretionary merchandise are seen as particularly vulnerable should shoppers sharply cut spending again.

Shares of competitors Ethan Allen Interiors Inc (ETH.N) and Pier 1 Imports Inc (PIR.N) fell 6.7 percent and 4.6 percent, respectively, on Thursday.

SUCCESS STORY OR PUNCHING BAG?

Williams-Sonoma said second-quarter net profit rose to $30.8 million, or 28 cents a share, from $399,000, or nil cents a share, a year earlier.

Excluding items, the company earned 31 cents a share. Analysts on average were expecting 22 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 15.4 percent to $776 million, beating analysts' estimates of $757.9 million.

The company said that online marketing, targeted mailings and lower prices for some products helped it gain market share and draw in new customers.

A relatively new e-commerce platform and analysis of an extensive database of shoppers to identify trends and target marketing has pushed Williams-Sonoma ahead of competitors, Milan said.

"They definitely seem to be the most sophisticated and ahead of the curve," she said.

In a research note, analysts from Oppenheimer called Williams-Sonoma a success story despite the company's status as a "preferred 'punching bag' of those in the 'double-dip camp.'"

Williams-Sonoma forecast fiscal-year earnings at $1.63 to $1.70 a share before items. Its previous outlook was $1.39 to $1.48.

The company's shares were down 2.2 percent, or 63 cents, at $27.70 in late trading on the New York Stock Exchange.

(Reporting by Ben Klayman in Detroit, Dhanya Skariachan in New York and Emily Stephenson in Chicago; Editing by Michele Gershberg, Lisa Von Ahn and Steve Orlofsky)

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