Williams-Sonoma loss smaller than expected

ATLANTA (Reuters) - Home-goods retailer Williams-Sonoma Inc (WSM.N) reported a smaller-than-expected quarterly loss on Thursday and said it amended a $300 million credit line providing for more relaxed covenants, sending its shares up 11 percent.

The operator of Pottery Barn and Williams-Sonoma stores also said it had terminated a $150 million stock buyback program to conserve cash, and stood by a previously lowered profit forecast for the current holiday quarter.

"We believe that Williams-Sonoma will be a survivor of this consumer recession, aided by relaxed debt covenants announced today," Raymond James analyst Budd Bugatch said in a research note.

The loss was $11 million, or 10 cents a share, for the third quarter ended November 2, compared with a profit of $27.1 million, or 25 cents a share, a year earlier.

Analysts' average forecast was a loss of 11 cents a share, according to Reuters Estimates.

Revenue fell 16 percent to $752.1 million but was better than the $735.7 million expected by analysts. Sales at stores open at least a year were off 21.4 percent.

Pottery Barn, which is revamping its assortment to include more value-priced items, was the worst-performing brand in the third quarter, with same-store sales down 27.6 percent. Chief Executive Howard Lester said Pottery Barn is now more affected by the weaker economy than product issues.

"There are categories of merchandise that we have missed in," Lester said during a conference call. "But it is not primarily about the merchandise today, in my view."

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Gross margin contracted to 32 percent of sales from 38.2 percent a year earlier, hurt by increased price markdowns.

Cash and cash equivalents came to nearly $23 million as of November 2, compared with $16.3 million a year earlier.

The softer U.S. economy and continuing housing slump has forced home-goods retailers to cut growth and focus on bolstering liquidity. Going-out-of-business sales at Linens 'n Things, which is closing stores after filing for bankruptcy earlier this year, are also weighing on the sector.

Earlier this week, Bed Bath & Beyond (BBBY.O) cut its third-quarter earnings forecast, saying results were being pressured by liquidation sales. Last month, Pier 1 Imports (PIR.N) forecast a loss for its third quarter, citing low customer traffic.

Williams-Sonoma stood by its October forecast calling for profit of 10 cents to 30 cents a share for the fourth quarter on revenue of $940 million to $1 billion.

Analysts expected a profit of 19 cents a share for the fourth quarter, down from earnings of $1.15 a year earlier, according to Reuters Estimates.

For 2009, Williams-Sonoma said it would look to cut real estate costs and focus on value pricing and promotions. Capital spending is expected to be $95 million to $105 million as fewer stores are opened next year, down from $190 million to $200 million forecast for 2008.

The company said it successfully amended a $300 million unsecured revolving credit line and a $165 million commercial letter of credit reimbursement facility to provide for more flexible terms.

"With the new facility in place, we see little risk for WSM to face credit or liquidity issues in the coming year" despite expectations for quarterly losses through next year's third quarter, Sanford Bernstein analyst Colin McGranahan said in a research note.

Williams-Sonoma shares rose 85 cents, or 11.2 percent, to $8.52 in early-afternoon New York Stock Exchange trading. Bed Bath & Beyond was up 83 cents, or 3.69 percent, to $23.32, and Pier 1 unchanged at 58 cents.

(Reporting by Karen Jacobs; editing by John Wallace, Dave Zimmerman, Richard Chang)