Williams-Sonoma posts higher profit, ups forecast

NEW YORK (Reuters) - Williams-Sonoma Inc (WSM.N) posted a higher-than-expected quarterly profit and raised its full-year forecast on Thursday, helped by cost cuts and a move to offer lower-priced home goods.

The operator of the Williams-Sonoma cookware and Pottery Barn furnishings chains has updated its styles and slashed prices on some items to woo shoppers in the economic downturn, despite worries that the move might tarnish its image as a high-end retailer.

Throughout the quarter, response to the company's merchandise and marketing efforts was "progressively stronger-than-anticipated," resulting in improved selling margins, Williams-Sonoma Chief Executive Officer Howard Lester said in a statement.

"The results are an indication that upper-income consumers are spending a bit more, which is not surprising given the rally in the stock market and the stabilization in the housing market," Barclays analyst Michael Lasser said.

Lasser added, however, that the company's valuation already reflected this and said investors might take profits.

The company's shares, which have risen more than 70 percent in the last six months on hopes of a consumer recovery, were up 21 cents, or 1 percent, at $21.24 in morning trading.

Williams-Sonoma's net profit was $7.3 million, or 7 cents a share, in the third quarter ended November 1. That compares with a year-earlier net loss of $11.0 million, or 10 cents a share.

Excluding one-time items, the company earned 16 cents a share, beating the analysts' average forecast of 5 cents, according to Thomson Reuters I/B/E/S.

Net revenue fell 3 percent to $729 million, but exceeded the analysts' average estimate of $686.1 million. Sales at stores open at least a year rose 1.7 percent.

While the retailer saw revenues at its Pottery Barn and West Elm chains rise in the quarter, those at Pottery Barn Kids, Williams-Sonoma and Williams-Sonoma Home fell.

Williams-Sonoma, like rivals Bed Bath & Beyond (BBBY.O) and Pier 1 Imports (PIR.N), has suffered as consumers stuck to buying essentials in the tough economy.

To combat weak demand, Williams-Sonoma has shut stores, cut its advertising budget and managed inventory tightly. In August, the company said it saw leaner inventories boosting margins in the back half of the year.

While selling, general and administrative expenses fell 6.3 percent, total cost of goods sold declined about 6.9 percent.

For the full year, the company said it expected earnings of 25 cents to 34 cents a share. It had earlier forecast a profit of 19 cents to 31 cents before one-time items.

Williams-Sonoma expects full-year net revenue of $2.98 billion to $3.04 billion, up from its prior outlook of $2.84 billion to $2.94 billion.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)