* Q3 EPS ex-items 16 cts; Wall St expected 5 cts
* Says early reads on holiday encouraging
* Raises FY outlook
* Shares up 4.5 pct (Adds exec comments, byline)
By Dhanya Skariachan
NEW YORK, Nov 19 (Reuters) - Home goods retailer Williams-Sonoma Inc (WSM.N) raised its full-year outlook, as a move to offer more lower-priced home decor items and improved holiday merchandise resonated with shoppers.
The company, whose shares rose 4.5 percent, also posted a much better-than-expected quarterly profit, citing improved sales trends across all markets and a strong consumer response to its fall and holiday merchandise assortments.
The operator of the Pottery Barn, West Elm and Williams-Sonoma 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.
“We are trying to retrain customer to buy things as they come out versus waiting for the markdown,” a Williams-Sonoma executive said on a conference call with analysts.
Throughout the quarter, response to the company’s merchandise and marketing efforts was “progressively stronger-than-anticipated,” resulting in improved selling margins, CEO 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, with shares rising more than 70 percent in the last six months.
Williams-Sonoma’s net profit was $7.3 million, or 7 cents a share, in the third quarter ended Nov. 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 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.
It continues to see sequential improvement in revenue at its Pottery Barn segment and expects to gain market share as more independent players exit the market 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 and Richard Chang)