From: Reuters
Published November 15, 2007 10:30 AM

Williams-Sonoma shares drop after cautioning on holidays

By Aarthi Sivaraman

NEW YORK (Reuters) - Upscale home furnishings retailer Williams-Sonoma Inc <WSM.N> posted lower profit on Thursday as the weak U.S. housing market weighed on sales of home goods, and issued a note of caution on the holiday quarter.

Its shares fell over 5 percent in morning trading, as it warned that it was looking at the fourth quarter with "a heightened sense of caution" since it believes the overall weakness in the economy is having a greater impact on consumers.

"It appears that the holiday season is off to a sluggish start," Sanford C. Bernstein analyst Colin McGranahan said in a note to clients.

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In the fiscal third quarter that ended October 28, net income fell nearly 7 percent to $27.1 million, or 25 cents a share, from $29.1 million, or 25 cents a share, a year earlier.

Analysts, on average, expected 24 cents a share, according to Reuters Estimates.

Quarterly sales at the company, which operates the Pottery Barn, West Elm and its namesake chains, rose 5 percent to $895.1 million.

The home furnishings environment was "very challenging" in the quarter, particularly in areas hit hard by housing market concerns, Chief Executive Howard Lester said in a statement.

However, sales at stores open at least a year rose marginally at its namesake and Pottery Barn stores, and increased 4.5 percent at Pottery Barn Kids, leading to an overall same-store sales increase of 1.1 percent.

OUTLOOK

The company said it was on track for fourth-quarter earnings of $1.20 to $1.26 per share on revenue of $1.387 billion to $1.417 billion.

However, Lester warned that earnings and sales could come in at the lower end of the forecast if consumer spending remains under pressure.

"We believe that the macro environment is weakening and that retail traffic is slower than we would have expected at this time in November," he said.

Analysts expect the company to earn $1.22 per share in the fourth quarter.

Williams-Sonoma stood by its forecast that same-store sales would grow 0.5 percent to 2.5 percent in the fourth quarter.

For the full year, it raised the lower end of its earnings forecast slightly. It now expects to earn $1.84 to $1.90 per share excluding one-time items, up from a previous forecast of $1.82 to $1.90.

Williams-Sonoma also revised its full-year sales forecast to a range of $3.96 billion to $3.99 billion, from its previous forecast of $3.95 billion to $4 billion. Analysts expect $3.97 billion.

The company said same-store sales would be flat to up 1 percent for the year, compared with its previous forecast of flat to up 1.5 percent.

Williams-Sonoma shares were down 5.5 percent at $28.59 on the New York Stock Exchange.

(See http://blogs.reuters.com/category/themes/shop-talk/ for "Shop Talk" -- Reuters' retail and consumer blog))

(Additional reporting by Martinne Geller; editing by Mark Porter/John Wallace)

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