Williams-Sonoma, Inc. Expects Net Revenue Decrease For 2008

Furniture World Magazine

Williams-Sonoma, Inc. announced financial guidance for fiscal year 2008, the 52 weeks ending February 1, 2009, with comparisons to fiscal year 2007, a 53-week year ended February 3, 2008. Net revenues in fiscal year 2008 are expected to be in the range of $3.793 billion to $3.877 billion – a decrease of 3.9% to 1.7% versus net revenues of $3.945 billion for the 53 weeks ended February 3, 2008. On a comparable 52-week to 52-week basis, net revenues are expected to change in the range of 2.0% to 0.2%. Diluted earnings per share in fiscal year 2008 are expected to be in the range of $1.42 to $1.56 – a decrease of 19.3% to 11.4% versus $1.76 in fiscal year 2007. Howard Lester, Chairman and Chief Executive Officer, commented, “As we look forward to 2008, we believe we will be operating in one of the most challenging macro-economic environments we have seen in many years. Accordingly, we are approaching 2008 with a high level of caution and a view to preserve flexibility in our business plans, which is reflected in today’s guidance.” “In 2008, we are focused on four key initiatives: (1) capitalizing on the success of our 2007 growth strategies, including the revitalization of the Pottery Barn brand; (2) driving growth in our core brands through enhanced capabilities in direct marketing and e-commerce; (3) aggressively identifying real estate expansion opportunities for the West Elm brand; and (4) continuing to drive operational efficiencies in our furniture supply chain – particularly in the area of furniture returns, replacements, and damages.” “To support future growth, in 2008 we are planning to increase retail leased square footage by approximately 8% by adding 29 net new stores and expanding or remodeling an additional 20 stores. West Elm, with 12 new stores, will contribute approximately one-third of this leased square footage increase. In our direct-to-customer channel, we will continue to leverage the success of our 2007 direct-marketing strategies, including increased catalog versioning, expanded paid search, and relevant e-mail, which we expect will allow us to reduce catalog circulation and optimize advertising costs.” “While we are confident in our ability to execute against these initiatives, we are expecting the home furnishings industry to be increasingly challenging in 2008. Therefore, in anticipation of a softer top-line, we are focused on the things we can control, including reductions in catalog circulation, the containment of discretionary costs, and the aggressive management of inventory, subject to our continued investment in the growth of our retail stores. Our expected impact of these actions is contemplated in the ranges of guidance we provided today.” FISCAL YEAR 2008 FINANCIAL GUIDANCE Net revenues in fiscal year 2008, a 52-week year, are projected to be in the range of $3.793 billion to $3.877 billion. This represents a projected decrease in net revenues in the range of <3.9%> to <1.7%> versus $3.945 billion during the 53 weeks of fiscal year 2007. On a comparable 52-week to 52-week basis, this represents a projected change in the range of <2.0%> to 0.2%. Retail net revenues in fiscal year 2008, a 52-week year, are projected to be in the range of $2.250 billion to $2.298 billion. This represents a projected change in retail net revenues in the range of <1.4%> to 0.7% versus $2.281 billion during the 53 weeks of fiscal year 2007. On a comparable 52-week to 52-week basis, this represents a projected increase in the range of 0.1% to 2.2%. Change in comparable store sales in fiscal year 2008 is projected to be in the range of <5.5%> to <3.0%>. This compares to comparable store sales growth in fiscal year 2007 of 0.3%. Comparable stores exclude new retail concepts until such time as we believe that comparable store results in those concepts are meaningful to evaluating the performance of the retail strategy. For fiscal year 2008, we expect to exclude West Elm, which currently has only 22 stores operating for more than one year and Williams-Sonoma Home, which currently has only 7 stores operating for more than one year. Retail leased and selling square footage in fiscal year 2008 is projected to increase in the range of 7.5% to 8.5%. This compares to retail leased and selling square footage growth in fiscal year 2007 of 5.3% and 5.5%, respectively. Direct-to-customer net revenues (comprised of both catalog and Internet revenues) in fiscal year 2008, a 52-week year, are projected to be in the range of $1.543 billion to $1.579 billion. This represents a projected decrease in direct-to-customer net revenues in the range of <7.3%> to <5.1%> versus $1.664 billion during the 53 weeks of fiscal year 2007. On a comparable 52-week to 52-week basis, this represents a projected decrease in the range of <4.9%> to <2.7%>. Catalog circulation in fiscal year 2008, a 52-week year, is projected to decrease in the range of <19.0%> to <14.0%> versus fiscal year 2007, a 53-week year. This represents, on a comparable 52-week to 52-week basis, a projected catalog circulation decrease in the range of <15.0%> to <10.0%>. Catalog circulation in the 53-week fiscal year 2007 increased 3.7% versus the 52-week fiscal year 2006. Gross margin as a percentage of net revenues in fiscal year 2008 is expected to be in the range of 37.1% to 37.3%. This represents a projected decrease in the gross margin rate in the range of 160 to 180 basis points versus 38.9% in fiscal year 2007. Selling, general and administrative expenses as a percentage of net revenues in fiscal year 2008 are expected to be in the range of 30.2% to 30.5%. This represents a projected decrease in the SG&A expense rate of 50 to 80 basis points, versus 31.0% in fiscal year 2007. Interest Expense - Net in fiscal year 2008 is projected to be interest expense of $1.0 million at the low end of the range and interest income of $1.0 million at the high end of the range. This compares to net interest income in fiscal year 2007 of $2.9 million. Income Taxes The income tax rate in fiscal year 2008 is projected to be in the range of 38.7% to 39.0%. This compares to an income tax rate in fiscal year 2007 of 38.1%. Throughout the year, we expect that there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated. Diluted Earnings Per Share Diluted earnings per share in fiscal year 2008 are expected to be in the range of $1.42 to $1.56. This represents a projected decrease in diluted earnings per share of <19.3%> to <11.4%> versus $1.76 in fiscal year 2007. Merchandise inventories at the end of fiscal year 2008 are projected to be in the range of $685.0 million to $730.0 million. This represents a projected change in merchandise inventories in the range of <1.3%> to 5.2% versus $693.7 million at the end of fiscal year 2007. Capital spending in fiscal year 2008 is projected to be in the range of $215.0 million to $235.0 million. This compares to capital spending of $212.0 million in fiscal year 2007. Depreciation and Amortization Depreciation and amortization expense in fiscal year 2008 is projected to be in the range of $154.0 million to $156.0 million versus $140.7 million in fiscal year 2007. Amortization of Deferred Lease Incentives Amortization of deferred lease incentives in fiscal year 2008 is projected to be in the range of $31.0 million to $32.0 million versus $29.4 million in fiscal year 2007. ABOUT WILLIAMS-SONOMA Williams-Sonoma, Inc. is a nationwide specialty retailer of high quality products for the home. These products, representing six distinct merchandise strategies -- Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home -- are marketed through 600 stores, seven mail order catalogs and six e-commerce websites.