Specialty retailers present mixed bag for quarter
The news was both good and bad at some of the country’s largest specialty retailers in early spring, including Williams-Sonoma, Sherwin-Williams, Pier 1 Imports and Design Within Reach.
Williams-Sonoma exemplified that ambiguity with a fourth-quarter report that included some positive signs for high-end retailers Pottery Barn and West Elm, but a warning on the future state of the market.
First, the numbers: the company said earnings rose 3 percent in the fourth quarter to $124.6 million, a gain driven in large part by an extra week in the 14-week quarter. Sales rose 9 percent to $1.37 billion.
Year-over-year, earnings were down 6 percent to $196.8 million, while sales rose 6 percent to $3.94 billion.
In a conference call with investors, Williams-Sonoma CEO Howard Lester said the company was “pleased” with the fourth-quarter results, keeping in mind recent “recessionary” whispers and “especially when compared to the significantly lower growth rates of the home furnishings industry overall in 2007.”
In all, the company saw same-store sales fall 0.1 percent.
Same-store sales at outlet stores saw a 4.4 percent gain, the largest same-store growth figure overall. Pottery Barn stores were down 1.5 percent in same-store sales, while Pottery Barn Kids stores fell 2.4 percent. Same-store sales rose 1.1 percent at kitchen products retailer Williams-Sonoma.
Like most retailers in the home channel, the company expects the next year to be challenging, with Lester qualifying it as “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,” he said.
But still, in 2008, Williams-Sonoma plans to add 29 new stores—12 in the West Elm division. Williams-Sonoma also will expand or remodel an additional 20 stores.
Colin McGranahan of investment firm Sanford Bern stein questioned the move, asking Lester during the company’s call with investors why an expansion is called for in the present sales environment.
“It sounds like you think there’s some possibility we could be in a challenging environment for quite some time,” McGranahan said. “Maybe it would make some sense to be a little bit more conservative on that store growth.”
Though falling short of specifics, Lester pointed to the struggles of other retailers in the category as a reason for some of the company’s planned expansion effors.
“I would say that in general from a competitive standpoint…of course we are seeing, just through public information, many of our competitors struggling. Some are struggling to stay alive and some are going through all sorts of things, particularly those Companies that are in the furniture business primarily,” he said. “We think that’s a good sign. While we’re sorry it’s happening for them, we are seeing that as an opportunity for us to gain share.”
Ups and downs at Pier 1, DWR
Pier 1 Imports announced in late March it had reached an agreement to sell its flagship headquarters, which opened with fanfare just four years ago in Fort Worth. The company has been plagued by 16 consecutive quarters of losses but has been led in a turnaround effort by new CEO Alex Smith, who took over as company head last summer.
The sale of the company’s headquarters, for an undisclosed sum to Chesapeake Energy Corp., includes a provision for Pier 1 to continue to occupy about 250,000 square feet of the building under a seven-year lease agreement.
The sale of the headquarters facility accomplished three goals, Smith explained: recouping the company’s investment in its construction, “minimizing on-going costs” and “finding a quality business partner for a leasing relationship.”
The sale announcement came just prior to Pier 1’s fourth-quarter conference call, slated for April 10, after Home Channel News’ press deadline.
In all of the tumult, one specialty retailer managed to turn around its string of disappointing quarters. San Francisco-based Design Within Reach—sometimes called DWR—sells designer furnishings and decor at mid-to high-price points. The 65-unit retailer swung to positive earnings in the fourth quarter of $2.27 million; last year’s fourth quarter was marred by losses of $1.99 million. Quarterly sales were up 3.4 percent.
The stronger fourth quarter pushed the company into the black for the year, with earnings of $323,000. Last year, the company recorded a loss of $8.29 million. Year-over-year sales were up 8.9 percent in one of the toughest environments for home furnishings retail in recent memory.
“We are very pleased with our 2007 performance, which marks a significant miles tone in Design Within Reach’s turnaround,” said Ray Brunner, CEO. “Achieving annual profitability is the culmination of 18 months of controlling expenses and improving margins.”
Fewer paint stores
In another specialty sector, paint and coatings, Cleveland-based Sherwin-Williams cut its first-quarter out look due to rising costs of raw materials and lower-than-expected sales in the United States, after reporting a strong fourth quarter and year-end financial performance in February. Still, the company said results from its global group will be higher than expected.
In a conference call with investors on the amended sales projections, Sherwin-Williams CEO Christopher Connor said, “The length and severity of the housing market decline has caused a business and segment mix change that is contributing to this earnings shortfall.”
While the company originally forecast adding about 100 new stores next year, it also has trimmed that out look to 40 or 50 net new stores, with some closures planned. The company is “well underway” in implementing expense and head count reductions at plants, distribution centers and paint stores.
The company’s paint stores group is its primary income driver, followed by consumer paint sales in the United States and global group sales, which accounts for its smallest overall portion of the business.
“Our comp-store performance for our paint store segment will likely finish down in mid-single digits for the first quarter,” explained Connor in the March 24 call, “while our global segment is expected to report sale percent age gains in the mid-to high-teens.”
Connor added that, for the first time in “quite some period of time,” residential re-paint sales have fallen.
“Our stores are really feeling the brunt of it and particularly in the area of low sales that we have to the new housing market,” he said. “Our DIY segment is down as well.”
Sherwin-Williams will release full first-quarter results on April 11.
Bed Bath & Beyond declines in fourth quarter
Specialty retailer Bed Bath & Beyond posted weaker fourth-quarter earnings, due in part to an extra week in last year’s fourth quarter. The company saw earnings of $172.9 million, down 16 percent from $205.8 million in the same period last year.
Net sales for the fourth quarter were $1.93 billion, down 3 percent from last year’s fourth quarter. Comparable-store sales for the fiscal fourth quarter of 2007 decreased by 0.4 percent.
For the fiscal year, which again was one week shorter than the previous fiscal year, the company saw earnings decline 5.3 percent to $562.8 million from $594.2 million a year ago.
Net sales for the year were $7.049 billion, an increase of 6.5 percent from last year. Year-over-year, comparable-store sales increased by 1 percent. The company opened 22 new stores in the fourth quarter, including its first location in Canada.
The retailer said it expects comparable-store sales to be relatively flat or negative in 2008. Bed Bath & Beyond also warned investors it expects a per-share percentage decline in 2008 earnings from the low double-digits to mid-teens.
Bed Bath & Beyond operates a total of 971 stores nationwide.
Canfor reduces production
Vancouver, B.C.-based Canfor is reducing its production volume to reflect market realities. The company pointed to “falling demand and poor pricing for softwood lumber with no indications of a market recovery in the near future.”
Canfor will be reducing workweeks at a number of its operations. In addition, Canfor’s Prince George Sawmill will move from three shifts to two and its Clear Lake finger joint operation from two shifts to one. This move will reduce Canfor’s annualized lumber production by approximately 600 million board feet.