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Home specialists take macro hit


NEW YORK —Among even the best home specialists, it looks as if the current marketplace is taking a toll, as Williams-Sonoma saw earnings slide in its first quarter. And just after Williams-Sonoma posted its results, Bed Bath & Beyond announced earnings guidance that fell short of analysts’ estimates.

On June 4, Bed Bath & Beyond provided guidance of 36 cents to 38 cents per share for the first quarter. While the low end of that range still beats the 35 cents per share the company earned in last year’s quarter, it fell short of a Reuters analysts’ average of 39 cents. Consequently, Bed Bath & Beyond’s shares slipped from a $40.92 open on June 4 to a $38.27 close on June 5.

Williams-Sonoma announced May 30 that diluted earnings per share for the first quarter of fiscal year 2007 decreased to 16 cents per diluted share versus 20 cents per diluted share in the 2006 quarter. Excluding extraordinary considerations, diluted earnings per share on a non-GAAP basis for the first quarter decreased to 17 cents compared with 21 cents in the 2006 quarter.

Williams-Sonoma’s 2007 first-quarter net revenues increased modestly, gaining 2.7% to $816.1 million versus the year earlier period. Comparable-store sales decreased by 0.8% with the namesake banner, Pottery Barn and Pottery Barn Kids suffering declines and only outlets improving.

In a statement, Williams-Sonoma chairman and ceo Howard Lester, pointed to the “macro environment in the home furnishings sector” for contributing to the chain’s lackluster results, but he insisted, “We aggressively managed the rapid changes in our business and delivered better-than-expected earnings for the quarter.”

From May 29, when Williams-Sonoma’s share price was $33.85, the stock slipped then rattled around but never quite recovered, ending at $32.78 on June 5.

Similarly, Bed Bath & Beyond ceo Steven Temares characterized the retailing environment, particularly as regards home goods, as “challenging.” But he also offered an optimistic appraisal, saying, “While we did not achieve all of our financial goals during our initial fiscal quarter of 2007, we remain optimistic that this year will be our best ever.”

Colin McGranahan, a Bernstein Research analyst, noted in a research posting that Bed Bath & Beyond has generally been able to press through difficult economic environments and still generate a 3% to 5% comp, but those cycles are becoming a bigger issue as the retailer matures. “We are not ready to point to any execution issues,” he said. “But, we do believe that the company is running up against an increasingly competitive sector and could be running at both peak productivity levels and peak margins.”

Competition from broadliners has been implicated in poor performance among home goods specialists as has a softer real estate market and changing tastes and priorities among consumers who seem to have been shaking off behaviors associated with the nesting phenomenon from a couple of years ago.

Wedbush Morgan analyst Joan Storms focused on the “weak housing market and its negative impact on home furnishings and therefore on Williams-Sonoma’s portfolio of home concepts” for the company’s problems, but maintained a relatively positive outlook on the company. “Longer-term, we are a strong supporter of the Williams-Sonoma story due to its strong home brand portfolio and competitive advantages, especially its multiple distribution channel platform.”

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