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Outlook Is Bleak at Williams-Sonoma

Updated from 10:21 a.m. EDT

Williams-Sonoma (WSM) eked out a 3% rise in fourth-quarter profits, beating its lowered targets, but the home-goods seller offered a weaker-than-expected outlook for the coming year as the housing slump continues to sap demand.

Shares of the company fell nearly 7% Thursday.

For the quarter ended Feb. 3, the San Francisco-based retailer earned $124.6 million, or $1.15 a share, up from $121.1 million, or $1.06 a share, a year earlier.

The results were better than Williams-Sonoma's forecast in January for a profit of $1.11 to $1.14 a share. At the time, the company lowered its guidance from a prior projection of $1.19 to $1.25 after recording worse-than-anticipated holiday sales.

Analysts polled by Thomson Financial forecast earnings of $1.12 a share.

Revenue rose to $1.37 billion from $1.25 billion the prior year; same-store sales, or comps, slipped 0.1%. Same-store sales represent sales at stores open at least a year.

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The same-store sales were brought down by the company's Pottery Barn and Pottery Barn Kids home-furnishings concepts, which recorded comps declines of 1.5% and 2.4%, respectively. The Williams-Sonoma kitchenware chain posted a 1.1% rise in comps, while outlet stores saw same-store sales jump 4.4%.

Gross margin as a percent of revenue fell to 41.6% from 43.2% as the company was forced to record markdowns to move product. It also was hit by higher raw material costs and inventory-related expenses.

With the housing downturn and overall economic malaise continuing to slam the company, Williams-Sonoma forecast declines in both profits and revenue for 2008.

"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," said Chairman and CEO Howard Lester in a statement. "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."

Williams-Sonoma projected fiscal-year earnings of $1.42 to $1.56 a share, which would be an 11% to 19% drop from $1.76 in the recently ended year. That represents a deteriorated outlook from January, when the company forecast a mid-single to high-single digit decrease in earnings.

Analysts, on average, see earnings of $1.63 a share for the year ending next February.

The company projected revenue for the year of $3.79 billion to $3.88 billion, a 1.7% to 3.9% year-over-year drop. Analysts had forecast a top line of $3.95 billion.

Shares of Williams-Sonoma recently were down $1.69, or 6.8%, to $23.30.

Know What You Own: WSM operates in the home furnishings industry, and some of the other stocks in its field include Bed Bath & Beyond (BBBY), Pier 1 Imports (PIR), Target (TGT) and Wal-Mart (WMT). These stocks were recently trading at ($30.38, -3.00%), ($6.01, -3.22%), ($51.67, -1.43%) and ($52.64, -0.49%) respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

This article was written by a staff member of TheStreet.com.

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