Williams-Sonoma Cooks as Restatement Is Brushed Off

Investors brushed aside an earnings restatement by

Williams-Sonoma

(WSM) - Get Report

Wednesday, adding 12% to an already lofty stock.

Shares rallied after the trendy home decor chain set a 2-for-1 stock split and ratcheted up earnings guidance for the first half of the year. San Franciso-based Williams-Sonoma, which runs the Williams-Sonoma and Pottery Barn chains, attributed its success to avoiding markdowns. "This is the strongest first quarter performance in the history of the company," Howard Lester, the chairman, said in a statement.

Further on in its early morning press release, the company said it was restating fourth-quarter earnings to account for a change in how it books revenue, mainly from the sale of big-ticket items such as furniture. But investors chose to focus on the strong forecast, which comes amid increasing signs of economic strength throughout the U.S., a trend that should boost the fortunes of high-end retailers in general.

Brent Rystrom, who covers the company for U.S. Bancorp Piper Jaffray, raised his rating from outperform to strong buy Wednesday and slapped a $60 price target on the stock, which was up $6.08 to $53.44 at midday. He says the restatement "has no material impact on our forward expectations." (His firm has been an underwriter for Williams-Sonoma.)

The company said earnings in the first quarter will be significantly higher than previously forecast. Williams-Sonoma expects earnings of 17 cents to 19 cents a share, compared with a 4-cent consensus, according to Thomson Financial/First Call.

The company also gave bullish guidance for the second quarter, saying it expects earnings between 7 cents and 9 cents a share, up from prior guidance of 4 cents to 5 cents. It left the second-half outlook unchanged but boosted full-year earnings projections to between $1.69 and $1.75 from $1.52 to $1.56.

In the wake of Sept. 11, many on Wall Street were projecting good times ahead for home-oriented retailers, as consumers retreated to the home. Investors who took that advice have made plenty of money, and not just in Williams-Sonoma, but in other chains such as

Pier 1

(PIR) - Get Report

and

Restoration Hardware

(RSTO)

. Williams-Sonoma's stock has more than doubled since hitting a 52-week low of $21.37 last fall.

The restatement decision, reached after discussions with the staff of the

Securities and Exchange Commission

, resembles a recent

multiquarter restatement at rival Restoration Hardware. In that case, investors also shrugged off the news.

Now Williams-Sonoma will recognize revenue upon delivery to the customer, rather than at the time of shipment. The restatement will lower fourth-quarter profits by about $1 million, or 2 cents a share; when Williams-Sonoma reported fourth-quarter numbers March 11, earnings came in at $1.20 per share, a penny shy of the then-consensus estimate, and the stock fell more than 5%.

The company has clearly persuaded plenty of investors that it's ready to reap the rewards of a recovering economy. Still, at more than 30 times this year's estimated earnings, Williams-Sonoma will have to keep raising the bar for investors to justify that valuation.