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Williams-Sonoma Tops Holiday Expectations as Consumers Repeat: There's No Place Like Home

If the return of shoppers to pricier retail outlets heralds an end to the soft economy, then the current crop of results at Williams-Sonoma (WSM) certainly suggests better days are ahead.

Don't be too anxious to cry prosperity quite yet, though.

Williams-Sonoma announced last week that its net revenues for the eight-week holiday period ended Dec. 27, 2009, advanced by just over seven percent to $783 million over the same time frame in 2008. Comparable store sales, those in locations open for a year or more, increased six and a half percent year over year.

How good were holiday sales at Williams-Sonoma? Wedbush Morgan analyst Joan Storms pointed out that, although no guidance was provided for the eight-week holiday time frame ending Dec. 28, the period represented approximately 75 percent of fourth quarter revenues. Comps in the eight weeks at six and a half percent, were handily above fourth quarter guidance of negative one to positive four percent. The conclusion is in the numbers: Williams-Sonoma did better than it could have hoped.

In another sign of giddiness, the retailer was happy enough with those results to raise its fourth quarter revenue guidance to a range of $1.06 billion to $1.08 billion and fourth quarter GAAP diluted earnings per share guidance to a range of 65 cents to 70 cents based on comps of four to six percent. Previously EPS guidance was in the 36 cents to 45 cents range. Williams-Sonoma also guided sales higher by about seen percent.

The holiday success at Williams-Sonoma wasn't all about consumers being more willing to shake an extra few dollars loose. The retailer was willing to meet the frugal customer half way.

Storms asserted that customers responded well to merchandising initiatives, including the introduction of more inexpensive opening price point products, those that require the consumer to pay the very least available in each product category. She said the opening price point merchandise represented an attractive value proposition that, coupled with online promotions, drove sales. One result of it all, she said, was that Williams-Sonoma should gain market share and, therefore, be in an even stronger position to gain from any gradual spending increase in the recovery.

Consumers certainly warmed to the company's Internet operation. While retail revenues gained six percent to $501 million in the holiday, direct sales, including online operations, advanced by 10 percent to $282 million. Success in online selling, considering the warm and increasingly passionate embrace consumers have been giving Internet retailers, is just more evidence that Williams-Sonoma should do well in the months ahead as long as the economy keeps on an upward tilt.

The success of an upscale retailer such as Williams-Sonoma might seem to signal that the economy will do just that, with consumers coming out of their spending funk. However, generalizing from the retailer's results might not be a terrific indicator of what tomorrow brings. Home retailers have been doing well in the recovery, with Bed, Bath & Beyond (BBBY) also enjoying success. Other retailers have taken notice. For example, Target (TGT) recently launched a line of Giada De Laurentiis cookware. Once a leader in mass-market cooking paraphernalia, having gotten attention with Michael Graves designs then scoring a coup by convincing upscale brand Calphalon to sell in its stores, Target let its home focus slip from pots and pans and turn to sheets and towels for a long time. Now, the retailer's eye is turned to cookware again, with De Laurentiis helping it sell not only pots, pans but also the staple category for successful retailers in the recent recession: food.

So, the retail sector where consumers are spending a little more money -- home -- is one that lets them entertain themselves and others in the domestic sphere in a nice, economical way. Although some evidence suggests that consumers are loosening their purse strings, it's happening slowly and with a consideration of how much they can save in the broader sense by purchasing in the narrower.