Pottery Barn 2004 Annual Report Download - page 4

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Building Infrastructure
The third highlight of our 2004 operating results was the significant progress we made in building our
infrastructure to support the growth of our core and emerging brands.
In the information technology area, we made great strides in our five-year strategic plan. To support the long-
term scalability of our infrastructure, we outsourced the hosting of our data center and e-commerce websites to
IBM. We also continued developing our new direct-to-customer order management and inventory management
systems, which we expect to implement in 2006 and 2007.
In distribution operations, we increased our leased square footage by 25%, including expanding our coastal
distribution network. In the third quarter, we opened our first east coast distribution center in Cranbury, New
Jersey. This facility, even in its early months of operations, provided significant operational efficiencies in our
furniture supply chain and we expect to see even greater strategic and operational benefits, including improved
delivery times and reduced shipping costs, in 2005 and beyond.
Commitment to Corporate Governance
A final highlight of 2004 was the advancements we made in the area of corporate governance. We have always
managed our business with integrity and high ethical standards and our organizational commitment to strong
governance and financial discipline has never been greater. Reflective of this commitment was our company-
wide dedication to achieving full compliance with the corporate governance and financial reporting standards set
forth by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”). At the end of 2004, we issued our first report
on internal control in compliance with SOX and were able to assess our controls as effective. We are extremely
proud of this accomplishment and believe that the overall heightened standard of internal control awareness
envisioned by SOX will benefit our company and our investors for years to come.
The Year Ahead
As we enter 2005, we are excited about the opportunities that lie ahead in both our core and emerging brands and
remain focused on one single vision — to “Own the Home” through multi-channel retailing. In 2005, we will
continue to focus on the three long-term strategic initiatives that have transformed our financial performance
over the last several years — driving profitable top-line sales growth; increasing our pre-tax operating margin;
and enhancing shareholder value.
To drive top-line sales growth across all of our channels, we will continue to increase retail leased square footage
by opening 26 net new stores and expanding 10 existing stores. We will also increase catalog circulation to an
estimated 390 million catalogs, expand our electronic direct-marketing programs, enhance our inventory
forecasting processes to improve our order fulfillment rates in our direct-to-customer business and enhance our
retail customer service by implementing a nationwide daily store replenishment program. In our emerging
brands, we will focus on executing initiatives that will build brand awareness and enhance customer access to the
brands. Of our 12% to 14% expected growth rate in 2005, we estimate that approximately 2% to 3% will be
generated by our initiatives in the emerging brands. These initiatives will include aggressively growing our
customer base through catalog prospecting and retail customer information capture, increasing catalog circulation
and extending our emerging brand retail roll-out by opening 12 new stores, including our first three stores in the
Williams-Sonoma Home brand.
To increase our pre-tax operating margin for the fifth consecutive year, we will continue to drive efficiencies in
our supply chain operations and leverage our general overhead expenses. We are committed to disciplined
financial management and will continue to maintain tight control of expenses while investing in our future.
To enhance shareholder value, we will continue to adhere to the principles that have successfully guided us in the
past — building the authority of our existing brands in the market segments that we serve; continuing to leverage
the potential of our multi-channel strategy; and delivering on the commitments we have made to our
shareholders.