Pottery Barn 2007 Annual Report Download - page 32

enhancing operational execution, and improving overall brand profitability driven by strong merchandising, more
efficient retail operations and the implementation of an optimized catalog circulation plan.
Fiscal 2007 Operational Results
In supply chain operations, we in-sourced our west coast furniture hub, which mirrors the changes we made on
the east coast in 2006 and will allow us to improve the furniture delivery experience for our customers, as well as
reduce our furniture return rates. We also added additional vendors to our furniture delivery network, expanded
our monogramming and personalization capabilities, and reengineered our returns processing operations in an
effort to differentiate our service offerings, improve our customer service, and reduce our operating costs. In
information technology, we continued the rollout of our new retail inventory management system in the Pottery
Barn, West Elm, and Williams-Sonoma Home brands. This system will allow us to optimize the flow of
inventory and improve our in-stock position in our retail stores. We also implemented new functionality in our
direct-to-customer channel that is allowing us to improve the relevancy of our marketing interaction with our
customers and optimize our catalog response rates. In e-commerce, we launched the next generation of our
Williams-Sonoma brand website. Our other brands will begin rolling out similar features and functionality in late
2008.
Fiscal 2008
As we look forward to 2008, current trends indicate that we will be operating in one of the most challenging
macro-economic environments we have seen in many years and we believe that it could get progressively worse,
particularly if we find ourselves in a protracted recession. In light of these trends, we are aggressively driving the
appropriate changes in our business while maintaining a very flexible outlook. While we are committed to
driving future growth across all channels, we believe sector declines are likely and that our revenue growth in
2008 could be in the negative low-single digits. Given this belief, we are equally committed to driving down
costs and inventory levels to the extent that the actions do not affect service levels to our customers.
To support future growth and to continue to expand the reach of our brands, we expect to add 29 net new retail
stores and expand or remodel an additional 20 stores. We also expect to intensify the marketing behind our
fastest growing channel, e-commerce. Specifically, in our emerging brands, we will continue to focus on building
brand awareness and enhancing customer access to the brands by adding 12 new stores in West Elm and one in
Williams-Sonoma Home. We will also identify new customers for the brands through retail name capture and
third party list rentals, as well as through natural and paid search. Additionally, we will continue the on-going
rollout of our Pottery Barn revitalization initiatives.
In our efforts to drive down costs, we will be executing against the following initiatives: strategically optimizing
catalog circulation, catalog versioning and paid search, with the objective of improving the overall productivity
of our advertising costs; implementing new sourcing and logistics initiatives that in early tests are proving to be
effective in reducing customer returns, replacements and damages; improving efficiency in our domestic supply
chain by expanding our furniture hub in-sourcing initiative and reducing corporate overhead. While we are
confident in our ability to execute against each of these cost reduction initiatives, we believe that they will be
more than offset by lower earnings associated with a low-single digit decrease in net revenues and higher raw
material costs.
To drive down inventory levels, we are significantly modifying our 2008 receipt plans, maintaining a high level
of flexibility in our vendor commitments and aggressively liquidating slow-moving inventory through our outlet
stores and e-commerce websites. We will also be working to reduce our average weeks-on-hand in key
merchandising categories through better forecasting and demand planning. While we believe that these initiatives
will be challenging in the short-term due to the high volatility in sales trends, they are key priorities for us in
2008.
Also in 2008, we expect to continue to return excess capital to our shareholders as reflected by the additional
$150,000,000 share repurchase program that was approved by our Board of Directors in January 2008 and the
increase in our quarterly cash dividend of 4.3% to $0.12 per share, which was approved by our Board of
Directors in March 2008.
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