Pottery Barn 2007 Annual Report Download - page 5

A LETTER TO OUR SHAREHOLDERS
Fiscal 2007 was a challenging year for Williams-Sonoma, Inc. as the housing sector experienced one of its most
significant downturns in 40 years. This downturn resulted in substantial volatility in the financial markets and
depressed growth rates in the home furnishings industry overall. Despite these external factors, however, we
believe our results reflect the strength of our brands, the power of our multi-channel strategy, and our proven
ability to optimize profitability in a rapidly changing business climate.
Our Fiscal 2007 Financial Results
Net revenues in fiscal 2007 – a 53-week year versus 52 weeks in 2006 – increased 5.8% to $3.9 billion. In our
core brands – Williams-Sonoma, Pottery Barn, and Pottery Barn Kids – net revenues increased 3.4%. In our
emerging brands – West Elm, PBteen, and Williams-Sonoma Home – net revenues increased 36.0%. Comparable
store sales increased 0.3%, and Internet revenues increased 19.0%. Diluted earnings per share, however,
decreased 1.7% to $1.76 per share, while still generating $246 million in net cash from operating activities.
During the year, we returned nearly $240 million in cash to our shareholders through a combination of share
repurchases and dividends. We ended the year with a cash balance of $119 million, after internally funding all
growth and infrastructure initiatives – including $212 million in capital expenditures.
Progress on Our Strategic Initiatives
In fiscal 2007, we made substantial progress on the strategic initiatives that we set for ourselves at the beginning
of the year. The first of these initiatives was the revitalization of the Pottery Barn brand, where we began to
differentiate our product assortment, reinstate our value proposition, and refine our direct-to-customer contact
strategies. We also expanded the reach of the West Elm brand, which increased its retail leased square footage by
28.3% and ended the year with 27 stores, and improved the operating performance of Williams-Sonoma Home.
Supply Chain Advancements
In our supply chain, we successfully in-sourced the operations of our west coast furniture hub, which currently
processes approximately 10% of our national furniture volume. This change, which mirrors the change we made
on the east coast in 2006, is expected to improve the delivery experience for our customers and reduce furniture
return rates. We also significantly increased our monogramming and personalization capabilities, expanded our
upholstered furniture operations, and reengineered our returns processing network in an effort to improve our
customer service while reducing our operating costs.
Next Generation Technology
In information technology, we continued the rollout of our new retail inventory management system to the
Pottery Barn, West Elm, and Williams-Sonoma Home brands. This system allows us to optimize the flow of
inventory and improve the in-stock position in our retail stores. We also implemented new functionality in our
direct-to-customer marketing systems, which is allowing us to significantly reduce catalog circulation and
improve the relevancy of our on-line marketing.
In e-commerce, we launched our first “next generation” website in the Williams-Sonoma brand, and will begin
rolling out similar features and functionality to our other brands in 2008. In fiscal 2007, for the first time, our
Internet sales exceeded $1 billion – ranking us twentieth among America’s top e-retailers.
Looking Forward
As we look forward to 2008, we believe that we will be operating in one of the most difficult retail environments
that we have seen in many years. While we are encouraged by the growth opportunities that we see ahead in both
Shareholders’ Letter