Pottery Barn 2008 Annual Report Download - page 6

including the restructuring of our Asian furniture sourcing network, the expansion of our U.S. upholstered
furniture operations, and the in-sourcing of six of our largest furniture delivery hubs. We believe that continuous
improvement in this area will provide considerable competitive advantages for our brands long-term.
Next Generation Technology
In information technology, we continued our phased implementation of our new direct-to-customer order
management system. This system is progressively improving operational efficiency in an area that we believe
still has significant cost and inventory turn opportunity. We also implemented new functionality in our
direct-to-customer marketing systems which is allowing us to significantly improve the relevancy of our direct
marketing contacts and optimize our catalog response rates.
In e-commerce, we completed the roll out of our “next generation” platform to all brands, with the exception of
West Elm, which will go live in fiscal 2009. We also began testing new functionality in the areas of
“click-to-call,” “product reviews,” and “search” – which are currently increasing site traffic and conversion.
Infrastructure was also a key area of investment this year, as we replaced our company-wide point-of-sale
hardware and rolled out electronic signature and pin debit functionality to our stores.
The Year Ahead
As we look forward to 2009, we will be focusing on three key initiatives: optimizing our brand positioning and
marketing strategies in a “reset” economy; improving profitability; and strengthening our balance sheet.
To optimize our brand positioning, we will continue to evolve our merchandise assortment and place a greater
emphasis on capturing market share by enhancing our “value” proposition. We will also continue to drive
superior customer service through an enriched store experience – including the rollout of individualized design
services, expanded clienteling, and innovative in-store events. But despite these initiatives, we believe the
ongoing impact of the macroeconomic environment could result in further net revenue declines in the range of
12% to 17% in fiscal 2009. To improve profitability, while our most significant initiative is the benefit from our
$75 million infrastructure cost reduction program, we will also be realizing a significant benefit from the next
phase of our catalog circulation optimization strategy and further benefits from our worldwide supply chain
initiatives. Additionally, we expect to realize a 50 to 100 basis point improvement in our selling gross margin due
to fewer markdowns and lower inventory levels. Including all of these cost initiatives, we expect fiscal 2009
diluted earnings per share to be in the range of a loss of $0.15 to a profit of $0.05. To strengthen our balance
sheet, we will continue to optimize cash flow through aggressive inventory management, lower capital spending,
and the re-negotiation of retail lease commitments, where possible.
Our Dividend
While we continue to recognize the challenges of the current economic environment, we remain confident in the
flexibility of our multi-channel business model and our ability to generate cash flows in excess of the funding
requirements necessary to grow and operate our business. As such, we remain committed to returning excess
cash to our shareholders and have recently announced our intention to maintain our current quarterly cash
dividend at $0.12 per share for the balance of the year for a total annual payout of approximately $51 million to
the extent there are no significant changes in our business plan and our operating results are within the fiscal
2009 guidance ranges we have provided.