Pottery Barn 2010 Annual Report Download - page 26

sales by our new stores, changes in catalog circulation and in our direct-to-customer business and fluctuations in
foreign exchange rates. Among other things, weather conditions can affect comparable store sales because
inclement weather can alter consumer behavior or require us to close certain stores temporarily and thus reduce
store traffic. Even if stores are not closed, many customers may decide to avoid going to stores in bad weather.
These factors have caused and may continue to cause our comparable store sales results to differ materially from
prior periods and from earnings guidance we have provided. For example, the overall economic and general retail
sales environment, as well as current local and global economic conditions, has caused a significant decline in
our comparable store sales results in the recent past.
Our comparable store sales have fluctuated significantly in the past on an annual, quarterly and monthly basis,
and we expect that comparable store sales will continue to fluctuate in the future. However, past comparable
store sales are not necessarily an indication of future results and comparable store sales may decrease in the
future. Our ability to improve our comparable store sales results depends, in large part, on maintaining and
improving our forecasting of customer demand and buying trends, selecting effective marketing techniques,
effectively driving traffic to our stores through marketing and various promotional events, providing an
appropriate mix of merchandise for our broad and diverse customer base and using effective pricing strategies.
Any failure to meet the comparable store sales expectations of investors and securities analysts in one or more
future periods could significantly reduce the market price of our common stock.
Our failure to successfully anticipate merchandise returns might have a negative impact on our business.
We record a reserve for merchandise returns based on historical return trends together with current product sales
performance in each reporting period. If actual returns are greater than those projected and reserved for by
management, additional sales returns might be recorded in the future. In addition, to the extent that returned
merchandise is damaged, we often do not receive full retail value from the resale or liquidation of the
merchandise. Further, the introduction of new merchandise, changes in merchandise mix, changes in consumer
confidence, or other competitive and general economic conditions may cause actual returns to exceed
merchandise return reserves. In particular, the recent adverse economic conditions resulted and may result in
increased merchandise returns. Any significant increase in merchandise returns that exceeds our reserves could
harm our business and operating results.
If we are unable to manage successfully the complexities associated with a multi-channel and multi-brand
business, we may suffer declines in our existing business and our ability to attract new business.
With the expansion of our Internet business, new brands and brand extensions, our overall business has become
substantially more complex. The changes in our business have forced us to develop new expertise and face new
challenges, risks and uncertainties. For example, we face the risk that our Internet business might cannibalize a
significant portion of our retail and catalog businesses, and we face the risk of catalog circulation cannibalizing
our retail sales. While we recognize that our Internet sales cannot be entirely incremental to sales through our
retail and catalog channels, we seek to attract as many new customers as possible to our e-commerce websites.
We continually analyze the business results of our three channels and the relationships among the channels in an
effort to find opportunities to build incremental sales.
If we are unable to introduce new brands and brand extensions successfully, or to reposition or close existing
brands, our business and operating results may be negatively impacted.
We have in the past and may in the future introduce new brands and brand extensions, or reposition or close
existing brands. Our newest brands – West Elm, PBteen and Williams-Sonoma Home – and any other new
brands, may not grow as we project and plan for. Further, if we devote time and resources to new brands, brand
extensions or brand repositioning, and those businesses are not as successful as we planned, then we risk
damaging our overall business results. Alternatively, if our new brands, brand extensions or repositioned brands
prove to be very successful, we risk hurting our other existing brands through the potential migration of existing
brand customers to the new businesses. In addition, we may not be able to introduce new brands and brand
extensions, or to reposition brands, in a manner that improves our overall business and operating results and may
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