Is the Pottery Cracking?

Despite a second-quarter gain in profits, Williams-Sonoma Inc. (San Francisco) has cut its full-year sales outlook for the second time in about six weeks as a result of softening consumer demand, particularly at its top Pottery Barn brand.

The home furnishings retailer attributed its gain in profitability to expense controls and higher interest income.

Second-quarter income , for the period ended July 30, 2006, rose 15,5 percent. Earnings rose 11.5 percent. Revenue in the period climbed 6.4 percent. But same-store sales gained just 1.5 percent. And same-store sales at Pottery Barn, the company's largest brand, fell 0.2 percent. (Sales improved at the Williams-Sonoma brand stores and at Pottery Barn Kids.)

The company said it believed that the problem was specific to Pottery Barn's summer merchandise. “Today, however, after five weeks in home with our new Pottery Barn fall catalog, we believe there is a greater macroeconomic issue also affecting this business,” said ceo W. Howard Lester. “To date, the consumer response in Pottery Barn is continuing to trend well below our expectations, causing us to approach the third and fourth quarters with an extremely cautious outlook.”