FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Williams-Sonoma, Inc.
3250 Van Ness Avenue
San Francisco, CA 94109
(415) 421-7900

UNION CITY, Ca., November 11, 1996/FOOLWIRE/ --- Williams-Sonoma announced their third quarter 1996 results this morning. Overall they saw a continuation of progress on the key 1996 objectives of improved inventory management, lowering their SG&A, and completing all aspects of preparation for the holiday season.

EARNINGS. They reported third quarter operating profit of $1,715,000 compared to a loss of $(4.5) million last year due to a combination of both higher margins and lower SG&A. On an earnings per share basis this results to $0.01 per share profit compared to a loss of $(0.14) per share a year ago. Year-to-date, earnings per share stand at a loss of $(0.11) compared to a loss of $(0.19) per share a year ago.

INCOME STATEMENT. The company reported sales of $171 million, a 24% increase over last year. This brings their year-to-date sales increase to 26%. The company's same store sales increased 4.4%, consistent with their plans for the quarter. Their mail order sales were up 11.4% on a 6% increase in circulation -- again, these results were consistent with their plans. They had positive comps in all 3 retail divisions and feel confident that they will continue with the same kind of trends through the fourth quarter. Williams-Sonoma was in the mid-single digits, Pottery Barn was in the low-single-digits, and Hold Everything was near double-digits. Comps slowed a little in October but they had a big pickup in gross margin that was primarily due to the fact that last year at this time was when their inventories peaked and they were in trouble with the backed up inventory and had a lot of markdowns in October. As they've now come through that, they are very confident going into the fourth quarter forecasting mid-single digit comps. All of the catalogs except for Gardener's Eden had growth in the third quarter, Gardener's Eden was essentially flat. With respect to the fourth quarter, the holiday books are in the mail and they are encouraged by the response they are getting.

GROSS MARGIN. They saw a continuation of the margin improvement that began in the second quarter. It reflects a very strong commitment on the part of their merchandising organization to strong inventory management this year. Total margin was up 180 basis points consisting of 160 basis points of merchandise margin plus 20 basis points of leveraging of occupancy expense.

EXPENSES. On the SG&A line they reduced SG&A from a year ago by 250 basis points. They are pleased with this performance especially given the relatively modest comp store sales growth for the quarter -- again reflecting the company's commitment to the continued lowering of SG&A as they improve their operating margins. Interest expense for the quarter was $1.3 million, down from $1.7 million last year, largely reflecting the lower inventories.

BALANCE SHEET. Inventories at cost are $119 million compared to $164.8 million last year, or a reduction of 27%. They feel very comfortable with the amount of inventory they have to make their sales plan. The line of credit on the balance sheet stands at $15.4 million compared to $87.3 million last year. $40 million of that reduction is due to the sale of convertible notes they did in April that was applied to their line, the balance is a reduction of inventories.

A FEW STATISTICS. During the quarter they had a net increase of 11 new stores. This consists of 5 Williams-Sonoma stores, bringing their total to 149. Of the 149 Williams-Sonoma stores, 56 are in the Grand Cuisine format (48% of the total Williams-Sonoma square footage). They also remodelled 3 Williams-Sonoma stores and one Pottery Barn during the quarter. They opened 6 Pottery Barns, bringing the total to 77. 33 of these are in the large format and bring the total square footage in the large format to 73% of the total Pottery Barn square footage. They also have 31 Hold Everythings for a total store count of 257. That completes their new store opening program for 1996. In the fourth quarter they have a couple of small items. This week they will be expanding Williams-Sonoma in Westport CT. Last week they converted the Pottery Barn on 73rd and Broadway in New York to a Hold Everything.

LOOKING AHEAD AT THE FOURTH QUARTER. Consensus on the Street at the moment is $0.73 per share will the full year at $0.60 per share. The company is comfortable with these estimates at this time. They pointed out that for fourth quarter, the number of shares outstanding will have to be increased to 28 million shares reflecting the impact of the convertible. Their mailing plan for the fourth quarter will be up about 9.5% over last year with all the catalogs roughly in that range, Williams-Sonoma a little bit less. Paper prices were down 17% in the third quarter and that helped their advertising cost a little bit and it should continue into the fourth quarter.

THE MEMPHIS DISTRIBUTION FACILITY. The retail facility has been operating smoothly for the last 3-4 weeks. They are obviously in their peak receipt and shipping period to their stores. They have no backlogs and management continues to expect them to function routinely through the balance of the season. Their Memphis catalog fulfillment center is functioning well. The last 6 weeks they have exceeded shipping 90% of the orders within 2 days and 99% of the orders within 4 days. Again, this facility is fully staffed and people are trained and ready for business.

MAIL ORDER SUPPORT. They opened an additional call center in Las Vegas in August. This will result in an increase of 40% of the seats available to support incoming calls compared with a year ago. They are staffed, their people are trained, and they are taking calls. This facility has come up extremely smoothly and has become just a routine part of their business.

IMPROVING THE PIPELINE FLOW TO THE US (PRODUCT SHIPMENTS). They are putting increased attention here because they believe this is where they really have some opportunity over the long run. They have put quality control monitoring in place in both Asia and Europe. They met with their agents and put in place the procedures to track that better. They hired a packaging engineer here in their office to work with their product development and buying organizations to improve the quality of their packaging, particularly in support of the mail order business. Overall they are learning that they need to do earlier planning, product development, give their vendors more time to properly manufacture and ship the goods. They have been chasing the business so hard for the last couple of years that it's tough to catch up and they need to work over the next few months to get more out front to give everybody more opportunity to do the job properly.

SUMMARY COMMENTS. Overall, while they are pleased with their third quarter financial performance, they are much more excited about the preparation their stores, their call centers, and their distribution organizations have in terms of being prepared for the peak holiday season. It was a good quarter for the company, but more importantly, they feel very encouraged about the condition of the business in terms of handling the peak November/December sales.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.