Stephen C. Nelson - Director, Investor Relations W. Howard Lester - Chairman of the Board, Chief Executive Officer Sharon L. McCollam - Chief Financial Officer, Chief Operating Officer, Executive Vice President Laura J. Alber - President Patrick J. Connolly - Executive Vice President, Chief Marketing Officer, Director

Analyst for Colin McGranahan - Sanford C. Bernstein Matthew Fassler - Goldman Sachs Analyst for Alan Rifkin - Banc of America Merrill Lynch Analyst for Budd Bugatch - Raymond James Joe Feldman - Telsey Advisory Group Analyst for Matt Neemer - Wells Fargo Securities Analyst for David Magee - SunTrust Robinson Humphrey Laura Champine - Cowen & Company Anthony Chukumba - FTN Equity Capital Markets Janet Kloppenberg - JJK Research Scott Ciccarelli - RBC Capital Markets Neely Tamminga - Piper Jaffray Christian Boothe - Thomas Weisel Brad Thomas - Keybanc Capital Markets Analyst for Kristine Koerber - JMP Securities

Ladies and gentlemen, thank you for standing by. Welcome to the Williams-Sonoma Incorporated third quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the call over to Steve Nelson, Director of Investor Relations to discuss non-GAAP measures and forward-looking statements. Stephen C. Nelson: Good morning. This morning's conference call should be considered in conjunction with the press release that we issued earlier today. Our press release and this call contain non-GAAP financial measures that exclude the impact of unusual business events. These non-GAAP financial measures are provided to facilitate meaningful year over year comparisons. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful are discussed in Exhibit One of the press release. The forward-looking statements included in this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform of 1995. These statements address the financial condition, results of operations, business initiatives, guidance, growth plans and prospects of the company in 2009 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current press releases and SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the conference call over to Howard Lester, our Chairman and Chief Executive Officer. W. Howard Lester: Good morning and thanks for joining us. With me today is Laura Alber, our President; Pat Connolly, our Chief Marketing Officer; and Sharon McCollam, our Chief Operating and Chief Financial Officer. I want to begin today with an overview of our third quarter 2009 results and our outlook for the balance of the year. Then I'll turn the call over to Sharon and Laura for further details. While the home furnishing sector remained under pressure in the third quarter, we were extremely pleased to see our business trends improve. Throughout the quarter, we saw a strengthening consumer response to both our merchandising and marketing strategies and progressively better than expected sales and margins. We also saw ongoing financial and operational benefits from our cost containment and inventory management initiatives and a significant improvement in cash flow. In the third quarter on a 3% revenue decline, we delivered non-GAAP diluted earnings per share of $0.16 versus a $0.10 loss last year. We also continued to strengthen the balance sheet and ended the quarter with a record Q3 cash balance of $229 million. During the quarter, comparable store sales were positive for the first time in eight quarters. This has created strong momentum in the field and the timing couldn’t be better as we enter the holiday season. Comparable store sales increased 1.7%, which is both a one-year and a two-year trend improvement versus the first half of the year. This is encouraging because it validates the emphasis we have placed on driving traffic and conversion and demonstrates the effectiveness of our in-store marketing. In our core brands, sales trends improved in every brand. In total, net revenues decreased 2%. Pottery Barn, where we saw the greatest improvement, increased 1%. Williams-Sonoma decreased 2% and Pottery Barn Kids by 5%. What is most encouraging about these results is their correlation with the rollout of our revitalization initiatives and their affirmation of our merchandising and marketing strategies. Laura is going to talk more about the Pottery Barn revitalization initiatives later in this morning’s call. In the Williams-Sonoma brand, we continued to see the same economic resilience we have seen all year and the early reads on holiday are encouraging. During the quarter, while comparable store sales declined 2%, selling margins began to rebound to historical levels. Strong merchandising, tight inventories, and a focus on exclusivity drove these better than expected results. Innovative and exclusive product offerings continued to lead the brand’s overall merchandising performance. In our emerging brands, which include West Elm, PBTeen, and Williams-Sonoma Home, net revenues decreased 8%. Laura will speak to the performance of PBTeen and West Elm. Laura recently assumed responsibility for the West Elm and the team is making significant progress in several key organizational and operational issues in very short order. Most notably is the success they are having in leveraging the knowledge, scale, and infrastructure of our other home furnishings brands to drive West Elm sales and margin opportunities. In Williams-Sonoma Home, revenue and margin trends did not improve during the quarter. As such, our concern about the luxury home furnishings market have escalated and we are critically assessing the positioning of the brand going forward. In the meantime, we are implementing inventory management, catalog circulation, and merchandising strategies that will optimize cash flow while maintaining flexibility as we contemplate a longer term strategy for this brand. At the end of the third quarter, net assets in the brand including inventory were approximately $25 million and we have a long-term real estate commitment on 11 stores. In supply chain, we continue to see both customer service and financial benefits from our ongoing transportation and quality returns initiatives. During the quarter, we completed the coastal consolidation of our large cube inventory and we are now shipping together orders that historically were delivered in multiple shipments. We are also consolidating six third-party furniture delivery hubs into one company-operated hub in Columbus, Ohio. Both of these initiatives are driving a significantly improved customer experience and increased margin dollars. In real estate, we continue to make progress on our occupancy cost reduction initiatives which resulted in 20 basis points of non-GAAP sales leverage in the third quarter. This is the first period of occupancy leverage in eight quarters. By the end of the year, we will have increased our permanent store closings from 16 to 20 and eliminated 1.2 million square feet of excess distribution capacity and 80,000 square feet of excess office space. As we enter the fourth quarter, we continue to be encouraged by the sales and margins trends that we are seeing today, particularly in our core brands. So as such, we are increasing our revenue and earnings guidance to reflect the upside. In revenue, we are increasing our guidance by $70 million to a range of $970 million to $1.03 billion. In earnings, we are increasing our guidance by $0.09 to a range of $0.36 to $0.45 per diluted share. But inherent in this guidance remains an appropriate level of conservatism. We believe our success has been driven by the things we can control. The overall economy, on the other hand, is still fragile so we are running the company with both in mind but we also believe that if you create a compelling reason for the customer to shop, offer them great value and serve them better than anyone else, there is a share to be gained and we are aggressively going after it. So let me now turn the call over to Sharon for more details on the quarter and our guidance. Sharon L. McCollam: Thank you, Howard. Good morning. Our third quarter results did once again substantially exceed our expectations as we strive to capture market share, optimize our advertising dollars, drive efficiencies in our supply chain, and maximize profitability and cash flow. The P&L highlights were as follows -- net revenues decreased 3% to $729 million. Retail net revenues increased 1%, including a comparable store sales increase of 1.7%. Direct-to-customer net revenues on the other hand decreased 8% but would have been in line with the total company revenue decline had it not been for the impact of revenue recognition and private label credit card discounts. Catalog circulation during the quarter was down 18% and 21% respectively for catalog and catalog pages circ’d, and Internet revenues were down 7%. Non-GAAP diluted earnings per share were $0.16 versus a loss of $0.10 last year. These results were $0.11 above both the high-end of guidance and the first call consensus estimate. Stronger than expected sales, greater than expected full price selling, and earlier than expected financial benefits from our 2009 supply chain initiatives drove these better than expected results. GAAP diluted earnings per share were $0.07, including a $0.06 charge associated with underperforming retail stores and a $0.03 charge associated with the closure of excess distribution capacity. Non-GAAP gross margin 290 basis points to 34.9%. This improvement was driven by a decrease in cost of merchandise sold, including the benefit from reduce markdowns, reduced freight costs, favourable replacement and damage expense, and occupancy expense reductions. And finally, non-GAAP SG&A expenses decreased 330 basis points to 31.1%. This decrease was driven by the ongoing benefits from our infrastructure cost reduction program and catalog circulation optimization strategy, partially offset by an increase in incentive compensation. We also significantly strengthened the balance sheet during the quarter with the following year over year results -- cash and cash equivalents increased over $200 million to $229 million. Merchandise inventories decreased a better-than-expected $150 million, or 21.5%, to $545 million. This decrease was across all brands and all key categories. And prepaid catalog expenses decreased $12 million, or 21% to $42 million. This decrease was primarily driven by reductions in catalog circulation. I would now like to briefly discuss our fourth quarter guidance. This whole year, our revenue guidance has been based on the continuation of the October/November 2008 two-year trend. But for six months, we have seen our business progressively improve from that trend. As such, while still conservative, we are reflecting in today’s guidance this improved trend and are increasing our fourth quarter guidance by $70 million or approximately 7% to $970 million to $1.03 billion. While this may appear to be a slight deceleration from the third quarter, it actually isn’t because the fourth quarters of the past two years have included unprofitable inventory clearance sales that we have said all year we will not comp. From an earnings perspective, we are increasing our non-GAAP diluted earnings per share guidance for the fourth quarter by $0.09 to $0.36 to $0.45 to reflect the higher sales and an approximate 25% flow-through. Again, there is conservatism here because in the perfect world our business model on the upside in Q4 would flow through at a higher level, all things being equal. But we believe it is still prudent to assume an appropriate level of conservatism in our selling margins and variable SG&A in the event the consumer retrenches, or retailers become increasingly promotional in the fourth quarter. As Howard said earlier, the economy is still fragile and those companies that emerge stronger are the ones who remain flexible in their strategies today. Our fourth quarter SG&A guidance also assumes a higher accrual for incentive compensation based on substantially improving results. For the full year, based on our better-than-expected performance in the third quarter and our increase in guidance in the fourth, we are raising our 2009 P&L guidance as follows -- net revenues are now expected to only decline in the range of 9% to 11%. Non-GAAP diluted earnings per share are now expected to be in the range of $0.43 to $0.52, despite approximately 125 basis points of occupancy deleverage based on an expected $515 million of expense. And GAAP diluted earnings per share, including $0.18 of unusual business events, are now expected to be in the range of $0.25 to $0.34. From a balance sheet perspective, we are maintaining our inventory guidance in the range of $480 million to $510 million and lowering our capital spending guidance to the range of $85 million to $90 million. We continue to believe that the actions we have taken to address this new retail environment from both an operational and financial perspective have been the right ones and we remain committed to optimizing growth, profitability, and cash flow despite the top line challenges we believe we will continue to face. I would now like to turn the call over to Laura to discuss the Pottery Barn and West Elm brands. Laura J. Alber: Thank you, Sharon. Good morning. I will start with the Pottery Barn brand. Net revenues in the third quarter decreased a better than expected 1%. This decline was driven by a decrease in the direct-to-customer channel partially offset by a 7.6% increase in comparable store sales. Although demand in the direct-to-customer channel was positive in the third quarter, net revenues were lower due to the impact from revenue recognition and private label credit card discounts. We are extremely encouraged by these results because they continue to demonstrate a sustaining trend of top line improvement on both a one-year and two-year basis and affirm the effectiveness of our strategies to drive customers to the brand. From a merchandising perspective, all key categories with the exception of table top delivered positive growth during the quarter. A strong cohesive assortment, compelling price points, and attractive private label credit card program drove these better-than-expected results. From an operational perspective during the quarter, gross margin continued to climb as the cumulative benefits of our inventory management and supply chain initiatives began hitting the P&L. These initiatives include strategically balancing inventory levels with full priced selling and margin objectives, partnering with our vendors to reduce berth costs, re-negotiating our ocean freight and furniture delivery contracts, in-sourcing our furniture delivery hubs, and expanding our upholstered furniture operations. In direct marketing, the catalog, circulation, optimization strategy continued to drive better-than-expected results on both on both the top and bottom lines, as we continue to shift our investment in marginal catalog circulation to e-commerce. As we look forward to the fourth quarter, we are very encouraged by the strong consumer response that we have seen to both our fall and holiday merchandise assortments and are appropriately chasing inventory across categories. As such, we believe the strategies we have in place for the fourth quarter are the right ones and are confident in our ability to execute against them despite our belief that we will continue to operate in a fragile economic environment. Now I would like to talk about Pottery Barn Kids. During this quarter, net revenues declined a better than expected 5%, which was a significant improvement in trend and the strongest validation we have had of the customers’ acceptance of our new merchandise strategies. Comparable store sales declined 3.1%. Similar to Pottery Barn, the consumer response to our entry price points, classic assortment, and in-store selling and marketing programs outperformed across the board, driving both better sales and stronger selling margins. From a merchandising perspective during the quarter, categories such as decorative accessories at accessible price points remained our strongest. Furniture, however, was not far behind and continues to show progressively improving results each month. From an operational perspective during the quarter, we continue to see ongoing benefits from our supply chain initiative. We also made further progress on reducing our retail occupancy costs, including increasing our 2009 permanent store closings to 7 by the end of the year. As we look forward to the fourth quarter, we are continuing to focus on bringing old and new customers into the brand through aggressive marketing of our entry price points, online marketing, and the enhancement of our retail service model. We are also continuing to shift our advertising spend from catalog to e-commerce as we capitalize on the launch of our new website and new functionality and customized email, affiliate marketing, and search. To date, we are extremely pleased with the initial consumer response to our fall and holiday assortments and our new initiatives are exceeding our expectations. I would now like to talk about the Pottery Barn Teen brand. PBTeen remains the best performing brand in the company on both a one-year and two-year basis and we are extremely encouraged by the early reads on fall and holiday. Net revenues during the quarter a better than expected 1% versus a 2% decrease last year. Selling margins were also ahead of expectations. From a merchandising perspective, new product introductions at a great value continue to be our best performers. As we look forward to the fourth quarter, we will continue to focus on extending the reach of the brand and enhancing our position as a top of mind destination for home furnishings for teens. Finally, I would like to talk about West Elm. West Elm, like our other brands, did see a decline in net revenues during the quarter but still exceeded our expectations on both the top and bottom lines despite a residual impact from the low in-stock position in furniture that we discussed last quarter. But these issues are now resolved and we are optimistic that we will see an even further pick-up in West Elm's top line performance in the fourth quarter, since more than half of the brand’s business is driven by furniture. Operationally in West Elm, we are excited about the opportunities that the new reporting structure is creating for the brand. In a very short period of time, we have been able to identify a number of sourcing, merchandising, marketing, and supply chain opportunities that are currently benefiting the Pottery Barn brands that we can roll out to the West Elm brand. Another exciting change in West Elm is the hiring of Jim Brett as our new head of West Elm. Jim will be joining us in January directly from Urban Outfitters where he most recently served as Chief Merchandising Officer. Prior to that role, Jim led Anthropologie Home for four years. Jim is a dynamic leader with a proven retail track record and we are anxious to begin benefiting from his contributions. Jim will be based in Brooklyn with the West Elm team. I would now like to open the call for questions. Thank you.

(Operator Instructions) Your first question comes from the line of Colin McGranahan with Sanford Bernstein. Analyst for Colin McGranahan - Sanford C. Bernstein: It’s [Avery Sheffield] filling in for Colin. I was curious, relating to the catalog optimization strategy, this quarter the direct sales growth outpaced or the decline outpaced the decline in mailings. Is this giving you a sense that you might be at a turning point of cutting catalog circulation? Sharon L. McCollam: Pat, would you take that question, please? Patrick J. Connolly: Actually, I think it is a turning point for us. We’ve seen some substantial improvements in the catalogs that we have mailed most recently here toward the end of the quarter and at the same time, we are looking at a number of new programs in e-commerce that are replacing some of the marginal catalog mailings we are doing, we have been doing. We are very excited about the prospects we see going forward.

Next we’ll hear from Matthew Fassler with Goldman Sachs. Matthew Fassler - Goldman Sachs: I want to focus on SG&A -- can you talk about the kind of variable expenses that might kick in as your comps turn positive, first excluding incentive compensation, whether it’s labor or other SG&A and then secondly, if you can kind of help quantify the magnitude of the incentive numbers in the quarter and in the fourth quarter, if you happen to exceed your gross profit numbers, is there a point at which the incentives could take the SG&A up as well? Thanks so much. Sharon L. McCollam: Matt, as far as the variable expenses go related to upside in the fourth quarter, when you think about our business, the places that you are going to see variable SG&A on the upside is going to be in store labor but of course remember that doesn’t take your fixed expense up. If we start seeing better comps, we will need to put more people on the floor in our stores. Then, when you look at the call centers, you have the same dynamic and then of course you have to ship the product, so that would be from a DC point of view. But it’s only the variable piece of that, not the fixed. On the downside when you look at the conservatism that I have in the guidance for SG&A, the issue there is that when you are staffing to achieve a certain number, you bring people in and if the sales don’t come, of course, then you deleverage. So that’s the downside and the upside associated with that. As it relates to incentive compensation, the incentive compensation is in at where we believe that if these results occurred, it would come. I don’t expect to see substantial additional SG&A to come into that above and beyond this guidance in the event that we do over-achieve, so I don’t see that going up from that perspective. I think those were all your questions.

Next we’ll hear from Alan Rifkin with Banc of America Merrill Lynch. Analyst for Alan Rifkin - Banc of America Merrill Lynch: This is [Vincent Sinisi] in for Alan. Sharon, first question, if I can, if you could just give any color in terms of what you saw, whether it be by housing markets, you know, geography, or if it was really just kind of a broad-based, broad improvement? Obviously you noted the factors that came in basically across the board ahead of expectations. Just wondering if geography had anything to do with it. Sharon L. McCollam: You know, across the country, we saw very similar lift in performance. I think if you wanted to get down into small details and looking at very small markets across the country, I think you would say that some of the areas that were hit so hard last year after Lehman’s fell, the high net worth areas where people took that impact, in those markets where we have our highest end stores, we did see what we would consider to be out of the pack performance in some of those markets and I think that would be related to how bad they got a year ago. But generally across the country we saw a lift everywhere, which is why we are very encouraged and why we feel so confident in the increase of our fourth quarter guidance because we are not seeing it in any one place or one category. Our whole business has lifted. Analyst for Alan Rifkin - Banc of America Merrill Lynch: Okay, great and just one follow-up -- as you are planning further toward the holiday advertising strategies, I noticed that your full-year catalog circulation is now expected to be down 16% to 17% versus 17 to 19 prior, a slight difference there -- is that just simply a case where you are getting, you are seeing the better results than you originally saw or is there something more to that in terms of catalog focus versus e-commerce? Sharon L. McCollam: I’m going to let Pat speak to that. Catalog circulation is a surgical process, so Pat, could you speak to it? Patrick J. Connolly: Well, I don’t know if it is that surgical but our catalog circulation decreases will be in the neighbourhood of around 13% in Q4, so they will be less than Q3 and less than the year overall and I’d point out in Q3 that the minus 18 was against a plus 1% in demand, so we are very encouraged by the results that we saw there, particularly in Pottery Barn.

Next we’ll hear from Budd Bugatch with Raymond James. Analyst for Budd Bugatch - Raymond James: This is actually T.J. [McConville] filling in for Budd. Sharon or Laura, you both made reference to the revenue offset based on the private label credit card penetration -- was there an increase in penetration of private label credit card or was there a change in the deal that you are offering? Sharon L. McCollam: I’ll let Laura speak to how they are using the private label credit card in Pottery Barn. We did not implement the aggressive programs that we have in place today until post-Lehman last year. So in many cases, these are new programs to the brands and they are absolutely supporting the business today. It is a significant investment -- you know, it’s like a markdown. We have two key programs in place. The first one is a 12-month same-as-cash program, which is very different than what other retailers are offering because in our 12-month same-as-cash program, we have no retroactive interest. So if you don’t pay it at the end of 12 months, they don’t come back at the credit card company and charge you the retroactive interest all the way back to the first day of the purchase. That of course costs us a significant amount of money to pay the third party credit card provider for the loss of that interest on the retroactive side. Then we implemented -- enhanced, actually -- our loyalty program but Laura, would you like to speak to how it is driving Pottery Barn and what you are seeing from a penetration point of view, et cetera? Laura J. Alber: Sure. As Sharon said, it continues to gain momentum and we really believe it helps the customer make the decisions they want to make and actually purchase the product, particularly at retail, on the higher ticket and it’s been a great tool for the sales force at retail and it does cost us money. We believe it is the right thing to do now and we also see great loyalty -- when they receive their rewards, they come back and they spend even more than the rewards are and that we believe is incremental revenue. So all in, the program is working for us, although it does hit the P&L on the margin line.

Next we’ll hear from Joe Feldman with Telsey Advisory Group. Joe Feldman - Telsey Advisory Group: I wanted to ask you about West Elm -- I know Laura was running through the commentary pretty quickly. And she made a comment about West Elm doing better, expected to do better in the fourth quarter. I was hoping you could just give me a little more color on what you think is going to drive that. Laura J. Alber: Sure. I’m sorry for speaking quickly -- my comment was in reference to improved in-stock on some key furniture collections that were extremely depleted previous to this period, so just getting back in stock is going to significantly affect the top line performance. Joe Feldman - Telsey Advisory Group: Thank you, and then if I could ask a quick follow-up -- on PBTeen, if I recall correctly, you guys were testing it in a couple of stores and even a freestanding store. I was just curious about an update on that. Laura J. Alber: Sure. Yes, we are pleased with the results so far. You know, it was an opportunistic strategy. We had a store, a thread store that wasn’t working that we converted. We had the real estate and we wanted to see if we could make this work and it is working. It’s really a show room for the catalog in terms of it’s very small square footage. It’s in New York City and that’s performing well. We also added the product into our store in Chicago and it’s in our kid’s store where there was a separate entrance and a separate space for the teen merchandise, which we think is really important and we are seeing nice results there. Not only is it doing well in terms of square footage, but it is driving the kids business as well in terms of we believe getting more traffic into the store. At this point, it is not a strategy, it is not a rollout strategy. It is something we did because we had the real estate and we believed it would help the existing real estate perform better. But we are incredibly pleased with the performance of PBTeen as a direct-to-consumer only strategy and are continuing to focus on growing it and we do not feel limited -- we don’t feel limited in our growth by the fact that we don’t have stores. We actually believe that it’s a great model and we are so excited about its future.

Next we’ll hear from Matt Neemer with Wells Fargo Securities. Analyst for Matt Neemer - Wells Fargo Securities: It’s actually [Tricia Dylan] for Matt -- just a quick question on the direct business. With indirect, when you are looking at trends on a two-year basis, it looks like catalog sales trends improved sequentially from 2Q to 3Q but Internet sales trends got a little worse. Can you talk about what might be driving the difference outside of lower clearance activity this year? Intuitively it seems like Internet sales would be better than catalog, given just overall outperformance of e-commerce. Sharon L. McCollam: I’m going to let Pat talk about the multi-channel catalog e-commerce, what we are doing there and how it is affecting us. Pat, why don’t you take that? Patrick J. Connolly: Well, on a -- I think that because the catalog drives so much revenue to the web, that that may be misleading in looking at that. I think you are referring to the fact that catalog circulation was down more than revenue where the e-commerce revenues didn’t grow as much but that’s really -- you have to really combine both of them together. We are very pleased with how the overall trend is moving, especially sequentially here toward the end of the quarter and moving into the fourth quarter. Laura J. Alber: I do want to make the comment to add to that that in our direct business, we have significant decrease in markdown activity sale goods and that is -- you know, as you look at the gross margin dollar comp, if you will, we are seeing significant improvement over last year in our merchandise margins. However, we know, as Sharon mentioned in her earlier comments, that it does affect the top line a little bit. But we know it’s the right trade.

Next we’ll hear from David Magee with SunTrust Robinson Humphrey. Analyst for David Magee - SunTrust Robinson Humphrey: This is [Kris Rabaldjay] on the call for David. Just looking at Pottery Barn and the sustainability of some of the pick-up that you have seen there, do you feel like it is mostly pent-up demand from existing customers, new customers, or to what extent it’s either of those? And then also in regions where you have seen some consolidation in the space, do you feel like that’s been helping to drive the improvement? Sharon L. McCollam: Laura, do you want to speak to that? Laura J. Alber: Sure, thank you. You know, we do believe that there is some pent-up demand and we also know that we are getting new customers into the brand and we measure that all the time. We’ve seen a turnaround at our new customer metrics and we are very focused on driving new customers in with our strategies, both in product, our paid search and e-marketing strategies, and our strategies in-store and in our catalog printing with lower price point products, prominently displayed because lower price point tends to drive new customers in. So you will see us continue to focus on that to get our -- get new customers to the brand. We also -- we believe we are picking up market share as people either close their doors or as their strategies don’t work as well as they had hoped and we are just absolutely focused on the things we know our customers appreciate, which are great product quality, reasonable prices, and great service. And that has been the focus that we have had for the last two years and we are seeing that pay off and we know that there is still room to improve all of those areas. So we believe we are going to continue to see sequential improvement in the Pottery Barn brand, both in top line and margins as the customer continues to notice the changes we have made and we are not counting on the economy to improve our business. We believe the customer has fundamentally changed the way they shop. They expect more. They want value, and we are committed to delivering it to them. Patrick J. Connolly: Let me add one thing to what Laura said -- we were seeing in the most recent mailings in Pottery Barn a significant improvement in the comparable segment performance of the catalogs, which is very positive. And we have seen a significant increase in new customer acquisition that really began with the first drop of the fall catalog and has continued. The other tactic that we have employed is a very successful reactivation strategy that is working in concert with these opening price point strategies that Laura has implemented that has helped to bring back some of the customers who hadn’t been buying from us for several years.

Next we’ll hear from Laura Champine with Cowen & Company. Laura Champine - Cowen & Company: It’s obvious that you have done a good job taking the cost structure back to before boom levels but I’ve got a big picture question about the top lines -- the sales are off about $900 million from the peak, about $300 million from last year. How long in a normalized economy do you think it takes, given where you are in the maturity of your various concepts to make up the difference? Sharon L. McCollam: We are currently improving each quarter and I think the question is, this is all about math. What we could say to you as far as an answer goes is nothing more than a mathematical calculation and we are not sitting here today saying that we know where this economy is going. What we believe about the economy, what we have consistently said is that we believe that it is a reset, that it will be slow growth going forward. What we are focused on is improving our cash flow and our operating margins and bringing our business model in line with it on the upside. We all know that the leverage is substantial. So as far as where -- what it takes to get there, we peaked at 10% operating margins and what we would like to see is over the next three to four years, that we just can gradually and incrementally improve those margins with a little bit of top line -- I’m talking low-single-digit. We absolutely see gross margins, selling margin improvement that is still a big opportunity. You know, we’ve talked today a lot about the improvement in our selling margins but we are in no way back to the levels that we saw pre-recession. So in the selling margin, we have opportunity. Occupancy, we are continuing to bring that in line. It takes a little time, so that’s why I am saying three to four years. You’ve got to bring that in line. But everything we are doing is not about hoping that the economy does a hockey stick improvement. Everything we are doing is about getting our cash flows back to historical levels and we have to accept where the economy goes at this point and we expect to gain market share in this environment.

Next we’ll hear from Anthony Chukumba with FTN Equity Capital Markets. Anthony Chukumba - FTN Equity Capital Markets: I just had a question -- I mean, on Williams-Sonoma Home -- you mentioned that the revenue margin trends did not improve. It sounds like the high-end consumer really hasn’t kind of come back or people are not buying things at higher price points and I was just wondering -- is that also sort of applicable to the rest of your businesses as well? In other words, are you seeing a lot more demand with some of the newer entry level price point products as opposed to some of your higher price point products? Sharon L. McCollam: Absolutely not. This is a dynamic that appears to be related to the luxury home furnishings market. We are seeing furniture run at the same percent of sales in our other brands. We’ve seen actually improvement in our high-end ticket. When you think about Williams-Sonoma, where we are seeing strong sales, it’s in cookware, it’s in electric, and those are pretty high price point products. But in Williams-Sonoma Home, that is the only brand we have that we believe truly participates in what we would define and what anyone would probably define as true luxury. And I think that that is a very tough area and we continue -- we are assessing it, we are looking at it, and we will keep you posted but the numbers that we see in Williams-Sonoma Home in no way are comparable to the numbers that we are seeing in any other brand.

Next we’ll hear from Janet Kloppenberg with JJK Research. Janet Kloppenberg - JJK Research: A couple of questions -- I know your inventories are down dramatically and I know that your holiday product is selling well. I’m just wondering, Laura, if you could talk about any possibility of shortages that could temper the sales results for holiday. And also, I think you had some pretty strong promotions last year in the fourth quarter -- Laura J. Alber: I’m sorry, are you done? The phone cut off. Sure, I’d love to answer that, Janet. We are seeing better than expected results on our holiday assortment. We are off to a strong start. It looks like customers are decorating again and we know that they are entertaining at home. We are pretty well-positioned in terms of inventory. We do have some areas that we will be short on, like we always have. And particularly in some of the newer items but we are marketing what we own. We are -- we have a lot of other great products. We have pushed out more core products to our stores. We are pulling up some spring new flow for late December and we feel confident that we can achieve the levels that we have guided to in terms of if we substantially start beating the number, I will probably be talking next time about chasing even more inventory. We are looking very closely at the receipt flow for our spring assortment, which we think is also incredibly strong, and placing our bets on items that are similar to the ones that are selling well now. I think what is great about it is that we are retraining our customer to buy things as they come out versus waiting for the markdown. In terms of promotions, we believe that promotions in this time are an important way to bring new customers in and to compete with the competition that is highly promotional and we have planned our promotions already. So we have bought into them for the holiday season and we are going to be able to execute them, which is a very important part of our longer term strategy of growth. So you will not see us pull back on the planned promotions. We can execute them and you will see us buy back into some of the fast-movers and market what we own.

Next we’ll hear from Scott Ciccarelli with RBC Capital Markets. Scott Ciccarelli - RBC Capital Markets: Sharon, could you give us just a quick housekeeping item -- what was the impact of the clearance sales from last year as we try and figure out the actual run-rates of the business? Sharon L. McCollam: Last year -- you know, everything we are talking about is on a two-year trend basis but last year specifically in the fourth quarter, we have quantified that number previously at $20 million. It’s about 2% of fourth quarter sales last year.

Next we’ll hear from Neely Tamminga with Piper Jaffray. Neely Tamminga - Piper Jaffray: Congratulations and good luck for holiday. My question is about the outlook, or the outlook for outlet -- how would we be thinking about that considering you’ve done such a great job at inventory reduction? And maybe not just Q4 but as we look into next year too. Thank you. Sharon L. McCollam: Outlet is not a strategy for our company per se. As you know, we only have 18 stores by the end of this year and the outlet is definitely an opportunity for us to clear merchandise. I’ll let Laura, she’s got the biggest outlet business because she runs the biggest businesses, and we’ve had a lot of focus on the outlet this year so I would like to turn this over to Laura and let her talk about what they are doing in the Pottery Barn outlet and then Sonoma is doing very similar things, so Laura, maybe you could speak to that. Laura J. Alber: Sure. We put the outlet businesses into the brands so that we could ensure that the experience was on brand and that we had not only a place to liquidate profitably overstocks and chip and dent from our mail order business but also that we were buying into goods to make the entire assortment compelling for the outlet customer. And we are -- we have seen a reduction in total inventories in our outlet stores, similar to the reduction we see in our full line stores. We have a strategy where we buy into core product and into past bestsellers to feed our outlet stores and that is working. Our focus is really to improve the shopping experience, to clear the inventory profitably, and overall to improve the profitability of the brand by improving the productivity in the outlets, and we are well on track in all brands to do that.

Next we’ll hear from Christian Boothe with Thomas Weisel. Christian Boothe - Thomas Weisel: I was wondering if you could provide some perspective into the accelerated store closings. Sharon L. McCollam: Absolutely. Howard, would you like to speak to that, please? W. Howard Lester: Well, you know, we are working hard in our real estate department with our landlords on opportunities to close stores that had become marginal because of the sales that we have had out of this economy and it is slow going. You can see by the numbers but we are trying to persevere. We are working hard with the landlords and trying to be as creative as possible and think a lot about what our store base is going to look like and what we are going to pay for it in this refit economy as we go forward over the next two or three years, that Sharon spoke of. Sharon L. McCollam: Additionally, we are also making substantial progress on the renegotiations. You know, what you see in the P&L or in the guidance that we provide is the store closures. We are not disclosing and are not going to disclose because of the confidentiality agreements we have with landlords, the renegotiations that are also occurring. Numbers we have provided you previously is between now and 2012, a quarter of all of our store leases are coming up for renewal and every time that happens, one of those stores is an opportunity to renegotiate. We also are finding an increasing number of opportunities on the co-tenancy side and we believe in ‘010 even more of those will actually occur because a lot of the store closings that have been announced by retailers over the last 12 months actually have not closed. They are not closing until the end of this year, so when you get into GLA co-tenancy failures, and even some named co-tenancy failures, those are going to surface in 2010 as well, so there is going to be another bite at the apple in 2010.

Next we’ll hear from Brad Thomas with Keybanc Capital Markets. Brad Thomas - Keybanc Capital Markets: Sharon, in the past I believe you had cited consumer confidence as the economic factor that is one of the most important if not the most important as it relates to your business. But as it relates to the housing market, could you maybe talk about what you are seeing within your -- within the data that you collect? Are you seeing a benefit from the increased existing home sales and do you think that that could be a tailwind for you going forward? Sharon L. McCollam: We do. We’ve actually had some consulting work done on this very question. I thank you for asking it because we really like to discuss the data that we received. The three key drivers that they see today of our performance, because now they can look back pre-recession and post-recession, what they believe the drivers are of our business are consumer confidence, unemployment, and housing. And housing in and of itself, even if it improved, is likely not going to dramatically change our trends until you get unemployment and consumer confidence going in the same direction. So we believe now based on their looking back that these three are extraordinarily tied together. What we believe is going to fuel our business going into the next couple of years, assuming that we don’t believe there is going to be a hockey stick, is the opportunity to gain share. We are absolutely on target with our strategies and you guys can see it in the numbers -- it’s not one brand. It is every single brand that is improving. And our focus on value and classic style and the promotional programs that we are doing which by the way, the one thing that thought Laura said that was -- is compelling is the fact that these promotions are not necessarily hurting our margins. And so that is what is so exciting about it, is we are able to give the customer that little bit of promotional push that they need in order to turn the sale. But we are not having to give up margin at the same time, so that is something that we are very encouraged about, is the way this is going. So that is how we are seeing it. But you have to look at those three together -- any one in and of itself is probably going to be depressed by the other two, so we are really focused on all three of them.

Next we’ll hear from Kristine Koerber with JMP Securities. Analyst for Kristine Koerber - JMP Securities: This is Jennifer filling in for Kristine -- a quick follow-up on your ability to gain share; are you continuing to see the same level of store closings and inventory liquidations that you have seen in periods past and how -- what is your outlook? A little color on the competitive environment would be helpful. Sharon L. McCollam: Internally, we have taken our benchmarking of competitors to a new level and actually, when we think about our business, although we are very focused on the home furnishing side, there has not been in this quarter any additional major announcements of any massive store closures that relates to home furnishings. What we see going away as we are out and about doing our visits of retail establishments is the closure of a lot of independent boxes that are out there selling home furnishings. That’s been -- I think that’s going to continue. The place that we think we are still competing against beyond home furnishings, and we look at this particularly for holiday, is you are competing against everyone and in the brands when they are talking about the competitive set, we are talking about share of wallet. At Williams-Sonoma, it is not just for a gift, it’s not just another home furnishings retailer that is our competition. It’s the competition of anything that is being sold in the mall -- a cashmere sweater versus something in electrics in Williams-Sonoma. So we are really looking at it more broadly but I think what you can feel great about as investors is the fact that we have taken benchmarking of other retailers behaviour -- home furnishings and others to a new level in the company and our purchasing metrics on other retailers through the e-commerce sites, we are acquiring data that is helping us know what others are doing, it’s benefiting us from a strategy point of view and that is where we are -- those are the things that we are looking at today, not just home furnishings retailer boxes that are going away.

That will conclude today’s question-and-answer session. I will now turn the call over to Howard Lester for closing comments. W. Howard Lester: Thank you for joining us and we will talk to you at the end of the next quarter, and the year. Thank you.