Williams Sonoma’s recipe for an upscale retirement…

June 15, 2010

With Father’s Day less than a week away, it seemed like a good time to see what’s cookin’ at Williams Sonoma (WSM). This has been a better year so far for the company, with the stock trading about 34 percent higher than it did at the end of 2009, increased revenues, and the dividend bump that the board announced May 27.

Those increased revenues may help to offset the cost of W. Howard Lester’s retirement package; Lester is the recently retired Chairman of the Board and CEO. Although the company gave some warning of that back in January (when Lester announced his intentions to retire in late May), the recent filings spell out how much his retirement will cost the company and its shareholders.

On June 11, Williams Sonoma’s quarterly report noted that Lester officially retired from his posts on May 26, 2010 and graduated to the title “Chairman Emeritus.” The company accelerated the vesting on Lester’s outstanding stock options, stock appreciation rights, and RSUs, and it estimated that doing so will cost a one-time charge of $4.6 million. It predicted that most of that expense would show up on the books in the first quarter of FY 2010, and that has – in fact – occurred. The Q reveals that in the thirteen weeks ending May 2, 2010, Williams Sonoma booked expense of about $3,347,000 in connection with Lester’s retirement.

In appreciation for his service, the company also gave Lester RSUs that vest over the next four years and have a fair market value of $5 million.

Lester will work as a consultant for Williams Sonoma until December, 2012 (with the continued assistance of his current secretary) and earn $500,000 per year for his efforts. He’ll also get a lump sum of $175,000 to pay the estimated cost of his health benefits through December, 2012, as well as lifetime employee discount privileges.

And since Lester is one of the general partners who owns two of Williams Sonoma’s Memphis-based distribution facilities (more information on pp. 10-11 of the Q), he’ll continue to get money from the company from those real estate leases.

Finally, the company will continue to lease a plane from WHL Management LLC (Lester’s company) through May 16, 2011 at the current terms. If the company elects to do so, it can purchase the plane for its estimated fair market value of $32 million, so long as it exercises that option in writing by December 1, 2010.

All in all, Lester should be set to buy whatever he wants, whenever he wants it… with or without that employee discount.

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