Upscale home furnishings chain Williams-Sonoma Inc reported a surprise profit on cost-cutting and raised its full-year outlook as it expects tighter inventory control to boost margins in the back half.

The operator of Williams-Sonoma cookware stores and Pottery Barn furnishings outlets has closed underperforming stores, reined in advertising spending and managed inventories tightly in a bid to cut costs in the slump.

The retailer, which also plans to reduce its distribution capacity and leased office space, said it expects to close 7 more stores by the end of the year, raising the total number of store closings in the year to 16.

Net profit fell to $399,000, or nil per share, in the second quarter that ended August 2, from $18.4 million, or 17 cents a share, a year earlier.

Excluding one-time items, it earned 5 cents a share. On that basis, analysts on average had expected a loss of 9 cents a share, according to Reuters Estimates.

Net revenue fell 18 percent to $672.1 million. Sales at stores open at least a year fell 15.3 percent. Revenue at all brands fell during the quarter, led by Pottery Barn, Williams-Sonoma and Pottery Barn Kids.

Home-goods retailers have seen sales crumble as consumers stick to buying essentials in the recession. Several companies like Linens 'n Things have gone out of business, and the others continue to struggle.

For the full year, Williams-Sonoma forecast earnings of 19 cents to 31 cents a share before one-time items, on revenue of $2.84 billion to $2.94 billion.

In June it forecast full-year results to range from a loss of 7 cents a share to a profit of 11 cents a share, before items, on revenue of $2.81 billion to $2.94 billion

Williams-Sonoma shares were up 2 percent at $15.90 in premarket trading.

(Reporting by Dhanya Skariachan, editing by Gerald E. McCormick and John Wallace)