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Restoration Hardware, Inc. Reports First Quarter Fiscal 2004 Results

CORTE MADERA, Calif., May 20 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today announced its financial results for the first quarter ended May 1, 2004.

    -- Net results for the first quarter of fiscal 2004 improved to a net loss
       of $4.0 million ($0.12 per share) as compared to a net loss of $5.2
       million ($0.17 per share) in the first quarter of the prior year.
       Results were better than the prior Company guidance of a loss in the
       range of $0.13 to $0.16 per share.
    -- Net revenue increased 21% to $98.9 million for the first quarter of
       fiscal 2004, versus net revenue of $81.8 million for the same period
       last year.
    -- Comparable store sales for the first quarter of fiscal 2004 increased
       9.0%, on top of an 11.9% increase in the first quarter of fiscal 2003.
    -- Net revenue for the direct-to-customer division increased 94% to $21.9
       million in the first quarter of fiscal 2004, on top of a 72% increase
       in the same period in the prior year.
    -- Operating results improved to a loss of $6.1 million for the first
       quarter of fiscal 2004, versus a loss of $8.1 million in last year's
       first quarter.

Gary Friedman, the Company's President and CEO, stated, "We are pleased with our overall performance in the first quarter. Our results were substantially improved with sales in all channels showing impressive gains. Our comparable store sales increased 9.0% on top of an 11.9% increase in first quarter last year. That, coupled with a 94% increase in our direct-to-customer division revenue on top of a 72% increase in the prior year's first quarter, reflects the customers' response to our strategy of building predictable core businesses and the growing strength of our brand."

The Company remains comfortable with its prior full year fiscal 2004 guidance and provides the following guidance for the second quarter of fiscal 2004:

    -- Comparable store sales in the range of low to mid single digits on top
       of a 9.9% increase in the prior year's second quarter.
    -- Direct-to-customer net revenue increase of 60% to 70% on top of a 46%
       increase in the same quarter in the prior year.
    -- Net loss in the range of $0.06 to $0.07 per share versus a loss per
       share of $0.09 in the second quarter of the prior year.

    Conference Call:

The Company's first quarter fiscal 2004 earnings conference call is scheduled for Thursday, May 20, 2004 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0571. A live webcast is available at http://www.firstcallevents.com/service/ajwz406480014gf12.html . If you are unable to participate during the live webcast, a playback of the conference call will be available via the Internet at http://www.firstcallevents.com/service/ajwz406480014gf12.html beginning at 7:00 p.m. Eastern Time on Thursday, May 20, 2004. A webcast replay of the call will be available at www.restorationhardware.com under "Company Info- Investor Relations-Event Calendar" until May 20, 2005.

About Restoration Hardware, Inc.:

Restoration Hardware, Inc. is a specialty retailer of high quality home furnishings, bath fixtures and bath ware, functional and decorative hardware and related merchandise that reflects the Company's classic and authentic American point of view. Restoration Hardware, Inc. sells its merchandise offering through its retail stores, catalog (800-762-1005) and on-line at www.restorationhardware.com. As of May 20, 2004 the Company operated 102 retail stores in 30 states, the District of Columbia and Canada.

Safe Harbor Statement under the Private Securities Litigation Reform Act

of 1995:

This release contains forward-looking statements that involve known and unknown risks. Such forward-looking statements include, without limitation, statements concerning or relating to implications of the Company's revenues and financial results for the first quarter ended May 1, 2004, statements concerning guidance for the second quarter and full year fiscal 2004, statements relating to implications of customers' responses to the Company's financial results in connection with the Company's strategy of building predictable core businesses and the growing strength of the Company's brand, and other statements containing words such as "plans," "estimates," "expects," and words of similar import or statements of management's opinion. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, including financial results, market performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward- looking statements. Important factors that could cause such differences include, but are not limited to, customer reactions to the Company's current and anticipated merchandising and marketing programs and strategies, timely introduction and customer acceptance of the Company's merchandise, continued positive customer reaction to the Company's catalog and Internet offerings, revised product mix, prototype stores and core businesses, timely and effective sourcing of the Company's merchandise from its foreign and domestic vendors and delivery of merchandise through its supply chain to its stores and customers, effective inventory and catalog management, changes in investor perceptions of the Company, fluctuations in comparable store sales, limitations resulting from restrictive covenants in the Company's credit facility, changes in economic or business conditions in general, changes in political conditions in the United States and abroad in general, changes in product supply, changes in the competitive environment in which the Company operates, changes in the Company's management information needs, changes in customer needs and expectations, governmental actions and other factors detailed in the Company's filings with the Securities and Exchange Commission, including its recent filings on Forms 10-K, 10-Q and 8-K, including, but not limited to, those described in the Company's Form 10-K for the fiscal year ended January 31, 2004 in Part I, Item 1 thereof ("Business") under the captions "Competition" and "Factors that May Affect our Future Operating Results," in Part II, Item 7 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources," and "Critical Accounting Policies" and in Part II, Item 9A thereof ("Controls and Procedures"). Guidance offered by the Company represents a point-in-time estimate made by management of the Company. The Company undertakes no obligation to update any guidance or any other forward- looking statements in order to reflect events or circumstances that may arise after the date of this release.


                          RESTORATION HARDWARE, INC.
              STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
               (in thousands, except per share and store data)


                                          13 weeks ended   13 weeks ended
                                                   % of             % of
                                          5/1/04  Revenue  5/3/03  Revenue

    Retail net revenue                    $76,997   77.9%  $70,475   86.2%
    Direct-to-customer net revenue         21,861   22.1%   11,291   13.8%
        Total net revenue                  98,858  100.0%   81,766  100.0%

    Cost of revenue and occupancy          71,443   72.3%   61,825   75.6%
        Gross profit                       27,415   27.7%   19,941   24.4%

    Selling, general and administrative
     expense                               33,516   33.9%   28,029   34.3%
        Loss from operations               (6,101)  -6.2%   (8,088)  -9.9%

    Interest expense, net                    (427)  -0.4%     (562)  -0.7%

        Loss before income taxes           (6,528)  -6.6%   (8,650) -10.6%

    Income tax benefit                      2,546    2.6%    3,460    4.3%

    Net loss                              $(3,982)  -4.0%  $(5,190)  -6.3%

    Comparable store sales growth            9.0%            11.9%
    Stores open at end of period              102              105
    Total selling square footage          672,604          688,634

    Loss per share, basic and diluted      $(0.12)          $(0.17)
    Weighted average shares, basic and
     diluted                               32,791           30,052


                         RESTORATION HARDWARE,  INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                                (in thousands)

                                               5/1/04     1/31/04      5/3/03
    ASSETS
    Current assets:
        Cash and cash equivalents              $2,550      $2,003      $1,814
        Accounts receivable                     5,863       5,745       3,989
        Merchandise inventories               117,786     102,926     100,023
        Prepaid expense and other current
         assets                                16,263      16,968      12,306
            Total current assets              142,462     127,642     118,132

        Property and equipment, net            80,843      83,518      86,023
        Goodwill                                4,560       4,560       4,560
        Other long-term assets                 19,321      16,560      21,449
            Total assets                     $247,186    $232,280    $230,164

    LIABILITIES, REDEEMABLE CONVERTIBLE
     PREFERRED STOCK AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Accounts payable and accrued
         expenses                             $41,656     $45,292     $33,061
        Line of credit, net of debt
         issuance costs                        34,384      10,286      27,250
        Deferred revenue and customer
         deposits                               7,068       7,231       5,073
        Other current liabilities              11,394      11,438       8,659
            Total current liabilities          94,502      74,247      74,043

        Deferred lease incentives              32,555      33,999      37,290
        Deferred rent                          14,470      14,455      14,324
        Other long-term liabilities               301         352         109
            Total liabilities                 141,828     123,053     125,766

    Series A redeemable convertible
     preferred stock                            8,471       8,541      13,328

    Common stock and additional paid-in
     capital                                  158,407     158,177     151,938
    Unearned compensation                        (133)       (234)       (534)
    Accumulated other comprehensive income        892       1,040         211
    Accumulated deficit                       (62,279)    (58,297)    (60,545)
            Total stockholders' equity         96,887     100,686      91,070

            Total liabilities, redeemable
             convertible preferred
             stock and stockholders' equity  $247,186    $232,280    $230,164

    Shares issued and outstanding at end
     of period                                 32,848      32,768      30,055
SOURCE  Restoration Hardware, Inc.
    -0-                             05/20/2004
    /CONTACT:  Patricia McKay, Executive Vice President & Chief Financial
Officer of Restoration Hardware, Inc., +1-415-924-1005, or fax,
+1-415-927-7264/
    /Web site:  http://www.restorationhardware.com /
    (RSTO)

CO:  Restoration Hardware, Inc.
ST:  California
IN:  REA CST
SU:  ERN ERP CCA

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7110 05/20/2004 16:01 EDT http://www.prnewswire.com