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Restoration Hardware, Inc. Reports Second Quarter Results
                     Comparable Store Sales Increase 9.4%

                    Direct-to-Customer Sales Increase 103%

CORTE MADERA, Calif., Aug. 19 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today announced its financial results for the second quarter ended July 31, 2004, including the following:

-- Net results for the second quarter of fiscal 2004 improved to a net loss of $2.0 million ($0.06 per share) as compared to a net loss of $2.8 million ($0.09 per share) in the second quarter of the prior year. Results were in line with the Company's prior guidance of a loss in the range of $0.06 to $0.07 per share.

-- Operating results improved to a loss from operations of $2.9 million for the second quarter of fiscal 2004, versus a loss from operations of $4.0 million for last year's second quarter.

-- Net revenue increased 26% to $120.9 million for the second quarter of fiscal 2004, versus net revenue of $96.0 million for the same period last year.

-- Comparable store sales for the second quarter of fiscal 2004 increased 9.4%, on top of a 9.9% increase in the second quarter of fiscal 2003.

-- Net revenue in the second quarter of fiscal 2004 for the direct-to-customer division increased to $28.6 million or 103% versus the same quarter last year, on top of a 46% increase in the same period in the prior year.

Gary Friedman, the Company's President and CEO, stated, "We are pleased with our overall performance in the second quarter. Our results were substantially improved with sales in all channels showing impressive gains. Our comparable store sales in the second quarter of 2004 increased 9.4% on top of a 9.9% increase in the second quarter last year and an 8.9% increase in the second quarter of 2002. These increases reflect a compounded growth of 31% in our comparable store sales since the initial launch of our new merchandising strategy in the second quarter of 2002. That, coupled with a 103% increase in our direct-to-customer division revenue in the second quarter of 2004 on top of a 46% increase in the prior year's second quarter, reflects the customers' positive response to our strategy, and the growing strength of our brand."

During the quarter, the Company continued to make investments in its supply chain and distribution center operations. The Company successfully relocated its west coast furniture distribution center to a new facility in Tracy, California with a capacity of 280,000 square feet. In addition, the Company expanded its east coast distribution center by approximately 30%, in anticipation of continued revenue growth. As previously communicated, the Company has retained a supply chain consultant team to manage its operations and improve distribution processes and systems. Mr. Friedman commented, "While these investments create short term expense pressure, we believe they are necessary to ensure the Company executes at a high level during the important fiscal fourth quarter."

Mr. Friedman continued, "This fall completes the transformation of the Restoration Hardware brand as we introduce new collections across furniture and accessories. We have now evolved from an items driven discovery business to a premium home furnishings retailer offering high quality, authoritative assortments of hardware, bath hardware, furniture, lighting, textiles and accessories. In addition, in August we mailed the premier issue of our new redesigned catalog, which clearly communicates the stylistic and quality positioning of our brand. The initial response to our fall collection in our stores, catalog and online has been positive, and we are excited about our business prospects for the fall season."

For the six months ended July 31, 2004, net revenue was $219.8 million, a 24% increase versus the same period a year ago. Comparable store sales for the six months increased 9.2% on top of a 10.8% increase in the first six months last year. Direct-to-customer sales increased 99% to $50.5 million following a 57% increase in the same period a year ago.

The Company's net loss for the six months ended July 31, 2004 was $6.0 million ($0.18 per share) and showed significant improvement over the six month period a year ago when the net loss was $8.0 million ($0.27 per share).

The Company provides the following guidance for the third quarter of fiscal 2004:

-- Increase in comparable store sales in the mid-single digits on top of a 2.9% increase in the prior year's third quarter.

-- Direct-to-customer net revenue increase of 70% to 80% on top of a 46% increase in the same quarter in the prior year.

-- Net loss in the range of $0.04 to $0.07 per share versus a loss per share of $0.09 in the third quarter of the prior year.

The Company's guidance for the 2004 full fiscal year has been modified, as detailed below, to reflect the favorable sales performance in the first half of the year with other full-year guidance remaining unchanged from that previously provided:

-- Comparable store sales are expected to increase in the mid-single digits range for fiscal 2004.

-- Direct-to-customer net revenue is anticipated to increase for the full fiscal year 2004 versus 2003 in a range of 60% to 70%.

-- Operating margins are still expected in the range of 1% to 2% of net revenue.

Conference Call:

The Company's second quarter fiscal 2004 earnings conference call is scheduled for Thursday, August 19, 2004 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0571. A live webcast is available at http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=79100&eventID=927836. If you are unable to participate during the live webcast, a playback of the conference call will be available via the Internet at http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=79100&eventID=927836 beginning at 7:00 p.m. Eastern Time on Thursday, August 19, 2004. A webcast replay of the call will be available at www.restorationhardware.comunder "Company Info-Investor Relations-Event Calendar" or by dial-in (888-566-0148) until August 26, 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 August 19, 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 second quarter ended July 31, 2004, statements concerning guidance for the third quarter and full year fiscal 2004, statements relating to implications of customers' responses to the Company's strategy and the growing strength of the Company's brand, statements relating to the impact on the Company of its retention of supply chain consultants, statements relating to the timing and effect of completing the Company's brand transformation and the effect of the issuance of its new catalog, statements relating to the Company's anticipated business prospects, and other 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-Q for the quarter ended May 1, 2004 in Part I, Item 2 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Revenue," "Critical Accounting Policies," "Liquidity and Capital Resources" and "Factors that May Affect our Future Operating Results." 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
                                          7/31/04   Revenue  8/2/03    Revenue

    Net retail revenue                   $92,350     76.4%  $81,883     85.3%
    Net direct-to-customer revenue        28,592     23.6%   14,090     14.7%
        Total net revenue                120,942    100.0%   95,973    100.0%

    Cost of revenue and occupancy         88,630     73.3%   71,160     74.1%
        Gross profit                      32,312     26.7%   24,813     25.9%

    Selling, general and administrative
     expenses                             35,172     29.1%   28,862     30.1%
        Loss from operations              (2,860)    (2.4%)  (4,049)    (4.2%)

    Interest expense, net                   (509)    (0.4%)    (593)    (0.6%)

        Loss before income taxes          (3,369)    (2.8%)  (4,642)    (4.8%)

    Income tax benefit                     1,363      1.1%    1,857      1.9%

    Net loss                             $(2,006)    (1.7%) $(2,785)    (2.9%)

    Loss per common share, basic and
     diluted                              $(0.06)            $(0.09)
    Weighted average shares outstanding,
        basic and diluted                 32,903             30,083

    Comparable store sales growth           9.4%                9.9%
    Stores open at end of period             102                102
    Total selling square footage at end
     of period                           673,910            668,463


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


                                           26 weeks ended    26 weeks ended
                                                     % of              % of
                                          7/31/04  Revenue   8/2/03  Revenue

    Net retail revenue                    $169,347   77.0%  $152,358   85.7%
    Net direct-to-customer revenue          50,453   23.0%    25,381   14.3%
        Total net revenue                  219,800  100.0%   177,739  100.0%

    Cost of revenue and occupancy          160,073   72.8%   132,985   74.8%
        Gross profit                        59,727   27.2%    44,754   25.2%

    Selling, general and administrative
     expenses                               68,688   31.3%    56,891   32.0%
        Loss from operations                (8,961)  (4.1%)  (12,137)  (6.8%)

    Interest expense, net                     (936)  (0.4%)   (1,155)  (0.7%)

        Loss before income taxes            (9,897)  (4.5%)  (13,292)  (7.5%)

    Income tax benefit                       3,909    1.8%     5,317    3.0%

    Net loss                               $(5,988)  (2.7%)  $(7,975)  (4.5%)

    Loss per common share, basic and
     diluted                                $(0.18)           $(0.27)
    Weighted average shares outstanding,
        basic and diluted                   32,847            30,068

    Comparable store sales growth             9.2%              10.8%
    Stores open at end of period               102               102
    Total selling square footage at end
     of period                             673,910           668,463


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

                                            7/31/04     1/31/04      8/2/03

    ASSETS
    Current assets:
        Cash and cash equivalents              $3,267      $2,003      $2,214
        Accounts receivable                     5,491       5,745       4,079
        Merchandise inventories               119,728     102,926      92,508
        Prepaid expense and other current
         assets                                18,579      16,968      13,937
            Total current assets              147,065     127,642     112,738

        Property and equipment, net            81,134      83,518      83,587
        Goodwill                                4,560       4,560       4,560
        Other long-term assets                 21,095      16,560      23,840
            Total assets                     $253,854    $232,280    $224,725

    LIABILITIES, REDEEMABLE CONVERTIBLE
     PREFERRED STOCK AND
     STOCKHOLDERS' EQUITY
    Current liabilities:
        Accounts payable and accrued
         expenses                             $47,761     $45,292     $31,923
        Line of credit, net of debt
         issuance costs                        37,896      10,286      25,909
        Deferred revenue and customer
         deposits                               6,249       7,231       4,991
        Other current liabilities              11,709      11,438       8,762
            Total current liabilities         103,615      74,247      71,585

        Deferred lease incentives              31,340      33,999      36,190
        Deferred rent                          14,786      14,455      14,414
        Other long-term liabilities               248         352         140
            Total liabilities                 149,989     123,053     122,329

    Series A redeemable convertible
     preferred stock                            8,331       8,541      13,328

    Common stock and addtitional paid-in
     capital                                  158,874     158,177     152,376
    Unearned compensation                         (61)       (234)       (409)
    Accumulated other comprehensive income      1,006       1,040         431
    Accumulated deficit                       (64,285)    (58,297)    (63,330)
            Total stockholders' equity         95,534     100,686      89,068

            Total liabilities, redeemable
             convertible preferred
                stock and stockholders'
                 equity                      $253,854    $232,280    $224,725

    Common stock issued and outstanding at
     end of period                             33,012      32,768      30,176

SOURCE  Restoration Hardware, Inc.
    -0-                             08/19/2004
    /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
SU:  ERN ERP CCA

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8944 08/19/2004 16:01 EDT http://www.prnewswire.com