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Restoration Hardware, Inc. Reports Second Quarter Results
                     Comparable store sales increase 5.6%

                    Direct-to-Customer sales increase 50%

Net results of 4 cent loss per share, excluding non-cash charge of 3 cents per
                                    share

CORTE MADERA, Calif., Aug. 25 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today announced its financial results for the second quarter ended July 30, 2005, including the following:

    -- Net revenue increased 20% to $144.8 million for the second quarter of
       fiscal 2005 versus net revenue of $120.9 million for the same period
       last year.
    -- Comparable store sales for the second quarter of fiscal 2005 increased
       5.6% on top of a 9.4% increase in the second quarter of fiscal 2004.
    -- Direct-to-Customer net revenue increased 50% in the second quarter of
       2005 on top of a 103% increase in the same period a year ago.
    -- Net results on a non-GAAP basis for the second quarter of fiscal 2005
       reflected a net loss of $1.5 million ($0.04 per share). These results
       exclude a previously announced non-cash pre-tax charge of $1.6 million
       ($0.03 per share) associated with store remodelings. Including the non-
       cash charge, net results on a GAAP basis for the second quarter of
       fiscal 2005 was a loss of $2.5 million ($0.07 per share) as compared to
       a net loss of $1.9 million ($0.06 per share) in the second quarter of
       the prior year.
    -- Operating results on a non-GAAP basis, excluding the non-cash charge,
       improved 42% to a loss from operations of $1.5 million for the second
       quarter of fiscal 2005 compared to a loss from operations on a GAAP
       basis of $2.7 million in last year's second quarter. Including the non-
       cash charge, operating results on a GAAP basis were a loss of $3.2
       million in the second quarter of fiscal 2005.
    -- Inventory was $137.0 million as of the end of the second quarter, up
       14% from the prior year's second quarter.
    -- Series A redeemable convertible preferred stock outstanding was fully
       converted into approximately 4.3 million shares of common stock at the
       end of the quarter.

Gary Friedman, the Company's Chairman, President and CEO, stated, "We are pleased with our overall performance in the second quarter, particularly in light of our remerchandising and store remodeling efforts. As expected, sales in all channels continued to show solid gains. Our comparable store sales in the second quarter of 2005 increased 5.6% on top of a 9.4% increase in the second quarter last year and a 9.9% increase in the second quarter of 2003. Additionally, our direct-to-customer division revenue increased 50% in the second quarter of 2005 on top of a 103% increase last year. These results clearly reflect our customers' continued positive response to our strategy, and the growing strength of our brand."

Mr. Friedman continued, "We are also pleased with the 300 basis point expansion of our gross profit margin in the quarter, driven by lower supply chain costs and expense leverage. This was achieved despite pressure on our product margins as we transitioned through a significant amount of our goods at the end of the quarter in anticipation of our remerchandising and remodeling efforts and the further repositioning of our brand. Our focus on building dominant core businesses has established Restoration Hardware as the top of mind, premium home furnishings destination. The results of our efforts will create consistency and predictability with our customers, reduce seasonal markdown risk and simplify our back-end processes."

For the six months ended July 30, 2005, net revenue was $262.2 million, a 19% increase versus the same period a year ago. Comparable store sales for the six months increased 5.3% on top of a 9.2% increase in the first six months last year. Direct-to-customer sales increased 50% to $75.7 million following a 99% increase in the same period a year ago.

The Company's net results on a non-GAAP basis for the six months ended July 30, 2005 was a loss of $4.6 million ($0.14 per share), an improvement over the six month period a year ago when the net results was a loss of $5.8 million ($0.18 per share). Including the non-cash charge previously discussed above, the net results on a GAAP basis for the six months ended July 30, 2005 was a loss of $5.6 million ($0.17 per share).

The Company provides the following guidance for the third quarter of fiscal 2005:

    -- Increase in comparable store sales in the mid single digits on top of
       an 8.7% comparable store sales in the prior year's third quarter.
    -- Direct-to-customer net revenue increase of 25% to 30% on top of a 78%
       increase in the prior year's third quarter.
    -- Loss per share of $0.03 to $0.05 versus a loss per share of $0.09 a
       year ago.
    -- Inventory at the end of the third quarter of fiscal 2005 is expected to
       be up approximately 10% compared to prior year levels.

    Use of Non-GAAP Financial Measures:

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this release presents net results and operating results for the second quarter and first six months of fiscal 2005 that excludes a non-cash charge associated with the Company's substantially completed store remodeling, which information is considered non- GAAP measures. The Company is committed to reporting its financial results on a GAAP basis and provides non-GAAP information for a greater understanding of some of the underlying elements that comprise the GAAP results that investors may find useful in analyzing the Company. The most directly comparable GAAP financial measure to the non-GAAP net results information provided in the release is net loss, and the most directly comparable GAAP financial measure to the non-GAAP operating results provided in this release is loss from operations. The reconciliation from such non-GAAP financial measure to GAAP is provided above.

Conference Call:

The Company's second quarter fiscal 2005 earnings conference call is scheduled for Thursday, August 25, 2005 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0574. A live webcast is available at http://phx.corporate- ir.net/phoenix.zhtml?p=irol-eventDetails&c=79100&eventID=1071525. 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=1071525 beginning at 7:00 p.m. Eastern Time on Thursday, August 25, 2005. A webcast replay of the call will be available at www.restorationhardware.com under "Company Info- Investor Relations-Event Calendar" or by dial-in (800-283-4593) until September 1, 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 25, 2005 the Company operated 102 retail stores and 3 outlet 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 30, 2005, statements concerning guidance for the third quarter of fiscal 2005, statements relating to customers' reaction to the Company's strategy, statements relating to a reduction in seasonal markdown risk, statements relating to the growth of the Company's brand, statements relating to the Company's anticipated long term strategy of the Company, statements related to the status of the Company's remodeling efforts, statements related to the Company's ability to streamline its back-end processes, 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, 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, actual achievement of cost savings and improvements to operating efficiencies, effective sales performance, in particular during the holiday selling season, the actual impact of key personnel of the Company on the development and execution of the Company's strategies, 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 April 30, 2005 in Part I, Item 2 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Revenue," "Expenses," "Other Matters," "Liquidity and Capital Resources" and "Factors that May Affect our Future Operating Results," and in Part I, Item 4 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
                                         7/30/05   Revenue  7/31/04  Revenue
                                                         (as restated)

    Retail net revenue                   $101,900   70.4%  $92,350   76.4%
    Direct-to-customer net revenue         42,881   29.6%   28,592   23.6%
       Total net revenue                  144,781  100.0%  120,942  100.0%

    Cost of revenue and occupancy         101,507   70.1%   88,425   73.1%
       Gross profit                        43,274   29.9%   32,517   26.9%

    Selling, general and administrative
     expense                               46,437   32.1%   35,172   29.1%
       Loss from operations                (3,163)  (2.2%)  (2,655)  (2.2%)

    Interest expense, net                    (834)  (0.6%)    (509)  (0.4%)

       Loss before income taxes            (3,997)  (2.8%)  (3,164)  (2.6%)

    Income tax benefit                      1,535    1.1%    1,280    1.0%

    Net loss                              $(2,462)  (1.7%) $(1,884)  (1.6%)

    Loss per common share, basic and
     diluted                               $(0.07)          $(0.06)
    Weighted average shares, basic and
     diluted                               33,259           32,903

    Comparable store sales                   5.6%             9.4%
    Retail stores open, at end of period      102              102
    Total selling square footage, end of
     period                               676,520          673,910


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

                                          26 weeks ended     26 weeks ended
                                                    % of               % of
                                         7/30/05  Revenue  7/31/04   Revenue
                                                        (as restated)

    Retail net revenue                   $186,576   71.1%  $169,347   77.0%
    Direct-to-customer net revenue         75,670   28.9%    50,453   23.0%
       Total net revenue                  262,246  100.0%   219,800  100.0%

    Cost of revenue and occupancy         183,330   69.9%   159,753   72.7%
       Gross profit                        78,916   30.1%    60,047   27.3%

    Selling, general and administrative
     expense                               86,423   33.0%    68,688   31.2%
       Loss from operations                (7,507)  (2.9%)   (8,641)  (3.9%)

    Interest expense, net                  (1,659)  (0.6%)     (936)  (0.5%)

       Loss before income taxes            (9,166)  (3.5%)   (9,577)  (4.4%)

    Income tax benefit                      3,591    1.4%     3,781    1.8%

    Net loss                              $(5,575)  (2.1%)  $(5,796)  (2.6%)

    Loss per common share, basic and
     diluted                               $(0.17)           $(0.18)
    Weighted average shares, basic and
     diluted                               33,185            32,847

    Comparable store sales                   5.3%              9.2%
    Retail stores open, at end of period      102               102
    Total selling square footage, end of
     period                               676,520           673,910


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

                                             7/30/05     1/29/05     7/31/04
                                                                 (as restated)

    ASSETS
    Current assets:
        Cash and cash equivalents              $1,820      $1,904       3,267
        Accounts receivable                     6,579       6,945       5,491
        Merchandise inventories               136,952     144,185     119,728
        Prepaid expense and other current
         assets                                21,852      19,574      17,281
            Total current assets              167,203     172,608     145,767

        Property and equipment, net            84,288      81,886      81,134
        Goodwill                                4,560       4,560       4,560
        Deferred tax assets, net               18,824      18,745      18,051
        Other assets                            4,115       1,464       5,829
            Total assets                     $278,990    $279,263    $255,341

    LIABILITIES, REDEEMABLE CONVERTIBLE
     PREFERRED STOCK AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Accounts payable and accrued expenses $58,583     $63,920      47,761
        Line of credit, net of debt issuance   48,595      33,819      37,896
        Deferred revenue and customer deposits  7,719       8,130       6,249
        Other current liabilities              12,471      14,948      11,709
            Total current liabilities         127,368     120,817     103,615

        Deferred lease incentives              28,409      30,365      31,340
        Deferred rent                          20,076      20,321      20,235
        Other long-term liabilities                46         143         248
            Total liabilities                 175,899     171,646     155,438

    Commitments and contingencies

    Series A redeemable convertible
     preferred stock                               --       8,331       8,331

    Common stock                                    3           3           3
    Additional paid in capital                168,533     159,233     158,871
    Unearned compensation                          --          --         (61)
    Accumulated other comprehensive income        892         812       1,021
    Accumulated deficit                       (66,337)    (60,762)    (68,262)
            Total stockholders' equity        103,091      99,286      91,572

            Total liabilities, redeemable
             convertible preferred stock
             and stockholders' equity        $278,990    $279,263    $255,341

    Shares issued and outstanding at end
     of period                                 37,542      33,084      33,012

SOURCE  Restoration Hardware, Inc.
    -0-                             08/25/2005
    /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 HOU
SU:  ERP CCA ERN

ND-UC
-- SFTH038 --
8681 08/25/2005 16:01 EDT http://www.prnewswire.com