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Restoration Hardware, Inc. Reports Third Quarter 2003 Results

Revenues Up 6%, Net Loss $2.9 Million ($0.09 per share), In Line With Guidance

CORTE MADERA, Calif., Nov. 20 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today reported net revenues of $95.8 million for the third quarter ended November 1, 2003, a 6% increase versus net revenues of $90.8 million for the same period a year ago. Comparable store sales for the third quarter increased 2.9%, on top of a 14.9% increase in the third quarter of 2002. Direct-to-customer sales, which include catalog and Internet, increased 46% to $16.0 million, on top of a 66% increase in last year's third quarter. The Company's third quarter net loss was $2.9 million ($0.09 per share) compared to $2.4 million ($0.08 per share) in the third quarter of 2002.

(Logo: http://www.newscom.com/cgi-bin/prnh/19990902/RSTOLOGO )

While the quarter's total revenues and comparable store sales were lower than anticipated, demand from orders not yet delivered increased $8.8 million in the quarter. The Company's first Annual Autumn Furniture Sale, the relatively late timing of the Famous Fall Lighting Sale and the launch of a new special order upholstery program all contributed to demand which was originally anticipated to be realized as revenue during the third quarter. The Company expects these orders (which include deliveries in transit, backorders and special orders) to have a positive effect in the fourth quarter as deliveries occur and revenues are recognized per the Company's revenue recognition policy.

Gary Friedman, the Company's President and CEO stated, "We were very pleased with our customers' response to the merchandising and marketing programs during the third quarter. Customers' reaction to our Annual Autumn Furniture Sale, and our new special order upholstery program created overall demand which exceeded our expectations, some of which will be recognized in our results for the fourth quarter."

Mr. Friedman further remarked, "During the quarter we opened two new Restoration Hardware prototype stores which have been designed to showcase our existing and new core businesses with greater clarity and authority. Both stores, in Richmond, Virginia and Cleveland, Ohio, are performing above plan, with a third store scheduled to re-open November 21 in Corte Madera, California."

Results for the third quarter were impacted by higher selling, general and administrative expenses which totaled $33.0 million, or 35% of revenues, as compared to $30.0 million, or 33% of revenues in the prior year's third quarter. In 2003, the Company incurred higher costs of advertising and payroll in support of its third quarter sales events, of which some of the related sales from the demand created will not be recognized until the fourth quarter.

The Company ended the third quarter with merchandise inventories of $122.1 million, versus $125.7 million at the end of the third quarter last year, a decrease of 3% versus the Company's sales increase of 6% for the same period. During the quarter, the Company closed one under-performing store and opened two new stores.

For the nine months ended November 1, 2003, net revenues were $273.6 million, a 12% increase versus net revenues of $245.2 million for the same period a year ago. Comparable store sales for the nine-month period increased 8.0%, on top of an 8.3% increase in last year's comparable period. Direct-to- customer sales increased 53% to $41.3 million, on top of a 38% increase in the same period a year ago.

The Company's net loss for the nine months was $10.8 million ($0.36 per share), versus $13.7 million ($0.46 per share) for the same period a year ago. The Company's prior year results for the first nine months included $4.0 million of additional income tax benefits as a consequence of the economic stimulus bill enacted on March 9, 2002.

Looking forward, the Company expects fourth quarter comparable store sales to increase in the mid-single digit range. Earnings per share for the fourth quarter are expected to range from $0.30 to $0.34, based on diluted weighted average shares of approximately 38.7 million.

Conference Call:

The Company's third quarter earnings conference call is scheduled for Thursday, November 20, 2003 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0574. A live webcast of the call is available at http://www.firstcallevents.com/service/ajwz393672770gf12.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/ajwz393672770gf12.html beginning at 8:00 p.m. Eastern Time on Thursday, November 20, 2003. A webcast replay of the call will be available at www.restorationhardware.com under "Company Info -- Investor Relations -- Event Calendar" until November 20, 2004.

About Restoration Hardware, Inc.

Restoration Hardware, Inc. is a specialty retailer of home furnishings, 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 November 20, 2003 the Company operated 103 retail stores in 31 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 third quarter ended November 1, 2003, statements concerning guidance for the fourth quarter of 2003, statements relating to expectations in connection with deliveries of firm orders and corresponding revenue recognition in the fourth quarter, statements relating to expected revenue from third quarter sales events, statements concerning customers' responses to merchandising and marketing programs of the Company and implications of such responses on the Company, statements implying the effects of the Company's new prototype stores and their product offerings on the Company's financial performance, statements concerning the re-opening of the Company's prototype store in Corte Madera, California, statements regarding holiday trends, and other statements containing words such as "believes," "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 acceptance of delivered orders and the timing of such deliveries, actual recognition of revenues from third quarter sales events, 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 and prototype stores, timely opening of the Company's prototype store in Corte Madera, California, further customer acceptance of the Company's private label credit card, 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 fiscal quarter ended August 2, 2003 in Part I, Item 2 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources," "Critical Accounting Policies," 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
                           11/1/03   % of Revenues    11/2/02   % of Revenues

    Net revenues           $95,814        100.0%      $90,774        100.0%
    Cost of sales and
     occupancy              67,027         70.0%       63,669         70.1%
      Gross profit          28,787         30.0%       27,105         29.9%

    Selling, general and
     administrative
     expenses               33,031         34.5%       30,024         33.1%
      Loss from
       operations          (4,244)         -4.4%      (2,919)         -3.2%

    Interest expense, net    (519)         -0.5%        (834)         -0.9%
    Change in fair value
     of warrants                --          0.0%           --          0.0%

      Loss before income
       taxes               (4,763)         -5.0%      (3,753)         -4.1%

    Income tax benefit       1,905          2.0%        1,351          1.5%

    Net loss               (2,858)         -3.0%      (2,402)         -2.6%

    Preferred shareholder
     return:
      Dividends                 --          0.0%           --          0.0%

    Loss attributable
     to common
     stockholders         $(2,858)         -3.0%     $(2,402)         -2.6%

    Stores open at end
     of period                 103                        105
    Total selling
     square footage        675,585                    688,634

    Loss per share,
     basic and diluted     $(0.09)                    $(0.08)
    Weighted average
     shares                 30,592                     29,926


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

                               39 weeks ended            39 weeks ended
                           11/1/03   % of Revenues    11/2/02   % of Revenues

    Net revenues          $273,553        100.0%     $245,170        100.0%
    Cost of sales
     and occupancy         200,012         73.1%      184,874         75.4%
      Gross profit          73,541         26.9%       60,296         24.6%

    Selling, general
     and administrative
     expenses               89,922         32.9%       84,986         34.7%
      Loss from
       operations         (16,381)         -6.0%     (24,690)        -10.1%

    Interest expense,
     net                   (1,674)         -0.6%      (2,098)         -0.9%
    Change in fair value
     of warrants                --          0.0%        (278)         -0.1%

      Loss before
       income taxes       (18,055)         -6.6%     (27,066)        -11.0%

    Income tax benefit       7,222          2.6%       13,753          5.6%

    Net loss              (10,833)         -4.0%     (13,313)         -5.4%

    Preferred shareholder
     return:
      Dividends                 --          0.0%        (358)         -0.1%

    Loss attributable
     to common
     stockholders        $(10,833)         -4.0%   $ (13,671)         -5.6%

    Stores open at
     end of period             103                        105
    Total selling
     square footage        675,585                    688,634

    Loss per share,
     basic and diluted     $(0.36)                    $(0.46)
    Weighted average
     shares                 30,243                     29,660


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

                                    11/1/03          2/1/03       11/2/02

    ASSETS
    Current assets:
     Cash and cash equivalents       $3,237          $1,630        $2,037
     Accounts receivable              5,911           3,352         4,931
     Merchandise inventories        122,145          94,500       125,671
     Prepaid expense and other
      current assets                 11,931          12,445        14,403
       Total current assets         143,224         111,927       147,042

     Property and equipment, net     84,170          90,038        93,432
     Goodwill                         4,560           4,560         4,560
     Other long-term assets          29,415          19,703        25,003
       Total assets                $261,369        $226,228      $270,037

    LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
           STOCK AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable and
      accrued expenses              $46,909         $35,649       $56,064
     Deferred revenue and
      customer deposits               7,864           6,046         6,071
     Other current liabilities        9,744           9,146         7,775
       Total current liabilities     64,517          50,841        69,910

     Long-term line of credit,
      net of debt issuance costs     45,891          13,909        49,157
     Deferred lease incentives       35,677          39,109        40,113
     Deferred rent                   14,554          14,163        13,834
     Other long-term liabilities        155             144            45
       Total liabilities            160,794         118,166       173,059

    Series A redeemable convertible
     preferred stock                  9,380          13,328        13,529

    Common stock                    156,827         150,881       149,571
    Unearned compensation             (284)           (659)         (659)
    Accumulated other comprehensive
     income (loss)                      841           (132)         (100)
    Accumulated deficit            (66,189)        (55,356)      (65,363)
       Total stockholders' equity    91,195          94,734        83,449

       Total liabilities,
        redeemable convertible
        preferred stock and
        stockholders' equity       $261,369        $226,228      $270,037

    Shares issued and outstanding
     at end of period                32,297          30,051        29,986
SOURCE  Restoration Hardware, Inc.
    -0-                             11/20/2003
    /CONTACT:  Patricia McKay, Chief Financial Officer of Restoration
Hardware, Inc., +1-415-924-1005, or fax, +1-415-945-4679/
    /Photo:  NewsCom:  http://www.newscom.com/cgi-bin/prnh/19990902/RSTOLOGO
              AP Archive:  http://photoarchive.ap.org
             PRN Photo Desk, 1-888-776-6555 or +1-212-782-2840/
    /Web site:  http://www.restorationhardware.com /
    (RSTO)