News Release Details


Restoration Hardware, Inc. Reports First Quarter 2007 Financial Results

CORTE MADERA, Calif., May 31, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today announced financial results for the first quarter ended May 5, 2007.

First quarter 2007 net revenue increased 7 percent to $142.1 million compared to $133.4 million in the year ago period. Loss from operations was $11.9 million, or -8.4% of revenues, compared to a loss of $3.5 million, or - 2.6% of revenues, in the first quarter of 2006. The year-over-year decline reflects a shortfall in revenues from the second mailing of our Outdoor catalog, lower gross margins due to a greater mix of promotional selling, as well as growth and supply chain investments during the first quarter of 2007. Earnings before interest, taxes, depreciation and amortization (EBITDA) were -$6.9 million compared to $1.7 million in the first quarter of 2006. Net loss per fully diluted share was $0.35 compared to net loss per fully diluted share of $0.13 last year.

Gary Friedman, Chairman, President and Chief Executive Officer, stated, "The first quarter was particularly challenging, reflecting a combination of factors that affected our financial performance. We experienced below plan sales in April, primarily in our outdoor and seasonal businesses, with the majority concentrated in the Eastern region of the country. We believe this was due to the fact that the second mailing of our Outdoor catalog dropped on April 5th during adverse weather conditions in the East. We also are experiencing ongoing softness across our business due to the challenging home furnishings environment and the effects from the slowdown in the home building industry. While we continue to operate in an uncertain macro environment, we believe the growth initiatives we have underway, combined with our cost cutting efforts, will enable us to achieve our previously stated financial guidance for the second quarter and full year 2007. We expect full year sales growth in the range of 9% to 11% and improved operating margins in the range of 1.4% to 1.8%."

"We are maintaining a sharp focus on improving operations," continued Mr. Friedman. "In the first quarter, we completed the retrofitting of our Furniture Distribution Centers. Additional plans for 2007 include consolidating our small package direct-to-customer operations, installing a new warehouse management system, re-engineering our home delivered furniture network and enhancing our sourcing and production management. At the same time, we're continuing to grow our business for the long-term by leveraging our multi-channel platform, assets and capabilities to extend the Restoration Hardware brand. In the first quarter we introduced our third category extension, the premier edition of the Restoration Hardware Bed & Bath catalog, reflecting our efforts to extend our leadership position in this strategically important category. Additionally, we launched Restoration Hardware Trade, a direct sales division targeting home and hospitality developers. We are also pleased with the continued development and customer response to our new brand, Brocade Home, which debuted last fall. In summary, we continue to be enthusiastic about our long-term growth plans as we pursue our multi-channel, multi-brand strategy."

The Company reiterated its previously issued financial guidance for the second quarter and full year 2007 as follows:

    Second quarter fiscal 2007:

    -- Total revenues in the range of $195 million to $199 million, an
       increase of 9% to 11% over fiscal 2006
    -- Operating margins in the range of -1.0 to 0.0 percent
    -- Earnings before interest, taxes, depreciation & amortization (EBITDA)
       in the range of $3.5 million to $5.5 million
    -- Interest expense in the range of $2.3 million to $2.4 million
    -- Effective tax rate of close to zero
    -- The weighted average share count is estimated at approximately
       39 million shares
    -- Inventory increase in the range of 25 to 30 percent over fiscal 2006
       second quarter in support of anticipated third quarter sales.
    -- Loss per diluted share in the range of $0.12 to $0.06

    Full year fiscal 2007:

    -- Total revenues in the range of $780 million to $793 million, an
       increase of 9% to 11% over fiscal 2006
    -- Operating margins in the range of 1.4 to 1.8 percent
    -- Earnings before interest, taxes, depreciation & amortization (EBITDA)
       in the range of $34.1 million to $37.5 million
    -- Interest expense in the range of $8.6 million to $8.9 million
    -- Effective annual tax rate of 40 percent
    -- The weighted average share count is estimated at approximately
       40 million shares
    -- Inventory increase in the range of 11 to 13 percent over fiscal 2006
    -- Capital expenditures in the range of $15 million to $18 million
    -- Earnings per diluted share in the range of $0.03 to $0.09

The Company also stated that it is working to redefine its segment financial reporting to be more closely aligned with the evolution of the business and the way management views, evaluates and operates the business.

Restoration Hardware will hold a conference call at 5:00 p.m. eastern time today, May 31, 2007. The call will be hosted by Gary Friedman, Chairman, President & Chief Executive Officer and Chris Newman, SVP & Chief Financial Officer. The conference call will be available through a live audio webcast at under "investor relations" and A replay will be archived on the Restoration Hardware web site the same day beginning at approximately 7:00 p.m. eastern time. The call can also be accessed by dialing 800-895-0198. A telephone replay will be available at 800-934-3335 until June 8, 2007.

Restoration Hardware, Inc. is a specialty retailer of high quality home furnishings, bath fixtures and bathware, functional and decorative hardware, gifts 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 The Company operates 103 retail stores and eight outlet stores in 30 states, the District of Columbia and Canada.

Non-GAAP Financial Measures

This press release references the following EBITDA financial information, which is a non-GAAP financial measure: (i) EBITDA of -$6.9 million for the first quarter of fiscal 2007, (ii) EBITDA of $1.7 million for the first quarter of fiscal 2006, (iii) EBITDA guidance for the second quarter of fiscal 2007 of between $3.5 million and $5.5 million and (iv) EBITDA guidance for the full year of fiscal 2007 of between $34.1 million and $37.5 million.

The Company believes that the use of EBITDA allows management and investors to evaluate and compare the Company's operating results in a more meaningful and consistent manner. EBITDA is a widely used financial metric to assess cash flow. "EBITDA" consists of earnings before interest, taxes, depreciation and amortization. EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP. The most closely analogous GAAP financial measure to EBITDA is net (loss) income.

A table setting forth a reconciliation of EBITDA to net (loss) income is set forth below (in millions).

                      13 weeks ended  Q2 13 weeks ending   52 weeks ending
                         (Actual)     8/4/07 (Projected)  2/2/08 (Projected)

                                       Low end  High end  Low end  High end
                     5/5/07   4/29/06 of range  of range  of range of range

    Net income
     (loss): GAAP   $(13.7)   $(4.9)   $(4.5)    $(2.4)     $1.3     $3.5
    Add: Interest
     expense            2.0      1.4      2.4       2.3      8.9      8.6
    Add: Income
     tax expense
     (benefit)        (0.2)    (0.0)      0.1       0.1      0.8      2.3
    Depreciation and
     expense            5.0      5.2      5.5       5.5     23.1     23.1
    Earnings before
     interest, taxes,
     and amortization
     Non-GAAP        $(6.9)     $1.7     $3.5      $5.5    $34.1    $37.5

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 the expected benefits of the Company's growth initiatives and cost cutting efforts, statements relating to the reasons the Company experienced below plan sales in April 2007, statements regarding the Company's long term growth plans, statements relating to the Company's guidance for future periods, including sales growth, operating margins, EBITDA, total revenues and earnings per diluted share, and other statements containing words such as "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 Company's 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-K for the fiscal year ended February 3, 2007, in Part I, Item 1A thereof ("Risk Factors"), in Part II, Item 7 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations"), 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.

    Contact Information:
    Chris Newman, SVP & CFO - 415.924.1005

    Investor Relations
    Christine Greany - 858.490.4601

                            RESTORATION HARDWARE, INC.
                      (in thousands, except per share data)

                               13 weeks ended             13 weeks ended
                           5/5/07       % of Net      4/29/06     % of Net
                                        Revenue                    Revenue

    Retail net revenue     $83,524        58.8%      $91,060        68.3%
     net revenue            58,588        41.2%       42,320        31.7%
      Total net revenue    142,112       100.0%      133,380       100.0%

    Cost of revenue and
     occupancy              97,638        68.7%       88,495        66.3%
      Gross profit          44,474        31.3%       44,885        33.7%

    Selling, general and
     expense                56,397        39.7%       48,353        36.3%
      Loss from
       operations         (11,923)       (8.4%)      (3,468)       (2.6%)

    Interest expense,
     net                   (1,999)       (1.4%)      (1,424)       (1.1%)

      Loss before
       income taxes       (13,922)       (9.8%)      (4,892)       (3.7%)

    Income tax benefit
     (expense)                 164         0.1%         (21)       (0.0%)

    Net loss             $(13,758)       (9.7%)     $(4,913)       (3.7%)

    Loss per share of
     common stock, basic
     and diluted           $(0.35)                   $(0.13)

    Weighted average
     shares outstanding,
     basic and diluted      38,757                    37,773

                            RESTORATION HARDWARE, INC.
                                  (in thousands)

                                     5/5/07          2/3/07       4/29/06

    Current assets:
      Cash and cash equivalents      $1,196          $1,461       $ 2,260
      Accounts receivable             8,535           7,164         9,175
      Merchandise inventories       215,483         192,805       194,628
      Prepaid expense and
       other current assets          24,367          18,984        17,633
        Total current assets        249,581         220,414       223,696

      Property and equipment, net    89,537          87,961        91,449
      Goodwill                        4,560           4,560         4,560
      Deferred tax assets, net        1,939           1,911             -
      Other assets                    1,531           1,521         1,343
        Total assets               $347,148        $316,367      $321,048

    Current liabilities:
      Accounts payable and
       accrued expenses             $63,097         $79,340       $77,626
      Deferred revenue and
       customer deposits             14,111           9,556        14,178
      Deferred tax liabilities,
       net                            1,351           1,357             -
      Other current liabilities      20,312          20,335        17,197
        Total current liabilities    98,871         110,588       109,001

      Long-term debt, net of
       debt issuance                121,763          68,384        88,065
      Deferred lease incentives      22,318          23,515        26,667
      Deferred rent                  19,588          19,998        20,160
      Other long-term obligations     5,781           1,774           660
        Total liabilities           268,321         224,259       244,553

    Stockholders' equity:
      Common stock                        4               4             4
      Additional paid-in capital    179,117         178,176       170,290
      Accumulated other
       comprehensive income           1,176             745         1,183
      Accumulated deficit         (101,470)        (86,817)      (94,982)
        Total stockholders'
         equity                      78,827          92,108        76,495

        Total liabilities and
         stockholders' equity      $347,148        $316,367      $321,048

SOURCE Restoration Hardware, Inc.

Chris Newman, SVP & CFO, +1-415-924-1005, or Christine Greany, Investor
Relations, +1-858-490-4601, both of Restoration Hardware, Inc.