RH Reports Record Fourth Quarter and Fiscal Year 2014 Financial Results
Q4 2014 Comparable Brand Revenue Growth of 24% on Top of 24% Last Year; Adjusted Diluted EPS of
Fiscal
Company Expects Fiscal 2015 Operating Margins to Reach 10.3% to 10.6%; Adjusted Diluted EPS in Range of
Fourth Quarter Highlights
- Net revenues increased 24% on top of an 18% increase last year
- Comparable brand revenues increased 24% on top of a 24% increase last year
- Adjusted operating margin increased 30 basis points to 12.7%; GAAP operating margin of 12.9% compared to 12.4% for the same period last year
- Adjusted net income increased 25% to
$42.5 million ; GAAP net income of$42.5 million compared to$26.6 million for the same period last year - Adjusted diluted EPS increased 23% to
$1.02 ; GAAP diluted EPS of$1.02 compared to$0.65 for the same period last year
Fiscal Year Highlights
- Net revenues increased 20% on top of a 30% increase last year
- Comparable brand revenues increased 20% on top of a 31% increase last year
- Adjusted operating margin increased 150 basis points to 9.3%; GAAP operating margin of 8.9% compared to 3.5% for the same period last year
- Adjusted net income increased 41% to
$97.6 million ; GAAP net income of$91.0 million compared to$18.2 million for the same period last year - Adjusted diluted EPS increased 38% to
$2.36 ; GAAP diluted EPS of$2.20 compared to$0.45 for the same period last year
Mr. Friedman added, “We are very pleased with the initial trends and performance of our first next generation
Mr. Friedman continued, "While we have been negatively impacted by the
Mr. Friedman concluded, “Fiscal 2015 is a bridge year for RH - with revenue growth targeted in the mid-teens, and then reaccelerating to our long term goal of 20% as our real estate transformation steps up in fiscal 2016. While we are guiding 2015 revenues below our long term target, we are guiding adjusted net income growth to be in the range of 28% to 34% - above our long term target of mid to high twenties annually. We expect operating margins of 10.3% to 10.6% this year due to continued gross margin expansion and enhanced productivity from our Source Books. Reaching both the
Fourth Quarter Fiscal 2014 Financial Results
Revenue - Net revenues for the fourth quarter of fiscal 2014 increased 24% to
- Comparable brand revenue, which includes direct, increased 24% in the fourth quarter of fiscal 2014 on top of a 24% increase for the same period last year.
- As of
January 31, 2015 , the Company operated a total of 67 retail stores, consisting of 57 legacy Galleries, 7 large format Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores throughoutthe United States andCanada . This compares to a total of 70 retail stores, consisting of 62 legacy Galleries, 5 large format Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores throughoutthe United States andCanada as ofFebruary 1, 2014 . - Direct revenues increased 33% to
$304.8 million in the fourth quarter of fiscal 2014. This growth is on top of a 22% increase in direct revenues in the fourth quarter of fiscal 2013. Direct revenues during the fourth quarter of fiscal 2014 represented 52% of total net revenues.
Operating Income and Margin* - Adjusted operating income in the fourth quarter of fiscal 2014 increased 27% to
Net Income* - Adjusted net income in the fourth quarter of fiscal 2014 increased 25% to
Earnings Per Share* - Adjusted diluted EPS for the fourth quarter of fiscal 2014 increased 23% to
Fiscal 2014 Financial Results
Revenue – Net revenues for fiscal 2014 increased over 20% to
- Comparable brand revenue, which includes direct, increased 20% in fiscal 2014 on top of a 31% increase for the same period last year.
- Direct revenues increased 28% to
$934.2 million in fiscal 2014. This growth is on top of a 33% increase in direct revenues in fiscal 2013. Direct revenues during fiscal 2014 represented 50% of total net revenues.
Operating Income and Margin* - Adjusted operating income in fiscal 2014 increased 43% to
Net Income* - Adjusted net income increased 41% to
Earnings Per Share* - Adjusted diluted EPS for fiscal 2014 increased 38% to
A reconciliation of GAAP to non-GAAP financial measures is provided in the tables accompanying this release.
Outlook
The Company is providing the following guidance for the first quarter of fiscal 2015:
- Net revenues in the range of
$415 million to $420 million , including the negative impact of approximately$10 million to $12 million due to theWest Coast port congestion - Adjusted net income in the range of
$7.5 million to $8.4 million , including the negative impact of theWest Coast port congestion - Adjusted diluted EPS in the range of
$0.18 to $0.20 , including the negative impact of approximately$0.05 to $0.06 due to theWest Coast port congestion
- Income tax rate of approximately 39%
- Diluted shares outstanding of approximately 41.9 million
The Company is providing the following guidance for the fiscal year ending
- Net revenues in the range of
$2.13 billion to $2.17 billion - Operating margins in the range of 10.3% to 10.6%
- Adjusted net income in the range of
$125 million to $131 million - Adjusted diluted EPS in the range of
$2.95 to $3.10 - Income tax rate of approximately 39%
- Diluted shares outstanding of approximately 42.2 million
- Capital expenditures in the range of
$140 million to $160 million
Note: The Company’s adjusted net income and adjusted diluted earnings per share guidance does not include certain charges and costs, such as for unusual items which may occur in the future, and which are expected to be similar in future periods to the kinds of charges and costs excluded from adjusted net income and adjusted diluted earnings per share in prior quarters.
Video Presentation and Q&A Conference Call Information
Accompanying this release, RH will today post a video presentation highlighting the Company’s fourth quarter and fiscal 2014 performance and outlook on the Company’s Investor Relations website, ir.restorationhardware.com. Management will then host a live question and answer conference call at
About RH
RH (
*Non-GAAP Financial Measures
To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company uses the following non-GAAP financial measures: adjusted operating income, adjusted operating margin, adjusted net income, and adjusted diluted EPS (collectively, “non-GAAP financial measures”). We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
For more information on the non-GAAP financial measures, please see the Reconciliation of GAAP to non-GAAP Financial Measures tables in this press release. These accompanying tables include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures. With respect to the Company’s non-GAAP guidance for the first quarter of fiscal 2015 and the fiscal year ending
Forward-Looking Statements
This release and the accompanying video presentation contain forward-looking statements within the meaning of the federal securities laws including statements related to our future financial guidance, including for the first quarter of fiscal 2015 and the fiscal year ending
RESTORATION HARDWARE HOLDINGS, INC. | ||||
FINANCIAL STATEMENTS AND RELATED INFORMATION | ||||
TABLE OF CONTENTS | ||||
Page 8. |
Condensed Consolidated Statements of Operations | |||
Page 9. |
Condensed Consolidated Balance Sheets | |||
Page 10. |
Condensed Consolidated Statements of Cash Flows | |||
Page 11. |
Operating Metrics and Other Data | |||
Page 12. |
Reconciliation of Adjusted Income Statement Items | |||
Page 14. |
Reconciliation of Net Income to Operating Income and Adjusted Operating Income | |||
Page 15. |
Reconciliation of GAAP Net Income to Adjusted Net Income | |||
Page 16. |
Reconciliation of Diluted Net Income Per Share to Adjusted Diluted Net Income Per Share | |||
Page 17. |
Calculation of Free Cash Flow | |||
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||
January 31, | % of Net | February 1, | % of Net | January 31, | % of Net | February 1, | % of Net | |||||||||||||||||
2015 | Revenues | 2014 | Revenues | 2015 | Revenues | 2014 | Revenues | |||||||||||||||||
Net revenues | $ | 582,727 | 100.0 | % | $ | 471,694 | 100.0 | % | $ | 1,867,422 | 100.0 | % | $ | 1,550,961 | 100.0 | % | ||||||||
Cost of goods sold | 364,584 | 62.6 | % | 296,717 | 62.9 | % | 1,176,648 | 63.0 | % | 994,081 | 64.1 | % | ||||||||||||
Gross profit | 218,143 | 37.4 | % | 174,977 | 37.1 | % | 690,774 | 37.0 | % | 556,880 | 35.9 | % | ||||||||||||
Selling, general and administrative expenses | 142,818 | 24.5 | % | 116,717 | 24.7 | % | 525,048 | 28.1 | % | 502,029 | 32.4 | % | ||||||||||||
Income from operations | 75,325 | 12.9 | % | 58,260 | 12.4 | % | 165,726 | 8.9 | % | 54,851 | 3.5 | % | ||||||||||||
Interest expense | 5,939 | 1.0 | % | 1,537 | 0.3 | % | 17,551 | 1.0 | % | 5,733 | 0.3 | % | ||||||||||||
Income before income taxes | 69,386 | 11.9 | % | 56,723 | 12.1 | % | 148,175 | 7.9 | % | 49,118 | 3.2 | % | ||||||||||||
Income tax expense | 26,861 | 4.6 | % | 30,081 | 6.5 | % | 57,173 | 3.0 | % | 30,923 | 2.0 | % | ||||||||||||
Net income | $ | 42,525 | 7.3 | % | $ | 26,642 | 5.6 | % | $ | 91,002 | 4.9 | % | $ | 18,195 | 1.2 | % | ||||||||
Weighted-average shares used in computing basic net income per share | 39,734,145 | 39,008,383 | 39,457,491 | 38,671,564 | ||||||||||||||||||||
Basic net income per share | $ | 1.07 | $ | 0.68 | $ | 2.31 | $ | 0.47 | ||||||||||||||||
Weighted-average shares used in computing diluted net income per share | 41,777,509 | 41,119,175 | 41,378,210 | 40,416,630 | ||||||||||||||||||||
Diluted net income per share | $ | 1.02 | $ | 0.65 | $ | 2.20 | $ | 0.45 | ||||||||||||||||
RESTORATION HARDWARE HOLDINGS, INC. | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(In thousands) | ||||||
(Unaudited) | ||||||
January 31, | February 1, | |||||
2015 | 2014 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 148,934 | $ | 13,389 | ||
Short-term investments | 62,168 | — | ||||
Merchandise inventories | 559,297 | 453,845 | ||||
Other current assets | 141,845 | 146,581 | ||||
Total current assets | 912,244 | 613,815 | ||||
Long-term investments | 18,338 | — | ||||
Property and equipment—net | 390,844 | 214,909 | ||||
Goodwill and other intangibles | 172,978 | 171,132 | ||||
Other non-current assets | 31,595 | 25,247 | ||||
Total assets | $ | 1,525,999 | $ | 1,025,103 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Liabilities | ||||||
Accounts payable and accrued expenses | $ | 235,159 | $ | 206,778 | ||
Other current liabilities | 109,270 | 110,670 | ||||
Total current liabilities | 344,429 | 317,448 | ||||
Convertible senior notes—net | 284,388 | — | ||||
Financing obligations under build-to-suit lease transactions | 124,770 | 33,165 | ||||
Revolving line of credit | — | 85,425 | ||||
Other non-current obligations | 69,496 | 43,793 | ||||
Total liabilities | 823,083 | 479,831 | ||||
Stockholders’ equity | 702,916 | 545,272 | ||||
Total liabilities and stockholders’ equity | $ | 1,525,999 | $ | 1,025,103 | ||
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Twelve Months Ended | ||||||||
January 31, | February 1, | |||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 91,002 | $ | 18,195 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 34,463 | 27,654 | ||||||
Stock-based compensation expense | 17,072 | 67,622 | ||||||
Other non-cash items | (4,417 | ) | 3,973 | |||||
Change in assets and liabilities: | ||||||||
Merchandise inventories | (106,036 | ) | (100,937 | ) | ||||
Accounts payable, accrued expenses and other | 50,407 | 71,014 | ||||||
Net cash provided by operating activities | 82,491 | 87,521 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures | (110,359 | ) | (93,868 | ) | ||||
Construction related deposits | (9,250 | ) | — | |||||
Purchase of trademarks and domain names | (453 | ) | — | |||||
Purchase of investments | (91,604 | ) | — | |||||
Maturities of investments | 11,118 | — | ||||||
Net cash used in investing activities | (200,548 | ) | (93,868 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net borrowings (repayments) under revolving line of credit | (85,425 | ) | 2,924 | |||||
Revolving line of credit deferred financing fees | (2,133 | ) | — | |||||
Proceeds from issuance of convertible senior notes | 350,000 | — | ||||||
Proceeds from issuance of warrants | 40,390 | — | ||||||
Purchase of convertible note hedges | (73,325 | ) | — | |||||
Debt issuance costs related to convertible senior notes | (5,385 | ) | — | |||||
Borrowings under build-to-suit lease transactions | 1,776 | — | ||||||
Payments on capital leases | (1,803 | ) | (2,555 | ) | ||||
Proceeds from exercise of stock options | 16,400 | 7,629 | ||||||
Excess tax benefit from exercise of stock options | 16,421 | 3,685 | ||||||
Tax withholdings related to issuance of stock-based awards | (3,116 | ) | (178 | ) | ||||
Net cash provided by financing activities | 253,800 | 11,505 | ||||||
Effects of foreign currency exchange rate translation | (198 | ) | (123 | ) | ||||
Net increase in cash and cash equivalents | 135,545 | 5,035 | ||||||
Cash and cash equivalents | ||||||||
Beginning of period | 13,389 | 8,354 | ||||||
End of period | $ | 148,934 | $ | 13,389 | ||||
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||
OPERATING METRICS AND OTHER DATA | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Twelve Months Ended | |||||||
January 31, | February 1, | January 31, | February 1, | |||||
2015 | 2014 | 2015 | 2014 | |||||
Direct as a percentage of net revenues [a] |
52% |
49% | 50% | 47% | ||||
Growth in net revenues: | ||||||||
Stores [b] |
14% |
16% | 14% | 27% | ||||
Direct | 33% | 22% | 28% | 33% | ||||
Total | 24% | 18% | 20% | 30% | ||||
Comparable brand revenue growth [c] | 24% | 24% | 20% | 31% | ||||
Retail: [d] | ||||||||
Retail stores open at beginning of period | 68 | 70 | 70 | 71 | ||||
Stores opened | 1 | — | 3 | 2 | ||||
Stores closed | 2 | — | 6 | 3 | ||||
Retail stores open at end of period | 67 | 70 | 67 | 70 | ||||
Retail sales per leased selling square foot [e] | $398 | $392 | $1,426 | $1,395 | ||||
Total leased square footage at end of period (in thousands) | 861 | 798 | 861 | 798 | ||||
Total leased selling square footage at end of period (in thousands) [f] | 607 | 554 | 607 | 554 | ||||
Average leased square footage (in thousands) [g] | 841 | 797 | 813 | 793 | ||||
Average leased selling square footage (in thousands) [g] | 591 | 537 | 567 | 522 |
[a] Direct revenues include sales through our catalogs and websites. |
[b] Stores data represents retail stores plus outlet stores. |
[c] Comparable brand revenue growth includes retail comparable store sales, including Baby & Child Galleries, and direct net revenues. Comparable brand revenue growth excludes retail non-comparable store sales, closed store sales and outlet store net revenues. Comparable store sales have been calculated based upon retail stores, excluding outlet stores, that were open at least fourteen full months as of the end of the reporting period and did not change square footage by more than 20% between periods. If a store is closed for seven days during a month, that month will be excluded from comparable store sales. |
[d] Retail data has been calculated based upon retail stores, which includes our Baby & Child Galleries and excludes outlet stores. |
[e] Retail sales per leased selling square foot is calculated by dividing total net revenues for all retail stores, comparable and non-comparable, by the average leased selling square footage for the period. |
[f] Leased selling square footage is retail space at our stores used to sell our products. Leased selling square footage excludes backrooms at retail stores used for storage, office space or similar matters, as well as exterior sales space located outside a store, such as courtyards, gardens and rooftops. Leased selling square footage includes approximately 4,500 square feet related to one owned store location. |
[g] Average square footage (leased or leased selling, as applicable) is calculated for each quarter by taking the total applicable square footage at the beginning of the quarter plus the total applicable square footage at the end of the quarter and dividing by two. Average square footage for periods of three and twelve months is calculated by averaging the average square footage for the quarters within such periods. |
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||||||||||||||||||||
RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS | ||||||||||||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||
Reported | Adjusted | Reported | Adjusted | |||||||||||||||||||||||
January 31, | January 31, | % of Net | February 1, | February 1, | % of Net | |||||||||||||||||||||
2015 | Adjustments | 2015 | Revenues | 2014 | Adjustments | 2014 | Revenues | |||||||||||||||||||
Net revenues | $ | 582,727 | $ | — | $ | 582,727 | 100.0 | % | $ | 471,694 | $ | — | $ | 471,694 | 100.0 | % | ||||||||||
Cost of goods sold | 364,584 | — | 364,584 | 62.6 | % | 296,717 | — | 296,717 | 62.9 | % | ||||||||||||||||
Gross profit | 218,143 | — | 218,143 | 37.4 | % | 174,977 | — | 174,977 | 37.1 | % | ||||||||||||||||
Selling, general and administrative expenses [a] | 142,818 | 1,500 | 144,318 | 24.7 | % | 116,717 | — | 116,717 | 24.7 | % | ||||||||||||||||
Income from operations | 75,325 | (1,500 | ) | 73,825 | 12.7 | % | 58,260 | — | 58,260 | 12.4 | % | |||||||||||||||
Interest expense [b] | 5,939 | (2,943 | ) | 2,996 | 0.5 | % | 1,537 | — | 1,537 | 0.3 | % | |||||||||||||||
Income before income taxes | 69,386 | 1,443 | 70,829 | 12.2 | % | 56,723 | — | 56,723 | 12.1 | % | ||||||||||||||||
Income tax expense (benefit) [c] | 26,861 | 1,471 | 28,332 | 4.9 | % | 30,081 | (7,392 | ) | 22,689 | 4.9 | % | |||||||||||||||
Net income [d] | $ | 42,525 | $ | (28 | ) | $ | 42,497 | 7.3 | % | $ | 26,642 | $ | 7,392 | $ | 34,034 | 7.2 | % | |||||||||
Weighted-average shares used in computing basic net income per share | 39,734,145 | 39,734,145 | 39,008,383 | 39,008,383 | ||||||||||||||||||||||
Basic net income per share | $ | 1.07 | $ | 1.07 | $ | 0.68 | $ | 0.87 | ||||||||||||||||||
Weighted-average shares used in computing diluted net income per share | 41,777,509 | 41,777,509 | 41,119,175 | 41,119,175 | ||||||||||||||||||||||
Diluted net income per share | $ | 1.02 | $ | 1.02 | $ | 0.65 | $ | 0.83 |
[a] The adjustment for selling, general and administrative expenses for the three months ended January 31, 2015 relates to the reversal of charges previously incurred in connection with a legal claim. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[b] The adjustment to interest expense represents the exclusion of the non-cash amortization of debt discount related to our convertible senior notes, net of interest capitalized for capital projects. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[c] Assumes a normalized tax rate of 40% for both periods presented. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[d] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||||||||||||||||||||
RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS | ||||||||||||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||
Twelve Months Ended | ||||||||||||||||||||||||||
Reported | Adjusted | Reported | Adjusted | |||||||||||||||||||||||
January 31, | January 31, | % of Net | February 1, | February 1, | % of Net | |||||||||||||||||||||
2015 | Adjustments | 2015 | Revenues | 2014 | Adjustments | 2014 | Revenues | |||||||||||||||||||
Net revenues | $ | 1,867,422 | $ | — | $ | 1,867,422 | 100.0 | % | $ | 1,550,961 | $ | — | $ | 1,550,961 | 100.0 | % | ||||||||||
Cost of goods sold | 1,176,648 | — | 1,176,648 | 63.0 | % | 994,081 | — | 994,081 | 64.1 | % | ||||||||||||||||
Gross profit | 690,774 | — | 690,774 | 37.0 | % | 556,880 | — | 556,880 | 35.9 | % | ||||||||||||||||
Selling, general and administrative expenses [a] | 525,048 | (7,700 | ) | 517,348 | 27.7 | % | 502,029 | (66,050 | ) | 435,979 | 28.1 | % | ||||||||||||||
Income from operations | 165,726 | 7,700 | 173,426 | 9.3 | % | 54,851 | 66,050 | 120,901 | 7.8 | % | ||||||||||||||||
Interest expense [b] | 17,551 | (6,852 | ) | 10,699 | 0.6 | % | 5,733 | — | 5,733 | 0.3 | % | |||||||||||||||
Income before income taxes | 148,175 | 14,552 | 162,727 | 8.7 | % | 49,118 | 66,050 | 115,168 | 7.5 | % | ||||||||||||||||
Income tax expense [c] | 57,173 | 7,918 | 65,091 | 3.5 | % | 30,923 | 15,144 | 46,067 | 3.0 | % | ||||||||||||||||
Net income [d] | $ | 91,002 | $ | 6,634 | $ | 97,636 | 5.2 | % | $ | 18,195 | $ | 50,906 | $ | 69,101 | 4.5 | % | ||||||||||
Weighted-average shares used in computing basic net income per share | 39,457,491 | 39,457,491 | 38,671,564 | 38,671,564 | ||||||||||||||||||||||
Basic net income per share | $ | 2.31 | $ | 2.47 | $ | 0.47 | $ | 1.79 | ||||||||||||||||||
Weighted-average shares used in computing diluted net income per share | 41,378,210 | 41,378,210 | 40,416,630 | 40,416,630 | ||||||||||||||||||||||
Diluted net income per share | $ | 2.20 | $ | 2.36 | $ | 0.45 | $ | 1.71 |
[a] The adjustment for selling, general and administrative expenses for the twelve months ended January 31, 2015 includes charges incurred in connection with a legal claim. The adjustment for selling, general and administrative expenses for the twelve months ended February 1, 2014 includes non-cash compensation and follow-on offering fees. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[b] The adjustment to interest expense represents the exclusion of the non-cash amortization of debt discount related to our convertible senior notes, net of interest capitalized for capital projects. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[c] Assumes a normalized tax rate of 40% for both periods presented. Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” for additional details. |
[d] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||||||||||
RECONCILIATION OF NET INCOME (LOSS) TO OPERATING INCOME | ||||||||||||||||
AND ADJUSTED OPERATING INCOME | ||||||||||||||||
(In thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||
January 31, | February 1, | January 31, | February 1, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income | $ | 42,525 | $ | 26,642 | $ | 91,002 | $ | 18,195 | ||||||||
Interest expense | 5,939 | 1,537 | 17,551 | 5,733 | ||||||||||||
Income tax expense | 26,861 | 30,081 | 57,173 | 30,923 | ||||||||||||
Operating income | 75,325 | 58,260 | 165,726 | 54,851 | ||||||||||||
Legal claim [a] | (1,500 | ) | — | 7,700 | — | |||||||||||
Non-cash compensation [b] | — | — | — | 63,155 | ||||||||||||
Follow-on offering fees [c] | — | — | — | 2,895 | ||||||||||||
Adjusted operating income | $ | 73,825 | $ | 58,260 | $ | 173,426 | $ | 120,901 | ||||||||
Net revenues | $ | 582,727 | $ | 471,694 | $ | 1,867,422 | $ | 1,550,961 | ||||||||
Operating margin [d] | 12.9 | % | 12.4 | % | 8.9 | % | 3.5 | % | ||||||||
Adjusted operating margin [d] | 12.7 | % | 12.4 | % | 9.3 | % | 7.8 | % |
[a] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards. The three and twelve months ended January 31, 2015 include a reversal of estimated expenses associated with this matter based on a revision of estimated class member response. |
[b] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Gary Friedman, our Chairman and Chief Executive Officer, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013. |
[c] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings. |
[d] Operating margin is defined as operating income divided by net revenues. Adjusted operating margin is defined as adjusted operating income divided by net revenues. |
RESTORATION HARDWARE HOLDINGS, INC. | |||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME | |||||||||||||||
(In thousands) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
January 31, | February 1, | January 31, | February 1, | ||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
GAAP net income | $ | 42,525 | $ | 26,642 | $ | 91,002 | $ | 18,195 | |||||||
Adjustments (pre-tax): | |||||||||||||||
Legal claim [a] | $ | (1,500 | ) | $ | — | $ | 7,700 | $ | — | ||||||
Amortization of debt discount [b] | 2,943 | — | 6,852 | — | |||||||||||
Non-cash compensation [c] | — | — | — | 63,155 | |||||||||||
Follow-on offering fees [d] | — | — | — | 2,895 | |||||||||||
Subtotal adjusted items | 1,443 | — | 14,552 | 66,050 | |||||||||||
Impact of income tax items [e] | (1,471 | ) | 7,392 | (7,918 | ) | (15,144 | ) | ||||||||
Adjusted net income [f] | $ | 42,497 | $ | 34,034 | $ | 97,636 | $ | 69,101 |
[a] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards. The three and twelve months ended January 31, 2015 include a reversal of estimated expenses associated with this matter based on a revision of estimated class member response. |
[b] Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for GAAP purposes for the issuance of the $350 million principal amount of convertible senior notes that were issued in June 2014 (the “Notes”), we separated the Notes into liability (debt) and equity (conversion option) components and we are amortizing as debt discount an amount equal to the fair value of the equity component as interest expense on the Notes over the term of the Notes. The equity component represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes. Amounts are presented net of interest capitalized for capital projects of $0.2 million and $1.1 million during the three and twelve months ended January 31, 2015. |
[c] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Mr. Friedman, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013. |
[d] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings. |
[e] Assumes a normalized tax rate of 40% for all periods presented. |
[f] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
RESTORATION HARDWARE HOLDINGS, INC. | |||||||||||||||
RECONCILIATION OF DILUTED NET INCOME PER SHARE TO | |||||||||||||||
ADJUSTED DILUTED NET INCOME PER SHARE | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
January 31, | February 1, | January 31, | February 1, | ||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Diluted net income per share | $ | 1.02 | $ | 0.65 | $ | 2.20 | $ | 0.45 | |||||||
EPS impact of adjustments (pre-tax): | |||||||||||||||
Legal claim [a] | $ | (0.04 | ) | $ | — | $ | 0.19 | $ | — | ||||||
Amortization of debt discount [b] | 0.07 | — | 0.16 | — | |||||||||||
Non-cash compensation [c] | — | — | — | 1.56 | |||||||||||
Follow-on offering fees [d] | — | — | — | 0.07 | |||||||||||
Subtotal adjusted items | 0.03 | — | 0.35 | 1.63 | |||||||||||
Impact of income tax items [e] | (0.03 | ) | 0.18 | (0.19 | ) | (0.37 | ) | ||||||||
Adjusted diluted net income per share [f] | $ | 1.02 | $ | 0.83 | $ | 2.36 | $ | 1.71 |
[a] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards. The three and twelve months ended January 31, 2015 include a reversal of estimated expenses associated with this matter based on a revision of estimated class member response. |
[b] Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for GAAP purposes for the issuance of the Notes, we separated the Notes into liability (debt) and equity (conversion option) components and we are amortizing as debt discount an amount equal to the fair value of the equity component as interest expense on the Notes over the term of the Notes. The equity component represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes. Amounts are presented net of interest capitalized for capital projects of $0.2 million and $1.1 million during the three and twelve months ended January 31, 2015. |
[c] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Mr. Friedman, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013. |
[d] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings. |
[e] Assumes a normalized tax rate of 40% for all periods presented. |
[f] Adjusted diluted net income per share is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted diluted net income per share as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance divided by the Company’s share count. Adjusted diluted net income per share is included in this press release because management believes that adjusted diluted net income per share provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
RESTORATION HARDWARE HOLDINGS, INC. | ||||||||
CALCULATION OF FREE CASH FLOW | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Twelve Months Ended | ||||||||
January 31, | February 1, | |||||||
2015 | 2014 | |||||||
Net cash provided by operating activities | $ | 82,491 | $ | 87,521 | ||||
Capital expenditures | (110,359 | ) | (93,868 | ) | ||||
Construction related deposits | (9,250 | ) | — | |||||
Purchase of trademarks and domain names | (453 | ) | — | |||||
Payments on capital leases | (1,803 | ) | (2,555 | ) | ||||
Borrowings under build-to-suit lease transactions | 1,776 | — | ||||||
Free cash flow [a] | $ | (37,598 | ) | $ | (8,902 | ) |
[a] Free cash flow is defined as net cash provided by operating activities less capital expenditures, construction related deposits, and purchases of trademarks and domain names, and is adjusted for cash flow impacts of build-to-suit lease transactions and capital leases. |
Source:
Restoration Hardware Holdings, Inc.
Cammeron McLaughlin, 415-945-4998
VP, Investor Relations
cmclaughlin@rh.com