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Restoration Hardware Reports Second Quarter Loss On Increased Revenue

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Restoration Hardware, Inc. announced financial results for the second quarter ended August 4, 2007, which are consistent with the Company's prior updated guidance. Net revenue was $183.8 million compared to $179.3 million in the second quarter of 2006. Loss from operations was $5.5 million, or -3.0 percent of revenue, compared to income from operations of $2.1 million, or 1.2 percent of revenue last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $0.2 million compared to $7.4 million in the second quarter of 2006. Net loss per fully diluted share was $0.20 versus net income per fully diluted share of $0.01 in the year ago period. Gary Friedman, President and Chief Executive Officer, stated, "Our second quarter results reflect the challenging home furnishings environment and weakness in the home building sector. While we are planning for improvement in our operating performance in the second half of the year, we believe a cautious outlook is appropriate given the macro economic pressures impacting our sector. We are continuing to focus on our strategic growth initiatives, which are expected to contribute to a revenue increase of 7% to 9% in the second half of 2007. Additionally, the cumulative effect of reduced catalog production costs, other cost cutting actions and the elimination of headquarters positions we announced in mid-August, will drive profit improvement in the second half. We expect operating income to be in the range of $15 million to $19 million, which compares to $12 million in the second half of last year." "Our supply chain initiatives remain on track," added Mr. Friedman. "In the first half of the year we retrofitted our Furniture Distribution Centers and consolidated our small package direct-to-customer operations. Currently, we are well underway with the installation of a new warehouse management system that will improve order integrity, tracking and productivity. We also recently announced plans for a new Distribution Center next year. The new facility is a pivotal component of our three-year plan to build a world class supply chain, and will ultimately lower our expenses as we move from a third party operation to a fixed cost structure that we can leverage." Mr. Friedman concluded, "While we expect the difficult macro economic environment to persist, we believe the strategies we're implementing and the investments we're making will enable us to drive sustainable revenue and earnings growth in the second half of 2007 and in the years ahead." 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 http://www.restorationhardware.com/. As of August 30, 2007, the Company operated 102 retail stores and eight outlet stores in 30 states, the District of Columbia and Canada.

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