Restoration Hardware, Inc. Reports Third Quarter Results

Furniture World Magazine

Restoration Hardware, Inc. announced its financial results for the third quarter ended October 30, 2004, including the following: -- Net revenue increased 23% to $118.2 million for the third quarter of fiscal 2004 versus net revenue of $95.8 million for the same period last year. -- Comparable store sales for the third quarter of fiscal 2004 increased 8.7%, on top of a 2.9% increase in the third quarter of fiscal 2003 and 14.9% in the third quarter of fiscal 2002. -- Direct-to-Customer net revenue increased 78% in the third quarter, on top of a 46% increase in the same period a year ago. -- Operating results reflected a loss from operations of $4.5 million for the third quarter of fiscal 2004 versus a loss from operations of $4.2 million for last year's third quarter. -- Net results for the third quarter of fiscal 2004 reflected a net loss of $3.1 million ($0.09 per share) as compared to a net loss of $2.9 million ($0.09 per share) in the third quarter of the prior year. Gary Friedman, the Company's President and CEO, stated, "Our efforts to reposition the Restoration Hardware brand continue to resonate with our customers as we generated another quarter of strong comparable store performance and Direct-to-Customer growth. Our comparable store sales increase in this year's third quarter of 8.7%, on top of an increase of 2.9% in 2003 and a 14.9% increase in 2002 represents compounded comparable store sales growth of 29% since the launch of our new merchandising strategy in 2002. These results combined with the Direct-to-Customer sales increase of 78%, on top of a 46% increase last year, clearly demonstrates the Company's ability to gain market share even during a difficult economic environment." Mr. Friedman continued, "Although pleased with our overall sales performance and product margin expansion in the third quarter, we experienced higher than anticipated advertising, distribution, and Sarbanes-Oxley Section 404 compliance costs, which resulted in flat earnings per share for the quarter compared to last year. While making progress in improving execution in our distribution centers, identifying optimum catalog circulation strategies and improving internal controls, these items negatively impacted earnings in the quarter by approximately five to six cents per share. -- Advertising costs as a percent of net revenue were higher than expected in the quarter due to lower than anticipated Direct-to- Customer sales from prospecting and circulation expansion of our September catalog mailing. We experienced a more significant fall off in sales demand from not repeating last year's Fall Furniture Sale. We have adjusted our mailing plans for the remainder of the year beginning with our October Catalog, and advertising costs as a percentage of net revenue are back in line with historical levels. -- During the quarter, the Company continued to make investments in its supply chain and distribution center operations. As previously communicated, the Company has hired a new Chief Operating Officer and has recently completed the search for its Senior Vice President of Supply Chain Operations. The Company has employed the services of outside consultants to manage its East and West coast distribution centers and related transportation network since the first quarter of 2004. While significant improvement has been made to ensure the Company executes well in the important fiscal fourth quarter, we believe there is opportunity to significantly reduce costs throughout the supply chain and improve service to our customers." Mr. Friedman added, "We are excited to have both of these executives on board. They fill the key open leadership roles that will enable us to both execute at a high level during the important fiscal fourth quarter and develop the long-term strategy to build a highly efficient supply chain infrastructure. In the short term, we believe there is opportunity to reduce expenses by improving labor productivity and eliminating outside consulting oversight of our distribution facilities." For the nine months ended October 30, 2004, net revenue was $338.0 million, a 24% increase versus the same period a year ago. Comparable store sales for the nine months increased 9.0%, on top of an 8.0% increase in the first nine months last year. Direct-to-Customer net revenue increased 91% to $78.9 million for the nine month period, on top of a 53% increase in the same period a year ago. The Company's net loss for the nine months ended October 30, 2004 was $9.1 million ($0.28 per share) and showed improvement over the nine month period a year ago when the net loss was $10.8 million ($0.36 per share). The Company provides the following guidance for the fourth quarter of fiscal 2004: -- Increase in comparable store sales in the range of 5% to 7%. -- Direct-to-customer net revenue increase of 40% to 50%. -- Diluted earnings per share of $0.26 to $0.30 versus $0.21 a year ago. -- Inventory at year-end is projected to increase by approximately 20 to 22% over the prior year-end level to support projected sales growth in the first quarter of fiscal 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 November 18, 2004 the Company operated 102 retail stores in 30 states, the District of Columbia and Canada.