Restoration Hardware, Inc. Reports Wider Third Quarter Loss

Furniture World Magazine

Restoration Hardware, Inc., announced its financial results for the third quarter ended October 29, 2005, which are consistent with the Company's prior updated guidance. The Company's financial results included the following: -Net revenue increased 9% to $128.4 million for the third quarter of fiscal 2005 versus net revenue of $118.2 million for the same period last year. -Comparable store sales for the third quarter of fiscal 2005 decreased 2.1% compared to an 8.7% increase in the third quarter of fiscal 2004. -Direct-to-Customer net revenue increased 27% in the third quarter of 2005 on top of a 78% increase in the same period a year ago. -Net results for the third quarter of fiscal 2005 reflected a net loss of $4.2 million ($0.11 per share), compared to a net loss of $3.1 million ($0.09 per share) in the third quarter of the prior year. -nventory was $164.1 million as of the end of the third quarter, up 4% from the prior year's third quarter. Gary Friedman, the Company's Chairman, President and CEO, stated, "While we were disappointed with our sales for the quarter, primarily due to the sales from our Fall Lighting Sale, our fundamental business model continues to improve. Our Upholstered Furniture Event, which occurred earlier in the quarter, performed above plan with a much higher than planned shift to special orders due to the Company's advertised 45 day delivery. The sales from this event were also much higher than planned in the final weeks, which resulted in a greater than planned deferral of revenues into future quarters." Mr. Friedman continued, "Due to the fact that our Fall Lighting Sale generates a disproportionate amount of our third quarter sales compared to other quarters, we do not expect the lighting business to have a negative effect on future quarters. Also, due to the fact that lighting is a non- seasonal core business, we are comfortable with our inventory levels in this category. In addition, while we expect a positive impact to our fourth quarter sales from the increased deferral of third quarter transactions into fourth quarter revenue, our special order furniture sales continue to trend above plan which also is likely to drive higher levels of revenue deferral from the fourth quarter into future quarters." Mr. Friedman concluded, "Our product margins in both the retail and direct channels increased over last year and our overall gross margins expanded by 240 basis points in the third quarter compared to the same quarter last year consistent with our strategy to expand higher margin core businesses and the editing of lower margin discovery items and accessories. We also continue to make significant progress in our Supply Chain and Distribution Centers, where we have both improved service and have reduced costs for the quarter compared to a year ago." For the nine months ended October 29, 2005, net revenue was $390.6 million, a 16% increase versus the same period a year ago. Comparable store sales for the nine months increased 2.7% on top of a 9.0% increase in the first nine months last year. Direct-to-customer sales increased 42% to $111.8 million following a 91% increase in the same period a year ago. The Company's net results for the nine months ended October 29, 2005 was a loss of $9.8 million ($0.28 per share), compared to a loss of $8.9 million ($0.27 per share) for the same period last year. The net results for the nine months ended October 29, 2005 include a pre-tax, non-cash charge of $1.6 million ($1.0 million, after tax) associated with the removal of store fixtures from the store remodeling effort that was charged in our second quarter earnings. 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 22, 2005 the Company operated 103 retail stores and 5 outlet stores in 30 states, the District of Columbia and Canada.