Restoration Hardware, Inc. Reports First Quarter Net Loss

Furniture World Magazine

Restoration Hardware, Inc. announced its financial results for the first quarter ended April 29, 2006. Earnings were consistent with the Company's guidance issued on March 30, 2006. Results include the following: First Quarter ended April 29, 2006 - Net revenue for the first quarter increased 14 percent to $133.4 million compared to net revenue of $117.5 million for the same period last year. - Comparable store sales increased 4.0 percent for the first quarter against a 5.0 percent increase for the same period last year. - Direct-to-customer revenue increased 29 percent to $42.3 million in the first quarter compared to a 50 percent increase in the same period last year. - Loss from operations improved to $3.5 million for the first quarter compared to a loss from operations of $4.3 million for the same period last year. The loss from operations for the first quarter of fiscal 2006 included a $0.9 million non-cash charge associated with the expensing of stock options as required by SFAS 123R during the quarter. - The net loss for the first quarter was $4.9 million, inclusive of the $0.9 million non-cash charge associated with the expensing of stock options required under SFAS 123R. The fiscal 2006 first quarter results did not include any income tax benefit as a result of the Company's establishment of a valuation allowance against the Company's net deferred tax asset. In the same period last year, the net loss was $3.1 million inclusive of a net $2.1 million tax benefit. - Net loss per share in the first quarter was $0.13. The net loss includes a non-cash charge of approximately $0.02 per share associated with the expensing of stock options required under SFAS 123R. In the same period last year, the loss was $0.09 per share, inclusive of recording a tax benefit of $0.06 per share. - Inventory was $194.6 million at the end of the first quarter compared to $144.2 million in the same period last year due to planned growth and the acceleration of in-transit orders for the second quarter as part of our efforts to improve in-stock positions for seasonal transitions. This has created a variance in the timing comparison of year over year inventory levels at the end of each quarter, but does not effect overall inventory investments for the year. The Company expects to end the year with inventories up 5 to 10 percent year over year versus a sales increase of 18 to 22 percent. Gary Friedman, the Company's President, Chief Executive Officer and Chairman, stated, "We are pleased with our results for the quarter as we significantly improved our operating results year over year. Our direct revenues grew 29 percent in the quarter on top of a 50 percent increase in the same period last year due in part to customer response to our first category extension, the Restoration Hardware outdoor catalog introduced in March. Our retail business delivered a solid 4.0 percent comparable store increase on top of a 5.0 percent increase in the first quarter last year. The 4.0 percent comparable store sales increase was 'revenue deferral neutral' as the expected pick up in comparable store sales of 2 to 3 percent from a reduction in revenue and order deferral was not realized due to a greater than anticipated revenue deferral at the end of the first quarter due to the strength of our furniture business." Mr. Friedman continued, "Our business continues to be healthy as sales trends accelerate in the second quarter. We expect retail comparable store sales to increase in the mid single-digits versus a 5.6 percent increase last year and direct to customer sales to increase 35-40 percent against a 50 percent increase last year. We remain on-track against our objective of full- year revenue growth of 18 to 22 percent and operating margins of 1.5 percent to 2.0 percent, inclusive of the estimated impact of adopting SFAS 123R." About Restoration Hardware, Inc.: Restoration Hardware, Inc. is a specialty retailer of high quality home furnishings, bath fixtures and bathware, 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 May 25, 2006, the Company operated 103 retail stores and seven outlet stores in 30 states, the District of Columbia and Canada.