Restoration Hardware, Inc. Reports Second Quarter Results

Furniture World Magazine

Restoration Hardware, Inc. (NASDAQ:RSTO) announced its financial results for the second quarter ended July 31, 2004, including the following: -Net results for the second quarter of fiscal 2004 improved to a net loss of $2.0 million ($0.06 per share) as compared to a net loss of $2.8 million ($0.09 per share) in the second quarter of the prior year. Results were in line with the Company's prior guidance of a loss in the range of $0.06 to $0.07 per share. -Operating results improved to a loss from operations of $2.9 million for the second quarter of fiscal 2004, versus a loss from operations of $4.0 million for last year's second quarter. -Net revenue increased 26% to $120.9 million for the second quarter of fiscal 2004, versus net revenue of $96.0 million for the same period last year. -Comparable store sales for the second quarter of fiscal 2004 increased 9.4%, on top of a 9.9% increase in the second quarter of fiscal 2003. -Net revenue in the second quarter of fiscal 2004 for the direct-to-customer division increased to $28.6 million or 103% versus the same quarter last year, on top of a 46% increase in the same period in the prior year. Gary Friedman, the Company's President and CEO, stated, "We are pleased with our overall performance in the second quarter. Our results were substantially improved with sales in all channels showing impressive gains. Our comparable store sales in the second quarter of 2004 increased 9.4% on top of a 9.9% increase in the second quarter last year and an 8.9% increase in the second quarter of 2002. These increases reflect a compounded growth of 31% in our comparable store sales since the initial launch of our new merchandising strategy in the second quarter of 2002. That, coupled with a 103% increase in our direct-to-customer division revenue in the second quarter of 2004 on top of a 46% increase in the prior year's second quarter, reflects the customers' positive response to our strategy, and the growing strength of our brand." During the quarter, the Company continued to make investments in its supply chain and distribution center operations. The Company successfully relocated its west coast furniture distribution center to a new facility in Tracy, California with a capacity of 280,000 square feet. In addition, the Company expanded its east coast distribution center by approximately 30%, in anticipation of continued revenue growth. As previously communicated, the Company has retained a supply chain consultant team to manage its operations and improve distribution processes and systems. Mr. Friedman commented, "While these investments create short term expense pressure, we believe they are necessary to ensure the Company executes at a high level during the important fiscal fourth quarter." Mr. Friedman continued, "This fall completes the transformation of the Restoration Hardware brand as we introduce new collections across furniture and accessories. We have now evolved from an items driven discovery business to a premium home furnishings retailer offering high quality, authoritative assortments of hardware, bath hardware, furniture, lighting, textiles and accessories. In addition, in August we mailed the premier issue of our new redesigned catalog, which clearly communicates the stylistic and quality positioning of our brand. The initial response to our fall collection in our stores, catalog and online has been positive, and we are excited about our business prospects for the fall season." For the six months ended July 31, 2004, net revenue was $219.8 million, a 24% increase versus the same period a year ago. Comparable store sales for the six months increased 9.2% on top of a 10.8% increase in the first six months last year. Direct-to-customer sales increased 99% to $50.5 million following a 57% increase in the same period a year ago. The Company's net loss for the six months ended July 31, 2004 was $6.0 million ($0.18 per share) and showed significant improvement over the six month period a year ago when the net loss was $8.0 million ($0.27 per share). The Company provides the following guidance for the third quarter of fiscal 2004: -Increase in comparable store sales in the mid-single digits on top of a 2.9% increase in the prior year's third quarter. -Direct-to-customer net revenue increase of 70% to 80% on top of a 46% increase in the same quarter in the prior year. -Net loss in the range of $0.04 to $0.07 per share versus a loss per share of $0.09 in the third quarter of the prior year. The Company's guidance for the 2004 full fiscal year has been modified, as detailed below, to reflect the favorable sales performance in the first half of the year with other full-year guidance remaining unchanged from that previously provided: -Comparable store sales are expected to increase in the mid-single digits range for fiscal 2004. -Direct-to-customer net revenue is anticipated to increase for the full fiscal year 2004 versus 2003 in a range of 60% to 70%. -Operating margins are still expected in the range of 1% to 2% of net revenue.