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Restoration Hardware, Inc. Announces Fourth Quarter Fiscal 2003 and Full Year Revenue and Results

Fourth Quarter Earnings of $0.21 Per Diluted Share in Line with Prior Guidance

CORTE MADERA, Calif., March 18 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today reported net revenue for the fourth quarter of fiscal 2003 of $165.0 million, a 6% increase versus net revenue of $155.2 million for the same period a year ago. Net income for the fourth quarter of fiscal 2003 was $7.9 million (earnings of $0.21 per diluted share) as compared to $9.7 million (earnings of $0.26 per diluted share) in the fourth quarter of fiscal 2002. Results were in line with prior Company guidance of earnings in the range of $0.20 to $0.24 per diluted share. Earnings were below last year's fourth quarter as a result of lower than expected holiday sales, and higher markdowns to clear holiday merchandise.

Comparable store sales for the fourth quarter of fiscal 2003 increased 0.7% from the prior year's fourth quarter. Revenue for the Direct-to-Customer division, which includes catalog and Internet sales, increased 51% to $26.6 million for the fourth quarter of fiscal 2003 versus $17.6 million in the fourth quarter of fiscal 2002.

For the fiscal year ended January 31, 2004 (fiscal 2003), the Company reported net revenue of $438.5 million, a 10% increase as compared to net revenue in the prior year of $400.3 million. Reported loss available to common stockholders for fiscal 2003 improved to $2.9 million (loss of $0.10 per basic and diluted share) versus a fiscal 2002 loss available to common stockholders of $4.0 million (loss of $0.13 per basic and diluted share). In addition, prior year's results were favorably impacted by an income tax benefit of $4.0 million ($0.13 per basic and diluted share) realized by the Company due to the economic stimulus bill enacted in 2002, which did not repeat in fiscal 2003. Excluding the effect of the income tax benefit, the loss available to common stockholders for fiscal 2002 was $8.0 million (loss of $0.27 per basic and diluted share).

Comparable store sales for fiscal 2003 increased 5.2%. Revenue for the Direct-to-Customer division increased 52% in fiscal 2003 to $67.9 million versus $44.7 million in fiscal 2002.

Gary Friedman, the Company's President and CEO, stated, "While holiday sales in seasonal items were disappointing, our January 2004 comparable store sales increase of 23%, and Direct-to-Customer division growth of 51% in the fourth quarter demonstrate the underlying strength of our core businesses. Looking forward, we remain confident that our new merchandising strategy will continue to drive positive comparable store sales, and significantly higher catalog and Internet revenues. As expected, we ended fiscal 2003 with improved operating results, lower debt and a stronger balance sheet than a year ago, providing us with adequate liquidity to support our future growth plans."

Fiscal year end 2003 inventories were $102.9 million, an increase of 9% versus last year's inventory of $94.5 million, and in line with the Company's sales growth plans for the first quarter of fiscal 2004. Debt at the end of fiscal 2003 was $10.3 million, down from the $13.9 million reported for the 2002 fiscal year end, reflecting the positive cash flow experienced by the Company during fiscal 2003. The Company projects adequate availability on its credit facility to fund operations and meet its capital spending requirements in fiscal 2004.

Guidance:

The Company provides the following guidance for fiscal 2004 with regard to the Company's anticipated financial results.

    -- Comparable store sales are planned to increase in the low to mid single
       digit range for fiscal 2004 as compared to fiscal 2003.
    -- Direct-to-Customer revenue is planned to increase 30 to 40 percent in
       fiscal 2004 versus fiscal 2003.
    -- Operating margins for fiscal 2004 are targeted at 1% to 2% of net
       revenue.
    -- One to two new stores will be opened in 2004 and an existing store will
       be closed for remodeling and later reopened.
    -- Two to three under-performing stores are under review for potential
       closure in 2004.
    -- Capital expenditures for fiscal 2004 are expected to be approximately
       $10-12 million.
    -- Depreciation expense is estimated to be $14-15 million for the full
       year of fiscal 2004.
    -- The Company expects to be cash flow positive for a second consecutive
       year in fiscal 2004, and to finish the year with little or no debt on
       its balance sheet.
    -- For the first quarter of fiscal 2004, the Company expects comparable
       store sales to increase in the mid to high single digits.  The Company
       expects its net loss per share for the first quarter to be between
       $0.13 to $0.16, with a basic share count of approximately 32.8 million
       shares outstanding.

    Conference Call:

The Company's fourth quarter and year end earnings conference call is scheduled for Thursday, March 18, 2004 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0571. A live webcast is available at http://www.firstcallevents.com/service/ajwz402058776gf12.html . If you are unable to participate during the live webcast, a playback of the conference call will be available via the Internet at http://www.firstcallevents.com/service/ajwz402058776gf12.html beginning at 8:00 p.m. Eastern Time on Thursday, March 18, 2004. A webcast replay of the call will be available at www.restorationhardware.com under "Company Info-Investor Relations-Event Calendar" until March 18, 2005.

About Restoration Hardware, Inc.

Restoration Hardware, Inc. is a specialty retailer of home furnishings, 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 March 18, 2004 the Company operated 102 retail stores in 30 states, the District of Columbia and Canada.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This release contains forward-looking statements that involve known and unknown risks. Such forward-looking statements include, without limitation, statements concerning or relating to implications of the Company's revenues and financial results for the fourth quarter and fiscal year ended January 31, 2004, statements concerning guidance for the first quarter and full year of fiscal 2004, statements relating to implications of the Company's underlying strength of its core businesses, statements relating to the Company's new merchandising strategy and its effects on comparable store sales and catalog and web revenues, statements relating to future adequacies of liquidity for the Company, statements relating to inventory expectations and sales growth plans for the first quarter of fiscal 2004, statements relating to the future adequacy of availability under the Company's credit facility, and other statements containing words such as "plans," "estimates," "expects," and words of similar import or statements of management's opinion. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, including financial results, market performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, customer reactions to the Company's current and anticipated merchandising and marketing programs and strategies, timely introduction and customer acceptance of the Company's merchandise, continued positive customer reaction to the Company's catalog and Internet offerings, revised product mix, prototype stores and core businesses, timely and effective sourcing of the Company's merchandise from its foreign and domestic vendors and delivery of merchandise through its supply chain to its stores and customers, effective inventory and catalog management, changes in investor perceptions of the Company, fluctuations in comparable store sales, limitations resulting from restrictive covenants in the Company's credit facility, changes in economic or business conditions in general, changes in political conditions in the United States and abroad in general, changes in product supply, changes in the competitive environment in which the Company operates, changes in the Company's management information needs, changes in customer needs and expectations, governmental actions and other factors detailed in the Company's filings with the Securities and Exchange Commission, including its recent filings on Forms 10-K, 10-Q and 8-K, including, but not limited to, those described in the Company's Form 10-Q for the fiscal quarter ended November 1, 2003 in Part I, Item 2 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources," "Critical Accounting Policies," and "Factors that May Affect our Future Operating Results" and in Part I, Item 4 thereof ("Controls and Procedures"). Guidance offered by the Company represents a point-in-time estimate made by management of the Company. The Company undertakes no obligation to update any guidance or any other forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.


                          RESTORATION HARDWARE, INC.
              STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
               (in thousands, except per share and store data)

                                            13 weeks ended    13 weeks ended
                                                      % of              % of
                                          1/31/2004  Revenue 2/1/2003  Revenue

    Net retail revenue                     $138,393   83.9%  $137,551   88.6%
    Net direct-to-customer revenue           26,562   16.1%    17,616   11.4%
       Total net revenue                    164,955  100.0%   155,167  100.0%

    Cost of sales and occupancy             105,968   64.2%    98,198   63.3%
       Gross profit                          58,987   35.8%    56,969   36.7%

    Selling, general and administrative
     expenses                                45,196   27.4%    41,304   26.6%
       Income from operations                13,791    8.4%    15,665   10.1%

    Interest expense, net                      (480)  -0.3%      (720)  -0.5%

       Income before income taxes            13,311    8.1%    14,945    9.6%

    Income tax expense                       (5,419)  -3.3%    (5,235)  -3.4%

    Net income                               $7,892    4.8%    $9,710    6.3%

    Comparable store sales                     0.7%              3.0%
    Stores open at end of period                103               105
    Total selling square footage            679,300           688,634

    Earnings per share, basic                 $0.24             $0.32
    Earnings per share, diluted               $0.21             $0.26
    Weighted average shares, basic           32,753            30,037
    Weighted average shares, diluted         37,943            37,230


                                            52 weeks ended    52 weeks ended
                                                      % of              % of
                                           1/31/2004 Revenue 2/1/2003  Revenue

    Net retail revenue                     $370,609   84.5%  $355,632   88.8%
    Net direct-to-customer revenue           67,899   15.5%    44,705   11.2%
       Total net revenue                    438,508  100.0%   400,337  100.0%

    Cost of sales and occupancy             305,980   69.8%   283,072   70.7%
       Gross profit                         132,528   30.2%   117,265   29.3%

    Selling, general and administrative
     expenses                               135,118   30.8%   126,290   31.5%
       Loss from operations                  (2,590)  -0.6%    (9,025)  -2.3%

    Interest expense, net                    (2,154)  -0.5%    (2,818)  -0.7%
    Change in fair value of warrants             --    0.0%      (278)  -0.1%

       Loss before income taxes              (4,744)  -1.1%   (12,121)  -3.0%

    Income tax benefit                        1,803    0.4%     8,518    2.1%

    Net loss                                 (2,941)  -0.7%    (3,603)  -0.9%

    Preferred shareholder return:
       Dividends                                 --    0.0%      (358)  -0.1%

    Loss available to common stockholders   $(2,941)  -0.7%   $(3,961)  -1.0%

    Comparable store sales                     5.2%              6.2%
    Stores open at end of period                103               105
    Total selling square footage            679,300           688,634

    Loss per share, basic and diluted        $(0.10)           $(0.13)
    Weighted average shares                  30,873            29,754


                         RESTORATION HARDWARE,  INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                                (in thousands)

                                                   1/31/2004          2/1/2003
    ASSETS
    Current assets:
        Cash and cash equivalents                    $2,003            $1,630
        Accounts receivable                           5,745             3,352
        Merchandise inventories                     102,926            94,500
        Prepaid expense and other current assets     19,309            14,081
             Total current assets                   129,983           113,563

        Property and equipment, net                  83,518            90,038
        Goodwill                                      4,560             4,560
        Other long-term assets                       14,219            18,067
             Total assets                          $232,280          $226,228

    LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
        STOCK AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Accounts payable and accrued expenses       $45,292           $35,649
        Line of credit, net of debt issuance
         costs (1)                                   10,286            13,909
        Deferred revenue and customer deposits        7,231             6,046
        Other current liabilities                    11,438             9,146
             Total current liabilities               74,247            64,750

        Deferred lease incentives                    33,999            39,109
        Deferred rent                                14,455            14,163
        Other long-term liabilities                     352               144
             Total liabilities                      123,053           118,166

    Series A redeemable convertible preferred stock   8,541            13,328

    Common stock                                    158,176           150,881
    Unearned compensation                              (234)             (659)
    Accumulated other comprehensive income (loss)     1,040              (132)
    Accumulated deficit                             (58,296)          (55,356)
             Total stockholders' equity             100,686            94,734

             Total liabilities, redeemable
              convertible preferred stock and
              stockholders' equity                 $232,280          $226,228

    Shares issued and outstanding at end
     of period                                       32,768            30,051

    (1) Long-term debt has been reclassified into a current liability as a
        result of EITF 95-22.

SOURCE  Restoration Hardware, Inc.
    -0-                             03/18/2004
    /CONTACT:  Patricia McKay, Chief Financial Officer of Restoration
Hardware, Inc., +1-415-924-1005, or fax, +1-415-927-7264/
    /Web site:  http://www.restorationhardware.com /
    (RSTO)

CO:  Restoration Hardware, Inc.
ST:  California
IN:  REA
SU:  ERN CCA ERP

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3324 03/18/2004 16:30 EST http://www.prnewswire.com