Form: 8-K

Current report filing

September 10, 2014

Exhibit 99.1

LOGO

RESTORATION HARDWARE REPORTS RECORD SECOND QUARTER

FISCAL 2014 FINANCIAL RESULTS

Q2 Net Revenues Increased 14%; Adjusted Operating Margin Increased 240 Basis Points to

11.3%; Adjusted Diluted EPS Increased 37% to $0.67

Company Increases Fiscal 2014 Adjusted Diluted EPS Guidance to Range of $2.29 to $2.33

Corte Madera, CA – September 10, 2014 – Restoration Hardware Holdings, Inc. (NYSE:RH) today announced record financial results for the second quarter ended August 2, 2014.

Second Quarter Highlights

 

  •   Net revenues increased 14% on top of a 30% increase for the same period last year

 

  •   Comparable brand revenues increased 13% on top of a 30% increase for the same period last year

 

  •   Adjusted operating margin increased 240 basis points to 11.3%; GAAP operating margin was 11.3% compared to -7.3% for the same period last year

 

  •   Adjusted operating income increased 43% to $48.9 million; GAAP operating income of $48.9 million compared to a loss of $27.8 million for the same period last year

 

  •   Adjusted net income increased 40% to $27.7 million; GAAP net income of $27.3 million compared to a net loss of $17.8 million for the same period last year

 

  •   Adjusted diluted EPS increased 37% to $0.67; GAAP diluted EPS of $0.66 compared to a loss of $0.46 for the same period last year

Gary Friedman, Chairman and Chief Executive Officer, commented, “Our ability to innovate, curate and integrate new products, categories and businesses, then test and rapidly scale them across our multi-channel platform, is at the core of RH becoming a disruptive brand in the home furnishings marketplace. In the second quarter, we achieved a record operating margin of 11.3%, a 240 basis point improvement versus last year, and the driver of our earnings over-performance. Comparable brand revenue for the quarter increased 13% on top of a 30% increase a year ago – representing an industry-best 43% gain over the two-year period.”

Mr. Friedman added, “We are very pleased with the early results from our new 2014 Source Books. While still early in reading the results, as the books were in homes seven weeks later than last year, the business has continued to accelerate into the second half which gives us the confidence to increase earnings guidance for the year. We did experience a sales shortfall during our Fourth of July Promotional Event as we underestimated the negative effect of the later Source Book mailing which led to lower than expected revenues in the second quarter. Post the event, our business remains strong and we expect it to continue building as we roll out some of the tested, new collections into our stores beginning this week. Additionally, our historical data implies that our new product offer will continue to accelerate for several more weeks post the book drop and as our in-stock positions improve.”

 

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Mr. Friedman continued, “Looking forward, we remain focused on our key value driving strategies including the expansion of our product offer, the transformation of our retail stores, and the continued enhancement of our multi-channel platform and operating infrastructure. Regarding the transformation of our retail stores, we will be opening a new, larger Full Line Design Gallery on Melrose Avenue in Los Angeles and our first next generation Full Line Design Gallery in Atlanta later this year. We now have signed leases for 8 next generation Full Line Design Galleries and have identified and are in negotiations for more than 30 additional locations.”

Mr. Friedman concluded, “From the continued evolution of our Source Books, to the transformative economics of our Full Line Design Galleries, to how we source, price, present and deliver products across our multi-channel platform, we are constantly evolving and working to create a superior business model. While still in the early stages of building RH into the leading luxury home brand, we are well on track towards our long-term goal of $4 billion to $5 billion in North American sales, mid-teens operating margin, and generating significant free cash flow.”

Second Quarter Fiscal 2014 Financial Results

Revenue—Net revenues for the second quarter of fiscal 2014 increased 14% to $433.8 million from $382.1 million in the second quarter of fiscal 2013.

 

  •   Comparable brand revenue, which includes direct, increased 13% in the second quarter of fiscal 2014 on top of a 30% increase for the same period last year.

 

  •   As of August 2, 2014, the Company operated a total of 68 retail stores, consisting of 59 Galleries, 6 Full Line Design Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores throughout the United States and Canada. This compares to a total of 70 retail stores, consisting of 62 Galleries, 5 Full Line Design Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores throughout the United States and Canada at the end of the second quarter of fiscal 2013.

 

  •   Direct revenues increased 19% to $211.8 million for the second quarter of fiscal 2014. This growth is on top of a 33% increase in direct revenues for the second quarter of fiscal 2013.

Operating Income (Loss) and Margin*—Adjusted operating income for the second quarter of fiscal 2014 increased 43% to $48.9 million compared to $34.2 million in the second quarter of fiscal 2013. Adjusted operating margin for the second quarter of fiscal 2014 increased 240 basis points to 11.3% from 8.9% for the same period last year. Including the impact of non-recurring and other items, GAAP operating income was $48.9 million compared to a loss of $27.8 million for the same period last year and GAAP operating margin was 11.3% compared to -7.3% for the same period last year.

Net Income (Loss)*—Adjusted net income for the second quarter of fiscal 2014 increased 40% to $27.7 million from $19.8 million in the second quarter of fiscal 2013. Adjusted net income excludes the impact of non-recurring and other items, and excludes from interest expense the non-cash debt discount amortization related to the Company’s convertible senior notes that were issued in a private placement in June 2014. Adjusted net income is calculated using a 40% effective tax rate. GAAP net income during the second quarter of fiscal 2014 was $27.3 million compared to a net loss of $17.8 million for the same period last year.

Earnings (Loss) Per Share*—Adjusted diluted EPS for the second quarter of fiscal 2014 increased 37% to $0.67 from $0.49 during the same period last year. Including the impact of non-recurring and other items, and the non-cash debt discount amortization, GAAP diluted EPS during the second quarter of fiscal 2014 was $0.66 compared to a loss of $0.46 for the same period last year.

First Half Fiscal 2014 Financial Results

Revenue—Net revenues for the six months ended August 2, 2014 increased 17% to $800.0 million from $683.4 million for the first half of fiscal 2013.

 

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  •   Comparable brand revenue, which includes direct, increased 15% in the first half of fiscal 2014 on top of a 34% increase for the same period last year.

 

  •   Direct revenues increased 21% in the first half of fiscal 2014. This growth is on top of a 35% increase in direct revenues for the first half of fiscal 2013.

Operating Income (Loss) and Margin*—Adjusted operating income for the first half of fiscal 2014 increased 62% to $62.9 million compared to $38.8 million in the first half of fiscal 2013. Adjusted operating margin for the first half of fiscal 2014 increased to 7.9% from 5.7% for the same period last year. Including the impact of non-recurring and other items, GAAP operating income was $53.7 million compared to a loss of $27.3 million for the same period last year and GAAP operating margin was 6.7% compared to -4.0% for the same period last year.

Net Income (Loss)*—Adjusted net income increased 58% to $34.9 million in the first half of fiscal 2014 from $22.1 million in the first half of fiscal 2013. Adjusted net income excludes the impact of non-recurring and other items, and excludes from interest expense the non-cash debt discount amortization related to the Company’s convertible senior notes that were issued in a private placement in June 2014. Adjusted net income is calculated using a 40% effective tax rate. GAAP net income during the first half of fiscal 2014 was $29.0 million compared to a net loss of $18.0 million for the same period last year.

Earnings (Loss) Per Share*—Adjusted diluted EPS for the first half of fiscal 2014 increased 52% to $0.85 from $0.56 during the same period last year. Including the impact of non-recurring and other items, and the non-cash debt discount amortization, GAAP diluted EPS during the first half of fiscal 2014 was $0.71 compared to a loss of $0.47 for the same period last year.

A reconciliation of GAAP to non-GAAP financial measures is provided in the tables accompanying this release.

Outlook

The Company is providing the following guidance for the third quarter of fiscal 2014:

 

  •   Net revenues in the range of $475 million to $485 million

 

  •   Adjusted net income in the range of $19 million to $20 million

 

  •   Adjusted diluted EPS in the range of $0.46 to $0.48

 

  •   Diluted shares outstanding of approximately 41.5 million

The Company is updating its guidance for the fiscal year ending January 31, 2015 as follows:

 

  •   Net revenues in the range of $1.85 billion to $1.87 billion

 

  •   Adjusted net income in the range of $94.9 million to $96.7 million

 

  •   Adjusted diluted EPS in the range of $2.29 to $2.33

 

  •   Diluted shares outstanding of approximately 41.4 million

Note: The Company’s adjusted net income and adjusted diluted earnings per share guidance does not include certain charges and costs, such as for unusual items which may occur in the future, and which are expected to be similar in future periods to the kinds of charges and costs excluded from adjusted net income and adjusted diluted earnings per share in prior quarters.

Conference Call and Webcast Information

Restoration Hardware will host a conference call at 2:00 p.m. PT (5:00 p.m. ET) today to discuss its second quarter fiscal 2014 results. Interested parties may access the call by dialing (866) 394-6658 (United States/Canada) or (706) 679-9188 (International). A live broadcast of Restoration Hardware’s

 

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quarterly conference call will also be available online at the Company’s website www.rh.com under Investor Relations. A replay of the conference call will be available through September 24, 2014 by dialing (855) 859-2056 or (404) 537-3406 and entering passcode 94621139, as well as on the Company’s investor relations website.

About Restoration Hardware

RH (Restoration Hardware Holdings, Inc.—NYSE:RH) is a curator of design, taste and style in the luxury lifestyle market. The Company offers collections through its retail galleries, Source Books, and online at RH.com.

*Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company uses the following non-GAAP financial measures: adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, and adjusted diluted EPS (collectively, “non-GAAP financial measures”). We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP financial measures used by the Company in this press release may be different from the methods used by other companies.

For more information on the non-GAAP financial measures, please see the Reconciliation of GAAP to non-GAAP Financial Measures tables in this press release. These accompanying tables include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures. With respect to the Company’s non-GAAP guidance for the third fiscal quarter of 2014 and the fiscal year ending January 31, 2015, the Company is not able to provide a reconciliation of the non-GAAP financial measures to GAAP because it does not provide specific guidance for the various non-recurring and recurring reconciling items such as non-cash and other one-time compensation, one-time income tax expense (benefit), and legal claim related expenses, among others. Certain items that impact these measures have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted, and as a result, reconciliation of the non-GAAP guidance measures to GAAP is not available without unreasonable effort.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws including statements related to our future financial guidance, including for the third fiscal quarter of 2014 and the fiscal year ending January 31, 2015; our belief that our ability to innovate, curate and integrate new products, categories and businesses, then test and rapidly scale them across our multi-channel platform, is at the core of RH becoming a disruptive brand in the home furnishings marketplace; our belief that our business remains strong and we expect it to continue building as we roll out some of the tested, new collections into our stores; our expectation that our new product offer will continue to accelerate for several more weeks post the book drop and as our in-stock positions improve; our statement regarding our expected opening of a new, larger Full Line Design Gallery on Melrose Avenue in Los Angeles and our first next generation Full Line Design Gallery in Atlanta later this year; our goal to constantly evolve and create a superior business model; our goal to build

 

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RH into the leading luxury home brand; our belief that we are well on track towards our long-term goal of $4 billion to $5 billion in North American sales, mid-teens operating margin, and generating significant free cash flow, and any statements or assumptions underlying any of the foregoing. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future events. We cannot assure you that future developments affecting us will be those that we have anticipated. Important risks and uncertainties that could cause actual results to differ materially from our expectations include, among others, our ability to retain key personnel; successful implementation of our growth strategy; general economic conditions and the impact on consumer confidence and spending; changes in customer demand for our products; factors affecting our outstanding convertible senior notes; our ability to anticipate consumer preferences and buying trends; changes in consumer spending based on weather and other conditions beyond our control; risks related to the number of new business initiatives we are undertaking; our ability to obtain our products in a timely fashion or in the quantities required; our ability to employ reasonable and appropriate security measures to protect personal information that we collect; risks related to “conflict minerals” compliance and its impact on sourcing, if any, as well as those risks and uncertainties disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Restoration Hardware Holdings’ Form 10-K filed with the Securities and Exchange Commission on March 31, 2014, and similar disclosures in subsequent reports filed with the SEC, which are available on our investor relations website at ir.restorationhardware.com and on the SEC website at www.sec.gov. Any forward-looking statement made by us in this press release speaks only as of the date on which we make it. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

Contact

Cammeron McLaughlin

VP, Investor Relations

(415) 945-4998

cmclaughlin@rh.com

 

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RESTORATION HARDWARE HOLDINGS, INC.

FINANCIAL STATEMENTS AND RELATED INFORMATION

TABLE OF CONTENTS

 

Page 7.

   Condensed Consolidated Statements of Operations

Page 8.

   Condensed Consolidated Balance Sheets

Page 9.

   Condensed Consolidated Statements of Cash Flows

Page 10.

   Operating Metrics and Other Data

Page 11.

   Reconciliation of Adjusted Income Statement Items

Page 13.

   Reconciliation of Net Income (Loss) to Operating Income and Adjusted Operating Income

Page 14.

   Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income

Page 15.

   Reconciliation of Diluted Net Income (Loss) Per Share to Adjusted Diluted Net Income Per Share

 

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RESTORATION HARDWARE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     August 2,
2014
    % of Net
Revenues
    August 3,
2013
    % of Net
Revenues
    August 2,
2014
    % of Net
Revenues
    August 3,
2013
    % of Net
Revenues
 

Net revenues

   $ 433,766        100.0   $ 382,098        100.0   $ 800,020        100.0   $ 683,435        100.0

Cost of goods sold

     265,857        61.3     242,872        63.6     507,762        63.5     442,332        64.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     167,909        38.7     139,226        36.4     292,258        36.5     241,103        35.3

Selling, general and administrative expenses

     118,974        27.4     167,006        43.7     238,545        29.8     268,372        39.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     48,935        11.3     (27,780     -7.3     53,713        6.7     (27,269     -4.0

Interest expense

     (4,346     -1.0     (1,191     -0.2     (6,402     -0.8     (2,031     -0.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     44,589        10.3     (28,971     -7.5     47,311        5.9     (29,300     -4.3

Income tax expense (benefit)

     17,336        4.0     (11,136     -2.8     18,263        2.3     (11,304     -1.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 27,253        6.3   $ (17,835     -4.7   $ 29,048        3.6   $ (17,996     -2.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing basic net income (loss) per share

     39,436,255          38,712,000          39,294,274          38,394,013     

Basic net income (loss) per share

   $ 0.69        $ (0.46     $ 0.74        $ (0.47  

Weighted-average shares used in computing diluted net income (loss) per share

     41,262,629          38,712,000          40,965,628          38,394,013     

Diluted net income (loss) per share

   $ 0.66        $ (0.46     $ 0.71        $ (0.47  

 

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RESTORATION HARDWARE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     August 2,
2014
     February 1,
2014
     August 3,
2013
 

ASSETS

        

Cash and cash equivalents

   $ 181,493       $ 13,389       $ 15,012   

Merchandise inventories

     547,103         453,845         406,676   

Other current assets

     173,337         146,581         155,715   
  

 

 

    

 

 

    

 

 

 

Total current assets

     901,933         613,815         577,403   

Property and equipment—net

     261,872         214,909         154,008   

Goodwill and other intangibles

     173,367         171,132         171,730   

Other assets

     29,556         25,247         26,223   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,366,728       $ 1,025,103       $ 929,364   
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Liabilities

        

Accounts payable and accrued expenses

   $ 248,336       $ 206,778       $ 205,551   

Other current liabilities

     114,350         110,670         91,455   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     362,686         317,448         297,006   

Convertible senior notes—net

     277,678         —          —    

Revolving line of credit

     —          85,425         87,575   

Other long-term obligations

     112,111         76,958         45,410   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     752,475         479,831         429,991   
  

 

 

    

 

 

    

 

 

 

Stockholders’ equity

     614,253         545,272         499,373   
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,366,728       $ 1,025,103       $ 929,364   
  

 

 

    

 

 

    

 

 

 

 

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RESTORATION HARDWARE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended  
     August 2,
2014
    August 3,
2013
 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income (loss)

   $ 29,048      $ (17,996

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     15,978        13,228   

Stock-based compensation expense

     6,750        64,282   

Other non-cash items

     (5,605     (13,805

Change in assets and liabilities:

    

Merchandise inventories

     (93,185     (53,483

Accounts payable, accrued expenses and other

     17,289        39,203   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (29,725     31,429   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Capital expenditures

     (38,800     (30,616

Purchase of trademarks

     (252     —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (39,052     (30,616
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net borrowings (repayments) under revolving line of credit

     (85,425     5,074   

Proceeds from issuance of convertible senior notes

     350,000        —    

Proceeds from issuance of warrants

     40,390        —    

Purchase of convertible note hedges

     (73,325     —    

Convertible debt issuance costs

     (5,385     —    

Payments on capital leases

     (1,478     (760

Proceeds from the exercise of stock options

     5,806        695   

Excess tax benefit from the exercise of stock options

     7,612        1,032   

Tax withholdings related to issuance of stock-based awards

     (1,306     (178
  

 

 

   

 

 

 

Net cash provided by financing activities

     236,889        5,863   
  

 

 

   

 

 

 

Effects of foreign currency exchange rate translation

     (8     (18
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     168,104        6,658   

Cash and cash equivalents

    

Beginning of period

     13,389        8,354   
  

 

 

   

 

 

 

End of period

   $ 181,493      $ 15,012   
  

 

 

   

 

 

 

 

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RESTORATION HARDWARE HOLDINGS, INC.

OPERATING METRICS AND OTHER DATA

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     August 2,
2014
    August 3,
2013
    August 2,
2014
    August 3,
2013
 

Growth in net revenues:

        

Stores [a]

     9     28     13     33

Direct

     19     33     21     35

Total

     14     30     17     34

Comparable brand revenue growth [b]

     13     30     15     34

Retail: [c]

        

Retail stores open at beginning of period

     69        70        70        71   

Stores opened

     1        —          1        2   

Stores closed

     2        —          3        3   

Retail stores open at end of period

     68        70        68        70   

Retail sales per leased selling square foot [d]

   $ 354      $ 353      $ 652      $ 638   

Total leased square footage at end of period (in thousands)

     810        796        810        796   

Total leased selling square footage at end of period (in thousands) [e]

     564        521        564        521   

Average leased square footage (in thousands) [f]

     801        796        798        789   

Average leased selling square footage (in thousands) [f]

     556        521        553        515   

Direct as a percentage of net revenues [g]

     49     47     49     47

 

[a] Store data represents retail stores plus outlet stores.
[b] Comparable brand revenue growth includes retail comparable store sales, including Baby & Child Galleries, and direct net revenues. Comparable brand revenue growth excludes retail non-comparable store sales and outlet store net revenues. Comparable store sales have been calculated based upon retail stores, excluding outlet stores, that were open at least fourteen full months as of the end of the reporting period and did not change square footage by more than 20% between periods. If a store is closed for seven days during a month, that month will be excluded from comparable store sales.
[c] Retail data has been calculated based upon retail stores, which includes our Baby & Child Galleries and excludes outlet stores.
[d] Retail sales per leased selling square foot is calculated by dividing total net revenues for all retail stores, comparable and non-comparable, by the average leased selling square footage for the period.
[e] Leased selling square footage is retail space at our stores used to sell our products. Leased selling square footage excludes backrooms at retail stores used for storage, office space or similar matters. Leased selling square footage excludes exterior sales space located outside a store, such as courtyards, gardens and rooftops. Leased selling square footage includes approximately 4,500 square feet related to one owned store location.
[f] Average square footage (leased or leased selling, as applicable) is calculated for each quarter by taking the total applicable square footage at the beginning of the quarter plus the total applicable square footage at the end of the quarter and dividing by two. Average square footage for periods of six months is calculated by averaging the average square footage for the quarters within such periods.
[g] Direct revenues include sales through our catalogs and websites.

 

10


RESTORATION HARDWARE HOLDINGS, INC.

RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS

(In thousands, except share and per share amounts)

(Unaudited)

 

    Three Months Ended  
    Reported
August 2,
2014
    Adjustments     Adjusted
August 2,
2014
    % of Net
Revenues
    Reported
August 3,
2013
    Adjustments     Adjusted
August 3,
2013
    % of Net
Revenues
 

Net revenues

  $ 433,766      $ —       $ 433,766        100.0   $ 382,098      $ —       $ 382,098        100.0

Cost of goods sold

    265,857        —         265,857        61.3     242,872        —         242,872        63.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    167,909        —         167,909        38.7     139,226        —         139,226        36.4

Selling, general and administrative expenses [a]

    118,974        —         118,974        27.4     167,006        (61,960     105,046        27.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    48,935        —         48,935        11.3     (27,780     61,960        34,180        8.9

Interest expense [b]

    (4,346     1,576        (2,770     -0.6     (1,191     —         (1,191     -0.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    44,589        1,576        46,165        10.6     (28,971     61,960        32,989        8.7

Income tax expense (benefit) [c]

    17,336        1,130        18,466        4.2     (11,136     24,332        13,196        3.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) [d]

  $ 27,253      $ 446      $ 27,699        6.4   $ (17,835   $ 37,628      $ 19,793        5.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing basic net income (loss) per share

    39,436,255          39,436,255          38,712,000          38,712,000     

Basic net income (loss) per share

  $ 0.69        $ 0.70        $ (0.46     $ 0.51     

Weighted-average shares used in computing diluted net income (loss) per share

    41,262,629          41,262,629          38,712,000          40,696,706     

Diluted net income (loss) per share

  $ 0.66        $ 0.67        $ (0.46     $ 0.49     

 

[a] The adjustments for selling, general and administrative expenses include certain charges related to non-cash compensation and follow-on offering fees. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[b] The adjustment to interest expense represents the exclusion of the non-cash amortization of debt discount related to our convertible senior notes. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[c] Assumes a normalized tax rate of 40% for both periods presented. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[d] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

 

11


RESTORATION HARDWARE HOLDINGS, INC.

RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS

(In thousands, except share and per share amounts)

(Unaudited)

 

    Six Months Ended  
    Reported
August 2,
2014
    Adjustments     Adjusted
August 2,
2014
    % of Net
Revenues
    Reported
August 3,
2013
    Adjustments     Adjusted
August 3,
2013
    % of Net
Revenues
 

Net revenues

  $ 800,020      $ —       $ 800,020        100.0   $ 683,435      $ —       $ 683,435        100.0

Cost of goods sold

    507,762        —         507,762        63.5     442,332        —         442,332        64.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    292,258        —         292,258        36.5     241,103        —         241,103        35.3

Selling, general and administrative expenses [a]

    238,545        (9,200     229,345        28.6     268,372        (66,050     202,322        29.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    53,713        9,200        62,913        7.9     (27,269     66,050        38,781        5.7

Interest expense [b]

    (6,402     1,576        (4,826     -0.6     (2,031     —         (2,031     -0.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    47,311        10,776        58,087        7.3     (29,300     66,050        36,750        5.4

Income tax expense (benefit) [c]

    18,263        4,972        23,235        2.9     (11,304     26,004        14,700        2.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) [d]

  $ 29,048      $ 5,804      $ 34,852        4.4   $ (17,996   $ 40,046      $ 22,050        3.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing basic net income (loss) per share

    39,294,274          39,294,274          38,394,013          38,394,013     

Basic net income (loss) per share

  $ 0.74        $ 0.89        $ (0.47     $ 0.57     

Weighted-average shares used in computing diluted net income (loss) per share

    40,965,628          40,965,628          38,394,013          39,511,685     

Diluted net income (loss) per share

  $ 0.71        $ 0.85        $ (0.47     $ 0.56     

 

[a] The adjustments for selling, general and administrative expenses include certain charges incurred in connection with a legal claim, non-cash compensation and follow-on offering fees. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[b] The adjustment to interest expense represents the exclusion of the non-cash amortization of debt discount related to our convertible senior notes. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[c] Assumes a normalized tax rate of 40% for both periods presented. Refer to table titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for additional details.
[d] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

 

12


RESTORATION HARDWARE HOLDINGS, INC.

RECONCILIATION OF NET INCOME (LOSS) TO OPERATING INCOME

AND ADJUSTED OPERATING INCOME

(In thousands)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     August 2,
2014
    August 3,
2013
    August 2,
2014
    August 3,
2013
 

Net income (loss)

   $ 27,253      $ (17,835   $ 29,048      $ (17,996

Interest expense

     4,346        1,191        6,402        2,031   

Income tax expense (benefit)

     17,336        (11,136     18,263        (11,304
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     48,935        (27,780     53,713        (27,269

Legal claim [a]

     —         —         9,200        —    

Non-cash compensation [b]

     —         59,832        —         63,155   

Follow-on offering fees [c]

     —         2,128        —         2,895   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 48,935      $ 34,180      $ 62,913      $ 38,781   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

   $ 433,766      $ 382,098      $ 800,020      $ 683,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin [d]

     11.3     -7.3     6.7     -4.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating margin [d]

     11.3     8.9     7.9     5.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

[a] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards.
[b] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Gary Friedman, our Chairman and Chief Executive Officer, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013.
[c] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings.
[d] Operating margin is defined as operating income divided by net revenues. Adjusted operating margin is defined as adjusted operating income divided by net revenues.

 

13


RESTORATION HARDWARE HOLDINGS, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED NET INCOME

(In thousands)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     August 2,
2014
    August 3,
2013
    August 2,
2014
    August 3,
2013
 

GAAP net income (loss)

   $ 27,253      $ (17,835   $ 29,048      $ (17,996
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments (pre-tax):

        

Legal claim [a]

   $ —       $ —       $ 9,200      $ —    

Amortization of debt discount [b]

     1,576        —         1,576        —    

Non-cash compensation [c]

     —         59,832        —         63,155   

Follow-on offering fees [d]

     —         2,128        —         2,895   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal adjusted items

     1,576        61,960        10,776        66,050   

Impact of income tax items [e]

     (1,130     (24,332     (4,972     (26,004
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income [f]

   $ 27,699      $ 19,793      $ 34,852      $ 22,050   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

[a] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards.
[b] Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for GAAP purposes for the issuance of the $350 million principal amount of our convertible senior notes (the “Notes”), we separated the Notes into liability (debt) and equity (conversion option) components and we will amortize as debt discount an amount equal to the fair value of the equity component as interest expense on the Notes over the term of the Notes. The equity component represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes.
[c] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Mr. Friedman, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013.
[d] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings.
[e] Assumes a normalized tax rate of 40% for all periods presented.
[f] Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

 

14


RESTORATION HARDWARE HOLDINGS, INC.

RECONCILIATION OF DILUTED NET INCOME (LOSS) PER SHARE TO

ADJUSTED DILUTED NET INCOME PER SHARE

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     August 2,
2014
    August 3,
2013
    August 2,
2014
    August 3,
2013
 

Diluted net income (loss) per share [a]

   $ 0.66      $ (0.44   $ 0.71      $ (0.46

EPS impact of adjustments (pre-tax):

        

Legal claim [b]

   $ —       $ —       $ 0.22      $ —    

Amortization of debt discount [c]

     0.04        —         0.04        —    

Non-cash compensation [d]

     —         1.47        —         1.60   

Follow-on offering fees [e]

     —         0.05        —         0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal adjusted items

     0.04        1.52        0.26        1.67   

Impact of income tax items [f]

     (0.03     (0.59     (0.12     (0.65
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted net income per share [g]

   $ 0.67      $ 0.49      $ 0.85      $ 0.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

[a] Diluted net loss per share for the three and six months ended August 3, 2013 is calculated based on GAAP net loss and diluted weighted-average shares of 40,696,706 and 39,511,685, respectively.
[b] Represents charges incurred in connection with a legal claim alleging that the Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards.
[c] Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for GAAP purposes for the issuance of the Notes, we separated the Notes into liability (debt) and equity (conversion option) components and we will amortize as debt discount an amount equal to the fair value of the equity component as interest expense on the Notes over the term of the Notes. The equity component represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes.
[d] Represents a non-cash compensation charge related to the performance-based vesting of certain shares granted in November 2012 to Mr. Friedman, as well as the one-time, fully vested option granted to Mr. Friedman in July 2013.
[e] Represents legal and other professional fees incurred in connection with our May 2013 and July 2013 follow-on offerings.
[f] Assumes a normalized tax rate of 40% for all periods presented.
[g] Adjusted diluted net income per share is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted diluted net income per share as consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance divided by the Company’s share count. Adjusted diluted net income per share is included in this press release because management believes that adjusted diluted net income per share provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

 

15