RH Reports Record Third Quarter Fiscal 2015 Financial Results

Q3 2015 Adjusted Net Income Increased 37%; Adjusted Diluted EPS Increased 33% to $0.65 vs. $0.49 Last Year

Company Raises Fiscal 2015 Revenue Guidance to Range of $2.17 Billion to $2.18 Billion; Adjusted Diluted EPS Guidance Increases to Range of $3.11 to $3.16

CORTE MADERA, Calif.--(BUSINESS WIRE)-- RH (Restoration Hardware Holdings, Inc. – NYSE:RH) today announced record financial results for the third quarter ended October 31, 2015.

The Company will post a video presentation between approximately 1:15 p.m. – 1:30 p.m. PT (4:15 p.m. – 4:30 p.m. ET) today highlighting its continued evolution and recent performance on the RH Investor Relations website at ir.restorationhardware.com.

Third Quarter Highlights

• Net revenues increased 10% on top of a 22% increase last year
• Comparable brand revenues increased 7% on top of a 22% increase last year
• Adjusted operating margin increased 180 basis points to 9.4%; GAAP operating margin of 8.4% compared to 7.6% for the same period last year
• Adjusted net income increased 37% to $27.7 million; GAAP net income of $20.7 million compared to $19.4 million for the same period last year
• Adjusted diluted EPS increased 33% to $0.65; GAAP diluted EPS of $0.49 compared to $0.47 for the same period last year

Gary Friedman, Chairman and Chief Executive Officer, commented, “During the third quarter, we grew our adjusted operating margin by 180 basis points and adjusted net income by 37%, both ahead of our expectations, further demonstrating the disruptive nature of the RH brand and the power of our multi-channel platform. Net revenues increased 10% on top of 22% – representing our 23^rd consecutive quarter of double-digit revenue growth.”

Mr. Friedman continued, “Since our IPO in 2012, we have outperformed our peers by a wide margin, while remaining focused on our two value-driving strategies – the expansion of our brand and the transformation of our retail stores. As it relates to the expansion of our brand, we are innovating and executing at an unprecedented pace and are extremely encouraged by the early results we are seeing out of our most recent launches – RH Modern and RH Teen. Our early data suggests that RH Modern is trending to add significant incremental revenues and opens up the RH brand to an entirely new market.”

Mr. Friedman added, “Furthermore, we continue to believe that our strategy of what is arguably the most significant retail transformation in history will prove to be the right one. We could not be more pleased with the early results out of our recently opened next generation Design Galleries in Chicago, Denver, and Tampa – each well on track to exceed our expectations. In addition, our first next generation Design Gallery – RH Atlanta – is comping up strongly now that the store has come up against its one year anniversary, despite not yet having RH Modern or RH Teen on the retail floor. We expect to see sales at RH Atlanta accelerate further once these concepts are added in the first quarter of fiscal 2016.”

Mr. Friedman concluded, “Over the past five years our compounded growth rates in total revenues, comparable brand revenues, and adjusted net earnings demonstrate the power of our platform, and a culture of innovation that is widely referenced but rarely seen in our industry. When we step back and consider the positive response to our two new businesses – RH Modern and RH Teen, the outperformance in all of our next generation Design Galleries, and the exciting new real estate and businesses we have in the pipeline for 2016 and beyond, we could not be more confident in our long term goal of reaching $4 billion to $5 billion in North American revenues, mid-teens operating margins, significant free cash flow and industry-leading return on invested capital.”

Third Quarter Fiscal 2015 Results

Revenue – Net revenues for the third quarter of fiscal 2015 increased 10% to $532.4 million from $484.7 million in the third quarter of fiscal 2014. Comparable brand revenue growth, which includes direct, was 7% in the third quarter of fiscal 2015 on top of 22% for the same period last year. Stores revenues increased 16% to $281.6 million in the third quarter of fiscal 2015. This growth is on top of a 15% increase in stores revenues in the third quarter of fiscal 2014. Direct revenues increased 4% to $250.9 million in the third quarter of fiscal 2015. This growth is on top of a 31% increase in direct revenues in the third quarter of fiscal 2014. Direct revenues during the third quarter of fiscal 2015 represented 47% of total net revenues.

Retail Galleries – As of October 31, 2015, the Company operated a total of 68 retail galleries, consisting of 54 legacy Galleries, 6 larger format Design Galleries, 3 next generation Design Galleries, and 5 Baby & Child Galleries, as well as 17 outlet stores, throughout the United States and Canada. This compares to a total of 68 retail galleries, consisting of 59 legacy Galleries, 6 larger format Design Galleries and 3 Baby & Child Galleries, as well as 18 outlet stores, as of November 1, 2014.

Operating Income and Margin** – Adjusted operating income in the third quarter of fiscal 2015 increased 36% to $50.0 million compared to $36.7 million in the third quarter of fiscal 2014. Adjusted operating margin in the third quarter of fiscal 2015 increased 180 basis points to 9.4% from 7.6% for the same period last year. Including the impact of non-recurring and other items in the third quarter of fiscal 2015, GAAP operating income was $44.9 million compared to $36.7 million for the same period last year and GAAP operating margin was 8.4% compared to 7.6% for the same period last year.

Net Income** – Adjusted net income in the third quarter of fiscal 2015 increased 37% to $27.7 million from $20.3 million in the third quarter of fiscal 2014. Including the impact of non-recurring and other items, GAAP net income for the third quarter of fiscal 2015 was $20.7 million compared to $19.4 million for the same period last year.

Earnings Per Share** – Adjusted diluted EPS for the third quarter of fiscal 2015 increased 33% to $0.65 from $0.49 for the same period last year. Including the impact of non-recurring and other items, GAAP diluted EPS for the third quarter of fiscal 2015 was $0.49 compared to $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 updating its fourth quarter fiscal 2015 guidance as follows:

• Net revenues in the range of $708 million to $718 million
• Adjusted net income in the range of $58.1 million to $60.2 million
• Adjusted diluted EPS in the range of $1.37 to $1.42
• Income tax rate of approximately 39%
• Diluted shares outstanding of approximately 42.5 million

The Company is increasing its guidance for the fiscal year ending January 30, 2016 as follows:

• Net revenues increased to range of $2.17 billion to $2.18 billion
• Adjusted operating margins increased to range of 10.6% to 10.7%
• Adjusted net income increased to range of $131.7 million to $133.8 million
• Adjusted diluted EPS increased to range of $3.11 to $3.16
• Income tax rate of approximately 39%
• Diluted shares outstanding of approximately 42.3 million
• Capital expenditures in the range of $140 million to $160 million

Note: The Company’s adjusted operating margin, adjusted net income and adjusted diluted EPS 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 operating margin, adjusted net income and adjusted diluted EPS in prior quarters.

Video Presentation and Q&A Conference Call Information

Accompanying this release, RH will today post a video presentation highlighting the Company’s third quarter fiscal 2015 performance and outlook on the Company’s Investor Relations website, ir.restorationhardware.com. Management will then host a live question and answer conference call at 2:30 p.m. PT (5:30 p.m. ET). Interested parties may access the call by dialing (866) 394-6658 (United States/Canada) or (706) 679-9188 (International). A live broadcast of the question and answer session conference call will also be available online at the Company’s investor relations website, ir.restorationhardware.com. A replay of the question and answer session conference call will be available through December 24, 2015 by dialing (855) 859-2056 or (404) 537-3406 and entering passcode 93877003, as well as on the Company’s investor relations website.

About RH

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, 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 non-GAAP financial measures, including similarly titled measures, 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 fourth quarter of fiscal 2015 and the fiscal year ending January 30, 2016, 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. For previous periods, such non-recurring and recurring reconciling items included non-cash and other one-time compensation expense, 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 and the accompanying video presentation contain forward-looking statements within the meaning of the federal securities laws including statements related to our future financial guidance, including for the fourth quarter of fiscal 2015 and the fiscal year ending January 30, 2016; statements relating to our trend of consecutive quarterly double digit revenue growth and outperformance of our business compared to that of our peers; statements relating to the unprecedented pace of our innovation and the disruptive nature of the RH brand as well as our pursuit of our strategy to complete the most significant retail transformation in history; our expectations concerning the current and future performance of our business initiatives including RH Modern, RH Baby and Child and RH Teen, our Modern Gallery in Los Angeles and our next generation Design Galleries in Chicago, Denver, Tampa and Atlanta (including our expectations relating to the addition of RH Modern and RH Teen during fiscal 2016); our expectations concerning the payback period for our new store openings; and our belief that RH Modern is opening the RH brand to an entirely new market; our expectations the new store openings and new product and businesses we have in the pipeline for 2016 and beyond; our ability to achieve our long term goal of reaching $4 billion to $5 billion in North American revenues, mid-teens operating margins, significant free cash flow and industry-leading return on invested capital, 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; strikes and work stoppages affecting port workers and other industries involved in the transportation of our products; 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, and maintaining our brand promise to customers; 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; our ability to support our growth with appropriate information technology systems; 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 27, 2015, 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151210006384/en/

Restoration Hardware Holdings, Inc.
Cammeron McLaughlin, 415-945-4998
SVP, Investor Relations and Strategy
cmclaughlin@rh.com

Source: Restoration Hardware Holdings, Inc.

Released December 10, 2015