RH Reports Record First Quarter Fiscal 2015 Financial Results

Q1 2015 Comparable Brand Revenue Growth of 15% on Top of 18% Last Year; Adjusted Net Income Increased 38%

Company Increases Fiscal 2015 Guidance to Adjusted Diluted EPS in Range of $3.02 to $3.15 from $2.95 to $3.10; Raises Adjusted Operating Margin Outlook to Range of 10.4% to 10.7% on Net Revenues in the Range of $2.146 Billion to $2.176 Billion

CORTE MADERA, Calif.--(BUSINESS WIRE)-- RH (Restoration Hardware Holdings, Inc. - NYSE:RH) today announced record financial results for the first quarter ended May 2, 2015. The Company will also post a video presentation highlighting its continued evolution, recent performance, and the announcement of a new business on the RH Investor Relations website at ir.restorationhardware.com.

First Quarter Highlights

• Net revenues increased 15% on top of a 22% increase last year
• Comparable brand revenues increased 15% on top of an 18% increase last year
• Adjusted operating margin increased 60 basis points to 4.4%; GAAP operating margin of 4.0% compared to 1.3% for the same period last year
• Adjusted net income increased 38% to $9.8 million; GAAP net income of $7.2 million compared to $1.8 million for the same period last year
• Adjusted diluted EPS increased 28% to $0.23; GAAP diluted EPS of $0.17 compared to $0.04 for the same period last year

Gary Friedman, Chairman and Chief Executive Officer, commented, “RH continues to outperform the home furnishings industry by a wide margin. Net revenues exceeded our outlook and increased 15% on top of a 22% increase last year. Comparable brand revenues increased 15% on top of 18% last year – representing a 33% increase over the two year period. Additionally, we grew our adjusted operating margin by 60 basis points and adjusted net income by 38%, both ahead of our expectations, and further demonstrating the disruptive nature of the RH brand and the power of our multi-channel business model.”

Mr. Friedman continued, “Our first next generation Design Gallery, RH Atlanta - The Gallery at the Estate in Buckhead - continues to accelerate and gain momentum and we are even more pleased with its evolution. With the 2015 Source Books just now reaching the Atlanta market, as well as the addition of our new businesses later this year, we believe that this gallery is well on track to exceed our original expectations.”

Mr. Friedman added, “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. Later this year, we will be opening next generation Design Galleries in Chicago, Tampa, Denver and Austin. Looking to 2016 and beyond, we now have signed leases for 10 next generation Design Galleries and are in negotiations or have sites identified for at least 25 additional locations. In addition, we have multiple new concepts and services in our product development pipeline that we believe will continue to demonstrate the innovative and disruptive nature of our brand, and drive industry leading performance for years to come.”

Mr. Friedman concluded, “The business momentum we are experiencing thus far in 2015, coupled with the launch of new businesses and the opening of four next generation Design Galleries later this year, gives us further confidence in our financial outlook for fiscal 2015. We are increasing our adjusted net income guidance for fiscal 2015 to growth in the range of 30% to 36% - above our long term target of mid to high twenties - and now expect net revenues to grow in the range of 15% to 17%. Fiscal 2015 is a bridge year for RH, with revenue growth targeted in the mid-teens, and then reaccelerating to our long term goal of 20% as our real estate transformation and new product introductions ramp in fiscal 2016. While still in the early stages of building RH into the leading home brand for the luxury customer, we are well on track towards our long-term goal of $4 billion to $5 billion in North American sales, mid-teens operating margins, significant free cash flow and industry-leading return on invested capital."

First Quarter Fiscal 2015 Results

Revenue - Net revenues for the first quarter of fiscal 2015 increased 15% to $422.4 million from $366.3 million in the first quarter of fiscal 2014. Comparable brand revenue growth, which includes direct, was 15% in the first quarter of fiscal 2015 on top of 18% for the same period last year. Direct revenues increased 18% to $207.7 million in the first quarter of fiscal 2015. This growth is on top of a 24% increase in direct revenues in the first quarter of fiscal 2014. Direct revenues during the first quarter of fiscal 2015 represented 49% of total net revenues.

Retail Galleries - As of May 2, 2015, the Company operated a total of 67 retail galleries, consisting of 57 legacy Galleries, 6 larger format Galleries, 1 next generation Design Gallery, and 3 Baby & Child Galleries, as well as 17 outlet stores, throughout the United States and Canada. This compares to a total of 69 retail galleries, consisting of 61 legacy Galleries, 5 larger format Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores, as of May 3, 2014.

Operating Income and Margin** - Adjusted operating income in the first quarter of fiscal 2015 increased 33% to $18.6 million compared to $14.0 million in the first quarter of fiscal 2014. Adjusted operating margin in the first quarter of fiscal 2015 increased 60 basis points to 4.4% from 3.8% for the same period last year. Including the impact of non-recurring and other items in the first quarter of fiscal 2015, GAAP operating income was $17.0 million compared to $4.8 million for the same period last year and GAAP operating margin was 4.0% compared to 1.3% for the same period last year.

Net Income** - Adjusted net income in the first quarter of fiscal 2015 increased 38% to $9.8 million from $7.2 million in the first quarter of fiscal 2014. Including the impact of non-recurring and other items, GAAP net income for the first quarter of fiscal 2015 was $7.2 million compared to $1.8 million for the same period last year.

Earnings Per Share** - Adjusted diluted EPS for the first quarter of fiscal 2015 increased 28% to $0.23 from $0.18 for the same period last year. Including the impact of non-recurring and other items, GAAP diluted EPS for the first quarter of fiscal 2015 was $0.17 compared to $0.04 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 second quarter of fiscal 2015:

• Net revenues in the range of $495 million to $505 million
• Adjusted net income in the range of $33.7 million to $35.4 million
• Adjusted diluted EPS in the range of $0.80 to $0.84
• Income tax rate of approximately 39%
• Diluted shares outstanding of approximately 42.1 million

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

• Net revenues increased to range of $2.146 billion to $2.176 billion
• Adjusted operating margins increased to range of 10.4% to 10.7%
• Adjusted net income increased to range of $127 million to $133 million
• Adjusted diluted EPS increased to range of $3.02 to $3.15
• Income tax rate of approximately 39%
• Diluted shares outstanding of approximately 42.2 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 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 operating margin, adjusted net income and adjusted diluted earnings per share 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 first 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 June 25, 2015 by dialing (855) 859-2056 or (404) 537-3406 and entering passcode 61021146, 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 second 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 second quarter of fiscal 2015 and the fiscal year ending January 30, 2016; our expectations regarding our first next generation Design Gallery, RH Atlanta - The Gallery at the Estate in Buckhead, including that it is well on track to exceed our original expectations; our plans to open, later this year, next generation Design Galleries in Chicago, Tampa, Denver and Austin; our belief that our new concepts and services in our product development pipeline will continue to demonstrate the innovative and disruptive nature of our brand, and drive industry leading performance for years to come; our expectation that we will reaccelerate to our long term goal of 20% revenue growth as our real estate transformation and new product introductions ramp up in fiscal 2016; 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 margins, significant free cash flow and industry-leading return on invested capital; any expectation that certain charges and costs that we eliminate from our adjusted earnings and operating results relate to unusual items or that such items may not recur in future periods or if such items do occur in future periods that they will be similar to the charges or costs in prior periods including as to the magnitude of such charges or costs, 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/20150611006270/en/

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

Source: Restoration Hardware Holdings, Inc.

Released June 11, 2015