News Release Details


Restoration Hardware, Inc. Reports First Quarter Results

     - Comparable store sales increase 5.0%

     - Direct-to-customer sales increase 50%

     - Operating results improve 27% versus a year ago

     - Results of 9 cents loss per share, improved from prior year's first
       quarter loss of 12 cents per share

CORTE MADERA, Calif., May 26 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today announced its financial results for the first quarter ended April 30, 2005, including the following:

    * Net revenue increased 19% to $117.5 million for the first quarter of
      fiscal 2005 versus net revenue of $98.9 million for the same period last
    * Comparable store sales for the first quarter of fiscal 2005 increased
      5.0% on top of a 9.0% increase in the first quarter of fiscal 2004.
    * Direct-to-customer net revenue increased 50% in the first quarter of
      2005 on top of a 94% increase in the same period a year ago.
    * Operating results improved 27% to a loss from operations of $4.3 million
      for the first quarter of fiscal 2005 compared to a loss of $6.0 million
      in last year's first quarter.
    * Net results for the first quarter of fiscal 2005 reflected a net loss of
      $3.1 million ($0.09 per share) as compared to a net loss of $3.9 million
      ($0.12 per share) in the first quarter of the prior year.
    * Inventory of $144.2 million as of the end of the first quarter, up 22%
      from the prior year's first quarter, and consistent with increases in
      sales levels.

Gary Friedman, the Company's Chairman, President and CEO, stated, "We are pleased with our overall performance in the first quarter. Our results were substantially improved with sales in all channels showing continued solid gains. Our comparable store sales in the first quarter of 2005 increased 5.0% on top of a 9.0% increase in the first quarter last year and an 11.9% increase in the first quarter of 2003. That, coupled with a 50% increase in our direct- to-customer division revenue in the first quarter of 2005 on top of a 94% increase in the prior year's first quarter, reflects our customers' continued positive response to our strategy, and the growing strength of our brand."

Mr. Friedman continued, "We are also pleased with the 250 basis point expansion of our gross profit margin in the quarter, driven by higher merchandise margins, lower supply chain costs and expense leverage. Our focus on building dominant core businesses is creating consistency and predictability with our customers and has reduced seasonal markdown risk. In addition, cost improvements in our distribution and supply chain due to new leadership, gives us confidence in achieving our profitability goals for the year."

Our current plans also include the remodeling of a majority of our stores in the second quarter. This will enable us to expand the merchandise offerings in certain core businesses and present those offerings with more clarity and focus. The remodeling program is expected to require an investment of $15 million and will be substantially completed in advance of the fall season. This will also require the removal of some existing store fixtures. The depreciated cost of those fixtures is estimated at $1.2 million to $1.6 million and will be fully expensed in the second quarter, resulting in a non- cash charge of 2 to 3 cents per share.

The Company also announced today that it is exploring the launch of a new brand that is expected to be tested with the introduction of a new catalog in the fall of 2006 or the spring of 2007. Lisa Versacio has joined the Company as Senior Vice President of New Business Development to head this effort. Ms. Versacio previously worked for five years at Williams-Sonoma, Inc. where she developed and launched the West Elm concept. The Company expects to incur expenses of approximately $1.0 million in 2005 to support this effort.

The Company provides the following guidance for the second quarter of fiscal 2005:

    * Increase in comparable store sales in the mid to high single digits on
      top of a 9.4% increase in comparable store sales in the prior year's
      second quarter.
    * Direct-to-customer net revenue increase of 45% to 50% on top of a 103%
      increase in the prior year's second quarter.
    * Loss per share of $0.03 to $0.04 versus a loss per share of $0.06 a year
      ago. This guidance excludes the non-cash charge of $1.2 million to $1.6
      million ($0.02 to $0.03 per share) associated with the store remodeling
      effort as described above.
    * Inventory at the end of the second quarter of fiscal 2005 is expected to
      be up approximately 20% compared to prior year levels.

    Conference Call:

The Company's first quarter fiscal 2005 earnings conference call is scheduled for Thursday, May 26, 2005 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0574. A live webcast is available at http://phx.corporate- If you are unable to participate during the live webcast, a playback of the conference call will be available via the Internet at http://phx.corporate- beginning at 7:00 p.m. Eastern Time on Thursday, May 26, 2005. A webcast replay of the call will be available at under "Company Info- Investor Relations-Event Calendar" or by dial-in (800-283-4593) until June 9, 2005.

About Restoration Hardware, Inc.:

Restoration Hardware, Inc. is a specialty retailer of high quality home furnishings, bath fixtures and bath ware, 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 As of May 26, 2005 the Company operated 102 retail stores and 2 outlet 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 first quarter ended April 30, 2005, statements concerning guidance for the second quarter of fiscal 2005, statements relating to customers' reaction to the Company's strategy, statements relating to a reduction in seasonal markdown risk, statements relating to the growth of the Company's brand, statements relating to the achievement of cost improvements, statements relating to the impact on the Company of its retention of new operating leadership, statements relating to the Company's plans to remodel a majority of its retail stores, including the anticipated costs, time of completion and benefits of such remodeling, statements relating to the Company's new brand and the timing of the introduction of such new brand to customers, statements relating to the Company's profitability in future periods, statements relating to the anticipated long term strategy of the Company, and other 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, 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, actual achievement of cost savings and improvements to operating efficiencies, effective sales performance, in particular during the holiday selling season, the actual impact of key personnel of the Company on the development and execution of the Company's strategies, 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 and 8-K, including, but not limited to, those described in the Company's Form 10-K for the fiscal year ended January 29, 2005 in Part I, Item 1 thereof ("Business") under the captions "Competition" and "Factors that May Affect Our Future Operating Results," in Part II, Item 7 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources" and "Critical Accounting Policies" and in Part II, Item 9A 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.
           (Dollars in thousands, except per share and store data)

                                  13 weeks ended           13 weeks ended
                             4/30/2005   % of Revenue   restated) % of Revenue

    Retail net revenue        $84,677        72.1%      $76,997       77.9%
    Direct-to-customer net
     revenue                   32,788        27.9%       21,861       22.1%
      Total net revenue       117,465       100.0%       98,858      100.0%

    Cost of revenue and
     occupancy                 81,823        69.7%       71,328       72.2%
      Gross profit             35,642        30.3%       27,530       27.8%

    Selling, general and
     administrative expense    39,986        34.0%       33,516       33.9%
      Loss from operations     (4,344)       (3.7%)      (5,986)      (6.1%)

    Interest expense, net        (825)       (0.7%)        (427)      (0.4%)

      Loss before income taxes (5,169)       (4.4%)      (6,413)      (6.5%)

    Income tax benefit          2,056         1.7%        2,501        2.5%

    Net loss                  $(3,113)       (2.7%)     $(3,912)      (4.0%)

    Loss per common share,
     basic                     $(0.09)                   $(0.12)
    Loss per common share,
     diluted                   $(0.09)                   $(0.12)
    Weighted average shares
     outstanding, basic        33,110                    32,791
    Weighted average shares
     outstanding, diluted      33,110                    32,791

    Comparable store sales       5.0%                      9.0%
    Retail stores open at end
     of period                    102                       102
    Store selling square
     footage, end of period   676,520                   672,604

                          RESTORATION HARDWARE, INC.
                            (Dollars in thousands)

                                         4/30/2005     1/29/2005 (as restated)
    Current assets:
      Cash and cash equivalents           $1,879        $1,904        $2,550
      Accounts receivable                  6,800         6,945         5,863
      Merchandise inventories            144,152       144,185       117,786
      Prepaid expense and other current
       assets                             19,875        19,574        14,965
        Total current assets             172,706       172,608       141,164

      Property and equipment, net         80,192        81,886        80,843
      Goodwill                             4,560         4,560         4,560
      Deferred tax asset, long-term
       portion                            18,688        18,745        18,032
      Other long-term assets               2,766         1,464         4,157
        Total assets                    $278,912      $279,263      $248,756

    Current liabilities:
      Accounts payable and accrued
       expenses                          $50,722       $63,920       $41,656
      Line of credit, net of debt
       issuance costs                     52,390        33,819        34,384
      Deferred revenue and customer
       deposits                            8,966         8,130         7,068
      Other current liabilities           12,412        14,948        11,394
        Total current liabilities        124,490       120,817        94,502

      Deferred lease incentives           29,419        30,365        32,555
      Deferred rent                       20,218        20,321        20,124
      Other long-term liabilities             92           143           301
        Total liabilities                174,219       171,646       147,482

    Series A redeemable convertible
     preferred stock                       8,331         8,331         8,471
    Stockholders' equity:
    Common stock                               3             3             3
    Additional paid-in capital           159,532       159,233       158,404
    Unearned compensation                     --            --          (133)
    Accumulated other comprehensive
     income                                  702           812           907
    Accumulated deficit                  (63,875)      (60,762)      (66,378)
        Total stockholders' equity        96,362        99,286        92,803

        Total liabilities, redeemable
         convertible preferred
         stock and stockholders'
         equity                         $278,912      $279,263      $248,756

    Common stock issued and outstanding
     at end of period                     33,156        33,084        32,848

SOURCE  Restoration Hardware, Inc.
    -0-                             05/26/2005
    /CONTACT:  Patricia McKay, Executive Vice President & Chief Financial
Officer of Restoration Hardware, Inc., +1-415-924-1005, or fax,
    /Web site: /

CO:  Restoration Hardware, Inc.
ST:  California

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8923 05/26/2005 16:01 EDT