Restoration Hardware, Inc. Reports Third Quarter 2003 Results
Revenues Up 6%, Net Loss $2.9 Million ($0.09 per share), In Line With Guidance
CORTE MADERA, Calif., Nov. 20 /PRNewswire-FirstCall/ -- Restoration Hardware, Inc. (Nasdaq: RSTO) today reported net revenues of $95.8 million for the third quarter ended November 1, 2003, a 6% increase versus net revenues of $90.8 million for the same period a year ago. Comparable store sales for the third quarter increased 2.9%, on top of a 14.9% increase in the third quarter of 2002. Direct-to-customer sales, which include catalog and Internet, increased 46% to $16.0 million, on top of a 66% increase in last year's third quarter. The Company's third quarter net loss was $2.9 million ($0.09 per share) compared to $2.4 million ($0.08 per share) in the third quarter of 2002.
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While the quarter's total revenues and comparable store sales were lower than anticipated, demand from orders not yet delivered increased $8.8 million in the quarter. The Company's first Annual Autumn Furniture Sale, the relatively late timing of the Famous Fall Lighting Sale and the launch of a new special order upholstery program all contributed to demand which was originally anticipated to be realized as revenue during the third quarter. The Company expects these orders (which include deliveries in transit, backorders and special orders) to have a positive effect in the fourth quarter as deliveries occur and revenues are recognized per the Company's revenue recognition policy.
Gary Friedman, the Company's President and CEO stated, "We were very pleased with our customers' response to the merchandising and marketing programs during the third quarter. Customers' reaction to our Annual Autumn Furniture Sale, and our new special order upholstery program created overall demand which exceeded our expectations, some of which will be recognized in our results for the fourth quarter."
Mr. Friedman further remarked, "During the quarter we opened two new Restoration Hardware prototype stores which have been designed to showcase our existing and new core businesses with greater clarity and authority. Both stores, in Richmond, Virginia and Cleveland, Ohio, are performing above plan, with a third store scheduled to re-open November 21 in Corte Madera, California."
Results for the third quarter were impacted by higher selling, general and administrative expenses which totaled $33.0 million, or 35% of revenues, as compared to $30.0 million, or 33% of revenues in the prior year's third quarter. In 2003, the Company incurred higher costs of advertising and payroll in support of its third quarter sales events, of which some of the related sales from the demand created will not be recognized until the fourth quarter.
The Company ended the third quarter with merchandise inventories of $122.1 million, versus $125.7 million at the end of the third quarter last year, a decrease of 3% versus the Company's sales increase of 6% for the same period. During the quarter, the Company closed one under-performing store and opened two new stores.
For the nine months ended November 1, 2003, net revenues were $273.6 million, a 12% increase versus net revenues of $245.2 million for the same period a year ago. Comparable store sales for the nine-month period increased 8.0%, on top of an 8.3% increase in last year's comparable period. Direct-to- customer sales increased 53% to $41.3 million, on top of a 38% increase in the same period a year ago.
The Company's net loss for the nine months was $10.8 million ($0.36 per share), versus $13.7 million ($0.46 per share) for the same period a year ago. The Company's prior year results for the first nine months included $4.0 million of additional income tax benefits as a consequence of the economic stimulus bill enacted on March 9, 2002.
Looking forward, the Company expects fourth quarter comparable store sales to increase in the mid-single digit range. Earnings per share for the fourth quarter are expected to range from $0.30 to $0.34, based on diluted weighted average shares of approximately 38.7 million.
The Company's third quarter earnings conference call is scheduled for Thursday, November 20, 2003 at 5:00 p.m. Eastern Time. The dial-in number is 800-362-0574. A live webcast of the call is available at http://www.firstcallevents.com/service/ajwz393672770gf12.html . If you are unable to participate during the live webcast, a playback of the conference call will be available via the Internet at http://www.firstcallevents.com/service/ajwz393672770gf12.html beginning at 8:00 p.m. Eastern Time on Thursday, November 20, 2003. A webcast replay of the call will be available at www.restorationhardware.com under "Company Info -- Investor Relations -- Event Calendar" until November 20, 2004.
About Restoration Hardware, Inc.
Restoration Hardware, Inc. is a specialty retailer of home furnishings, functional and decorative hardware and related merchandise that reflects the Company's classic and authentic American point of view. Restoration Hardware, Inc. sells its merchandise offering through its retail stores, catalog (800-762-1005) and on-line at www.restorationhardware.com. As of November 20, 2003 the Company operated 103 retail stores in 31 states, the District of Columbia and Canada.
Safe Harbor Statement under the Private Securities Litigation Reform Act
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 third quarter ended November 1, 2003, statements concerning guidance for the fourth quarter of 2003, statements relating to expectations in connection with deliveries of firm orders and corresponding revenue recognition in the fourth quarter, statements relating to expected revenue from third quarter sales events, statements concerning customers' responses to merchandising and marketing programs of the Company and implications of such responses on the Company, statements implying the effects of the Company's new prototype stores and their product offerings on the Company's financial performance, statements concerning the re-opening of the Company's prototype store in Corte Madera, California, statements regarding holiday trends, and other statements containing words such as "believes," "expects," and words of similar import or statements of management's opinion. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, including financial results, market performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, customer acceptance of delivered orders and the timing of such deliveries, actual recognition of revenues from third quarter sales events, customer reactions to the Company's current and anticipated merchandising and marketing programs and strategies, timely introduction and customer acceptance of the Company's merchandise, continued positive customer reaction to the Company's catalog and Internet offerings, revised product mix and prototype stores, timely opening of the Company's prototype store in Corte Madera, California, further customer acceptance of the Company's private label credit card, timely and effective sourcing of the Company's merchandise from its foreign and domestic vendors and delivery of merchandise through its supply chain to its stores and customers, effective inventory and catalog management, changes in investor perceptions of the Company, fluctuations in comparable store sales, limitations resulting from restrictive covenants in the Company's credit facility, changes in economic or business conditions in general, changes in political conditions in the United States and abroad in general, changes in product supply, changes in the competitive environment in which the Company operates, changes in the Company's management information needs, changes in customer needs and expectations, governmental actions and other factors detailed in the Company's filings with the Securities and Exchange Commission, including its recent filings on Forms 10-K, 10-Q and 8-K, including, but not limited to, those described in the Company's Form 10-Q for the fiscal quarter ended August 2, 2003 in Part I, Item 2 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources," "Critical Accounting Policies," and "Factors that May Affect our Future Operating Results" and in Part I, Item 4 thereof ("Controls and Procedures"). Guidance offered by the Company represents a point-in-time estimate made by management of the Company. The Company undertakes no obligation to update any guidance or any other forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.
RESTORATION HARDWARE, INC. STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) (in thousands, except per share and store data) 13 weeks ended 13 weeks ended 11/1/03 % of Revenues 11/2/02 % of Revenues Net revenues $95,814 100.0% $90,774 100.0% Cost of sales and occupancy 67,027 70.0% 63,669 70.1% Gross profit 28,787 30.0% 27,105 29.9% Selling, general and administrative expenses 33,031 34.5% 30,024 33.1% Loss from operations (4,244) -4.4% (2,919) -3.2% Interest expense, net (519) -0.5% (834) -0.9% Change in fair value of warrants -- 0.0% -- 0.0% Loss before income taxes (4,763) -5.0% (3,753) -4.1% Income tax benefit 1,905 2.0% 1,351 1.5% Net loss (2,858) -3.0% (2,402) -2.6% Preferred shareholder return: Dividends -- 0.0% -- 0.0% Loss attributable to common stockholders $(2,858) -3.0% $(2,402) -2.6% Stores open at end of period 103 105 Total selling square footage 675,585 688,634 Loss per share, basic and diluted $(0.09) $(0.08) Weighted average shares 30,592 29,926 RESTORATION HARDWARE, INC. STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) (in thousands, except per share and store data) 39 weeks ended 39 weeks ended 11/1/03 % of Revenues 11/2/02 % of Revenues Net revenues $273,553 100.0% $245,170 100.0% Cost of sales and occupancy 200,012 73.1% 184,874 75.4% Gross profit 73,541 26.9% 60,296 24.6% Selling, general and administrative expenses 89,922 32.9% 84,986 34.7% Loss from operations (16,381) -6.0% (24,690) -10.1% Interest expense, net (1,674) -0.6% (2,098) -0.9% Change in fair value of warrants -- 0.0% (278) -0.1% Loss before income taxes (18,055) -6.6% (27,066) -11.0% Income tax benefit 7,222 2.6% 13,753 5.6% Net loss (10,833) -4.0% (13,313) -5.4% Preferred shareholder return: Dividends -- 0.0% (358) -0.1% Loss attributable to common stockholders $(10,833) -4.0% $ (13,671) -5.6% Stores open at end of period 103 105 Total selling square footage 675,585 688,634 Loss per share, basic and diluted $(0.36) $(0.46) Weighted average shares 30,243 29,660 RESTORATION HARDWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands) 11/1/03 2/1/03 11/2/02 ASSETS Current assets: Cash and cash equivalents $3,237 $1,630 $2,037 Accounts receivable 5,911 3,352 4,931 Merchandise inventories 122,145 94,500 125,671 Prepaid expense and other current assets 11,931 12,445 14,403 Total current assets 143,224 111,927 147,042 Property and equipment, net 84,170 90,038 93,432 Goodwill 4,560 4,560 4,560 Other long-term assets 29,415 19,703 25,003 Total assets $261,369 $226,228 $270,037 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $46,909 $35,649 $56,064 Deferred revenue and customer deposits 7,864 6,046 6,071 Other current liabilities 9,744 9,146 7,775 Total current liabilities 64,517 50,841 69,910 Long-term line of credit, net of debt issuance costs 45,891 13,909 49,157 Deferred lease incentives 35,677 39,109 40,113 Deferred rent 14,554 14,163 13,834 Other long-term liabilities 155 144 45 Total liabilities 160,794 118,166 173,059 Series A redeemable convertible preferred stock 9,380 13,328 13,529 Common stock 156,827 150,881 149,571 Unearned compensation (284) (659) (659) Accumulated other comprehensive income (loss) 841 (132) (100) Accumulated deficit (66,189) (55,356) (65,363) Total stockholders' equity 91,195 94,734 83,449 Total liabilities, redeemable convertible preferred stock and stockholders' equity $261,369 $226,228 $270,037 Shares issued and outstanding at end of period 32,297 30,051 29,986
SOURCE Restoration Hardware, Inc. -0- 11/20/2003 /CONTACT: Patricia McKay, Chief Financial Officer of Restoration Hardware, Inc., +1-415-924-1005, or fax, +1-415-945-4679/ /Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/19990902/RSTOLOGO AP Archive: http://photoarchive.ap.org PRN Photo Desk, 1-888-776-6555 or +1-212-782-2840/ /Web site: http://www.restorationhardware.com / (RSTO)