Restoration Hardware Boosts Q2 Sales 30.5 Percent

Restoration HardwareCORTE MADERA, Calif.-In what the company described as a record second quarter, Restoration Hardware posted net sales of $382.1 million, up 30.5 percent over the second quarter of last year.

The retailer reported both non-adjusted and adjusted figures for its bottom line in the quarter, which ended on Aug. 3. On a non-adjusted basis, Restoration Hardware said its second-quarter net loss was $17.8 million. Including adjustments for fees for its initial public offering plus other one-time costs, the company posted adjusted net income of $19.8 million. A note in the financial release said Restoration Hardware uses these adjustments because "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 for its financial and operational decision making."

The top line included a gain in same-store sales of 26 percent. In a conference call yesterday to financial analysts, Gary Friedman, chairman and co-CEO, said, "Our exclusive, product-dominant assortments and taste and style are resonating with consumers across all channels." Friedman also noted that Restoration Hardware's direct business enjoyed a 33 percent increase in the quarter.

Friedman also said the company is moving to the once-a-year mailing of its Source Books, which will include the elimination of the mailing of this fall's Source Book and the mailing of an annual edition each spring. He said this decision should "allow us to reach double-digit operating margins and free cash flow positive significantly ahead of our prior expectations."

Gross margin in the quarter was down 260 basis points to 36.4 percent--the result, said Chief Financial Officer Karen Boone during the analyst call, of the "strategic pricing" of new products, primarily of furniture, and of increased furniture sales and penetration, which reduced product and shipping margins.

Selling, general and administrative expenses jumped 76.8 percent in dollars and 1,140 basis points as a percentage of sales, to 43.7 percent, on a non-adjusted basis. Factoring in the adjustments referred to in the note in the release, SG&A was up 11.2 percent in dollars but down 480 basis points as a percentage of sales, to 27.5 percent.

Looking ahead, Carlos Alberini, co-CEO, told the analysts that Restoration Hardware has two priorities: to continue the transformation of its current real-estate platform into Full Line Design Galleries, and to invest in "a world-class infrastructure that will provide operating leverage and support our long-term growth."

Boone added that Restoration Hardware now expects net revenue to rise from 35 to 39 percent. For the full fiscal year, net revenue should grow by between 31 and 32 percent, she said.

HFN Staff | News & Commentary

HFN provides detailed information on the key home classifications: Housewares, Tabletop, Floor Covering & Rugs, Furniture, Home Textiles, Lighting, Home Decor, Mattresses & Bedding, Gifts, Major Appliances and Consumer Electronics as well as Business, Finance and Retail.


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