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CORTE MADERA, Calif., Jan. 17 /PRNewswire-FirstCall/ -- Restoration
Hardware, Inc., (Nasdaq: RSTO) today announced that total net revenue for the
nine-week holiday period was $142.5 million compared to $142.8 million for the
same period a year ago. Comparable store sales for the nine-week period
declined 7.4 percent, and direct to customer revenue increased by 15 percent
as compared to the same period last year. Reported sales for the period were
negatively impacted by a greater than expected total revenue and order
deferral, which is comprised of backorders, special orders and in-transit
deferred revenue orders. The revenue and order deferral increased
$12.3 million, or 79 percent higher versus the same period last year. We
estimate that the higher than anticipated retail revenue and order deferral
negatively affected the Companys reported comparable store sales by
approximately 6 percent for the nine-week holiday period.
The Company also announced that it is revising its sales and earnings
guidance for the fourth quarter of fiscal 2005 primarily due to the higher
than anticipated revenue and order deferral into future periods. The higher
than expected revenue and order deferral was primarily due to the continued
higher than expected shift to Special Order Furniture, the higher than
expected level of backorders and the higher than expected in-transit deferred
revenue, arising from sales occurring later than projected in the quarter.
The Company now projects that the total revenue and order deferral for the
fiscal fourth quarter will be approximately $6.8 million higher than previous
guidance, and $10.8 million higher, or 70 percent higher, than the revenue and
order deferral level at the end of last year. The Company projects that the
$6.8 million and $10.8 million in revenue and order deferrals would correspond
to incremental earnings per share of $0.06 and $0.09 per share, respectively,
if these could be converted to revenue during the fourth quarter of fiscal
2005. We expect that the higher level of revenue and order deferrals will have
a positive effect on financial results in the first half of fiscal 2006.
Tables breaking down the total revenue and order deferral for the third
quarter of fiscal 2005 and the nine-week holiday period, as well as the
expected total revenue and order deferral for the fourth quarter of fiscal
2005, are set forth at the end of this release.
As a result of the above, the Company is now anticipating that retail
revenue for the fourth quarter will be in the range of $145 to $148 million,
with comparable store sales in the mid negative single digit range, and
direct-to-customer revenue up 14 to 17 percent versus a year ago. The Company
is now forecasting earnings per share to be in the range of $0.21 to $0.24 for
the quarter.
Gary Friedman, the Companys Chairman, President, and Chief Executive
Officer commented, "Revenues generated in the quarter, net of the higher than
anticipated revenue and order deferral, are expected to be within one percent
of our previous guidance. However, the shift of our business to a higher
percentage of furniture, and direct-to-customer orders in the retail and
direct channels has caused us to miss our total revenue and order deferral
forecasts. While disappointed with our ability to accurately forecast the
total revenue and order deferral through this transition of our business, we
remain pleased with the customer demand for our product offerings and the
overall performance of our business. Merchandise margins for the quarter are
expected to be up approximately 170 basis points over last year due to our
remerchandising efforts executed in the third quarter. We anticipate
merchandise margins will be up several hundred basis points in the first half
of fiscal 2006 as we continue to benefit from the strategic repositioning of
our product mix."
Mr. Friedman continued, "The demand for our core businesses remains
strong, and we expect that the reduction in our total revenue and order
deferral balance will provide a positive benefit to our results in future
periods. However, we are targeting selective increases in our inventory levels
to bring down our backorder balance, and evaluate the correct inventory needed
to maximize our business. Our core business lines carry higher margins, and
have an inherently lower markdown risk, but they also have slower inventory
turns than some of the discovery items, and accessories that we have edited
out of the assortment. Therefore, we believe strategically increasing
inventories in some core categories will have a positive effect on our
business and improve customer satisfaction as we enter fiscal 2006."
The Company plans to hold a conference call to discuss the updated fourth
quarter guidance on Tuesday, January 17th, at 9 a.m. Eastern Time.
Non-GAAP Financial Measures
This release makes reference to certain financial measures that are
non-GAAP, including revenue and order deferrals, backorders, special orders
and in-transit deferred revenue orders. These terms are defined below. The
Company believes that the use of these financial measures allows management
and investors to evaluate and compare the Companys operating results in a
more meaningful and consistent manner. The most-closely analogous GAAP
financial measure to these non-GAAP financials measures is deferred revenue.
The Companys deferred revenue for the third quarter of fiscal 2005 and the
nine-week holiday period was $13.4 million and $12.3 million, respectively.
The Companys deferred revenue for the third quarter and fourth quarter of
fiscal 2004 was $8.5 million and $9.3 million, respectively.
"Backorders" represent products that have been ordered by customers but
are out of stock.
"Special orders" represent products that are made-to-order by customers
and therefore are not in-stock at the time the order is taken.
"In-transit deferred revenue orders" represent items that have been billed
and shipped to the customer but have not yet been delivered at the period end.
These are included in the balance sheet under "deferred revenue and customer
deposits."
"Total revenue and order deferral" represents the combination of
backorders, special orders and in-transit orders.
Conference Call:
The Company has scheduled a conference call to discuss its updated fourth
quarter fiscal 2005 guidance for Tuesday, January 17, 2006 at 9 a.m. Eastern
Time. The dial-in number is 800-540-0559. A live web-cast is available at
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=79100&eventID=1198259 . 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-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=79100&eventID=1198259 . beginning at 7:00 p.m. Eastern Time on
Tuesday, January 17, 2006. A webcast replay of the call will be available at
http://www.restorationhardware.com under "Company Info-Investor Relations-Event
Calendar" or by dial-in (800-839-4568) until January 21, 2006.
About Restoration Hardware, Inc.:
Restoration Hardware, Inc. is a specialty retailer of high quality home
furnishings, bath fixtures and bathware, functional and decorative hardware
and related merchandise that reflects the Companys 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
http://www.restorationhardware.com. As of January 17, 2006, the Company operated 103
retail stores and five 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 relating to the effect of total retail order deferral on the
Companys reported comparable store sales, statements relating to the
Companys estimate of the total deferred revenue for the fourth quarter of
fiscal 2005 and the impact of such deferred revenue on earnings in future
quarters, statements relating to the Companys anticipated revenue, comparable
store sales, direct-to-customer sales and earnings per share for the fourth
quarter of fiscal 2005, statements relating to the Companys anticipated sales
and merchandise margins in future periods, statements relating to the benefit
to the Company in future periods of increased sales and margins, statements
relating to the Companys need to manage inventory levels, statements
concerning or relating to implications of the Companys revenues, sales and
financial results for the fourth quarter of fiscal 2005, statements concerning
guidance for the fourth quarter of fiscal 2005, and other statements
containing words such as "expects" and words of similar import or statements
of managements 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 Companys current and anticipated merchandising and marketing
programs and strategies, timely introduction and customer acceptance of the
Companys merchandise, positive customer reaction to the Companys catalog and
Internet offerings, revised product mix, prototype stores and core businesses,
timely and effective sourcing of the Companys 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 Companys strategies, changes in investor perceptions of the
Company, fluctuations in comparable store sales, limitations resulting from
restrictive covenants in the Companys 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
Companys management information needs, changes in customer needs and
expectations, governmental actions and other factors detailed in the Companys
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 Companys Form 10-Q for the quarter ended October 29, 2005 in
Part I, Item 2 thereof ("Managements Discussion and Analysis of Financial
Condition and Results of Operations") under the captions "Revenue,"
"Expenses," "Liquidity and Capital Resources" 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. With respect to any statements concerning order deferrals,
backorders, special orders and in-transit orders, these measures can vary
significantly from quarter to quarter and year to year and, therefore, is not
necessarily indicative of revenues for subsequent periods. In addition, the
actual realization of certain revenues included in backlog may never occur
because an order is cancelled.
Attachment:
Total order deferral analysis:
(Note quoted in dollar millions)
3rd Quarter 4th Quarter
2005 2005
Original Guidance
2005 2004 Variance 2005 2004 Variance Guidance Variance
Backorders 5.3 4.6 0.7 7.8 3.8 4.0 4.3 3.5
Special orders 5.6 2.8 2.8 5.5 2.4 3.1 3.6 1.9
In-transit 13.4 8.5 4.9 13.0 9.3 3.7 11.6 1.4
Total 24.3 15.9 8.4 26.3 15.5 10.8 19.5 6.8
Nine-weeks
2005 2004 Variance
Backorders 8.0 5.2 2.8
Special orders 7.6 3.5 4.1
In-transit 12.3 6.9 5.4
Total 27.9 15.6 12.3
The 3rd quarter 2005, nine-weeks 2005 and all 2004 data represents actual
figures and the 4th quarter 2005 figures are current projected figures.
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