Restoration Hardware Holdings, Inc. Reports Third Quarter 2012 Financial Results

Restoration Hardware Holdings, Inc. Reports Third Quarter 2012 Financial Results

Net Revenues Increased 22%; Adjusted Net Income Increased 147%

Adjusted EPS of $0.07 Per Share


CORTE MADERA, Calif.--(BUSINESS WIRE)-- Restoration Hardware Holdings, Inc. (NYS: RH) today announced financial results for the third quarter of fiscal year 2012 ended October 27, 2012.

Third Quarter Highlights

  • Net revenues increased 22% on top of a 25% revenue increase last year
  • Comparable store sales grew 29% on top of 36% comp growth last year
  • Direct sales increased 24% on top of a 17% increase in direct sales last year
  • Adjusted net income increased 147% to $2.7 million; GAAP net income increased to $1.7 million
  • Adjusted earnings per diluted share of $0.07

Carlos Alberini, Chief Executive Officer, said, "We are very pleased with our third quarter financial results, as we delivered a 22% revenue increase on top of the 25% increase a year ago. This performance, which is consistent with the 22% growth achieved for the year-to-date period, marks our 11th consecutive quarter of double-digit revenue growth. During the period, we also drove significant earnings growth, contributing to a 95% increase in adjusted net income year-to-date. As we look forward, we remain focused on the execution of our growth initiatives, including the transformation of our real estate and the expansion of our offering."

"We are in the very early stages of transforming our legacy mall real estate into our new full line Design Gallery concept. Our Los Angeles and Houston full line Design Galleries continue to perform ahead of our expectations. After delivering great market growth during the first year, these Galleries continue to deliver double-digit comp growth. Further, our new full line Design Gallery in Scottsdale has also delivered market growth ahead of plan since its November opening. We plan to open new full line Design Galleries in Boston, Indianapolis, Greenwich and Atlanta and are actively pursuing locations in several other key markets," continued Mr. Alberini.

Gary Friedman, Chairman Emeritus, Creator and Curator, commented, "We believe our brand is redefining the luxury home furnishings market, and our proven ability to innovate, curate, and integrate new product categories and businesses will position us to continue our industry-leading growth."

Mr. Friedman continued, "Our new and developing businesses, RH Baby & Child, and RH Big Style/small spaces are gaining momentum as we refine the assortments and presentation. We opened our third and largest Baby & Child Gallery in Santa Monica, California last month, and the initial results are very encouraging. We continue to believe this concept can have a retail presence in at least the top 50 markets. We also plan to test a retail footprint of Big Style/small spaces in our next generation full line Design Gallery opening in Atlanta in 2014."

Mr. Friedman concluded, "We are introducing three new businesses this Spring - RH Tableware, RH Objects of Curiosity, and RH Fine Art. RH Tableware and RH Objects of Curiosity will feature their own catalogs, with planned in-home dates in the first quarter of 2013. Many of the products from these new businesses will also be presented in our current galleries and create an opportunity to drive higher productivity in our existing retail square footage. RH Fine Art will launch with an innovative Art Journal, a dynamic new website, and a dramatic art gallery in New York in the first half of 2013. We believe this new venture into the world of fine art will render the RH brand more valuable and reinforce our luxury lifestyle positioning."

Third Quarter Fiscal 2012 Financial Results

Revenue - Net revenues for the third quarter ended October 27, 2012 increased 22% to $284.2 million from $232.5 million in the third quarter ended October 29, 2011. This is on top of 25% year-over-year growth in net revenues for the third quarter of fiscal 2011.

  • Comparable store sales increased 29% for the third quarter of fiscal 2012. This growth compares to an increase of 36% in comparable store sales for the third quarter of fiscal 2011.
  • As of October 27, 2012, the Company operated a total of 73 retail stores, consisting of 71 Galleries and 2 full line Design Galleries, as well as 12 outlet stores throughout the United States and Canada. This compares to a total of 84 retail stores, consisting of 83 Galleries and 1 full line Design Gallery, and 10 outlet stores operated at the end of the third quarter of fiscal 2011.
  • Direct sales increased 24% to $125.0 million for the third quarter of fiscal 2012. This growth is on top of the 17% year-over-year growth in direct sales for the third quarter of fiscal 2011.

EBITDA* - Adjusted EBITDA for the third quarter of fiscal 2012 increased 17% to $13.0 million compared to adjusted EBITDA of $11.1 million in the third quarter of fiscal 2011. EBITDA for the quarter was $8.6 million compared to EBITDA of $3.3 million for the prior year fiscal quarter.

Net Income (Loss)* - Adjusted net income increased 147% to $2.7 million in the third quarter of fiscal 2012 from $1.1 million in the third quarter of fiscal 2011. GAAP net income increased to $1.7 million from a GAAP net loss of $4.8 million in the third quarter of fiscal 2011.

Earnings Per Share* - Adjusted diluted EPS was $0.07 for the third quarter of fiscal 2012. Shares used to calculate adjusted diluted EPS reflect the Company's post-initial public offering capital structure. GAAP diluted EPS of $16,850 is not a meaningful number as it is based on a limited number of shares outstanding and does not include the impact of the initial public offering (IPO) or the reorganization of the Company's capital structure in connection with the IPO.

Nine Month Period Financial Highlights

Revenue - Net revenues for the nine months ended October 27, 2012 increased 22% to $795.0 million from $652.8 million in the nine-month period ended October 29, 2011. This is on top of 26% year-over-year growth in net revenues for the nine-month period ended October 29, 2011.

  • Comparable store sales grew 29% during the first nine months of fiscal 2012. This is on top of 25% growth in comparable store sales for the first nine months of fiscal 2011.
  • Direct sales increased 25% to $361.9 million for first nine months of fiscal 2012. This growth is on top of the 29% year-over-year growth in direct sales for the first nine months of fiscal 2011.

EBITDA* - Adjusted EBITDA for the nine-month period increased 23% to $47.9 million compared to adjusted EBITDA of $38.8 million in the same period last year. Including the impact of unusual and non-recurring items, year-to-date EBITDA was $39.0 million compared to EBITDA of $22.3 million for the prior year period.

Net Income (Loss)* - Adjusted net income for the nine-month period increased over 95% to $13.6 million from $7.0 million in the prior year period. GAAP net income for the nine-month period increased to $15.6 million from a GAAP net loss of $3.5 million for the first nine months of fiscal 2011.

Earnings Per Share* - Year-to-date adjusted diluted EPS was $0.37. Shares used to calculate adjusted diluted EPS reflect the Company's post-initial public offering capital structure. GAAP diluted EPS of $155,730 for the nine months of fiscal 2012 is not a meaningful number as it is based on a limited number of shares outstanding and does not include the impact of the IPO or the reorganization of the Company's capital structure in connection with the IPO.

Conference Call and Webcast Information

Restoration Hardware will host a conference call at 2:00 p.m. PT (5:00 p.m. ET) today to discuss the third quarter results. Interested parties may access the call by dialing (800) 591-6942 (United States/Canada) or (617) 614-4909 (International), passcode 60161827. A live broadcast of Restoration Hardware's quarterly conference call and an accompanying slide presentation will also be available online at the Company's website www.restorationhardware.com under Investor Relations. A replay of the conference call will be available through December 26, 2012, by dialing (888) 286-8010 and entering passcode 97385222 and on the Company's investor relations website.

About Restoration Hardware

Restoration Hardware is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as Baby & Child products. Restoration Hardware operates an integrated business across multiple channels of distribution including galleries, catalogs and websites.

*Non-GAAP Financial Measures

To supplement its 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 EBITDA, adjusted net income, pro forma EPS and adjusted EPS (collectively the "non-GAAP financial measures"). 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 measures used by the Company in this press release may be different from the methods 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 have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws including statements related to the performance of our full line Design Gallery concept, our rates of sales and comparable store sales growth, our ability to gain market share, potential new markets for our store presence, customer acceptance of our product offering, the timing and manner of introduction of new product categories and anticipated timing of the opening of new full line Design Galleries. 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, changes in customer demand for our products, risks related to the number of new business initiatives we are undertaking and risks in the implementation or our real estate portfolio transformation, 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' final prospectus filed with the Securities and Exchange Commission on November 5, 2012 and 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.

 
 
RESTORATION HARDWARE HOLDINGS, INC.
FINANCIAL STATEMENTS, OPERATING STATS, AND RECONCILIATION TABLES
       
TABLE OF CONTENTS
 
 
Page 6. Condensed Consolidated Statements of Operations
 
Page 7. Condensed Consolidated Balance Sheets
 
Page 8. Condensed Consolidated Statements of Cash Flows
 
Page 9. Operating Metrics and Other Data
 
Page 10. Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
 
Page 11. Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income
 
Page 12. Reconciliation of Pro Forma Net Income Per Share to Adjusted Net Income Per Share
 
 
 
 
RESTORATION HARDWARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
                         
Three Months Ended Nine Months Ended

October 27,
2012

% of Net Revenues

October 29,
2011

% of Net Revenues

October 27,
2012

% of Net Revenues

October 29,
2011

% of Net Revenues
Net revenues $ 284,171 100.0 % $ 232,459 100.0 % $ 794,991 100.0 % $ 652,842 100.0 %
Cost of goods sold   182,291   64.1 %   148,066   63.7 %   503,716   63.4 %   414,019   63.4 %
Gross profit 101,880 35.9 % 84,393 36.3 % 291,275 36.6 % 238,823 36.6 %
Selling, general and administrative expenses   99,886   35.2 %   88,496   38.1 %   271,716   34.1 %   238,891   36.6 %
Income (loss) from operations 1,994 0.7 % (4,103 ) -1.8 % 19,559 2.5 % (68 ) 0.0 %
Interest expense   (1,544 ) -0.5 %   (1,598 ) -0.7 %   (4,598 ) -0.6 %   (3,486 ) -0.5 %
Income (loss) before income taxes 450 0.2 % (5,701 ) -2.5 % 14,961 1.9 % (3,554 ) -0.5 %
Income tax benefit   (1,235 ) -0.4 %   (871 ) -0.4 %   (612 ) -0.1 %     (88 ) 0.0 %
Net income (loss) $ 1,685   0.6 % $ (4,830 ) -2.1 % $ 15,573   2.0 %     $ (3,466 ) -0.5 %
 
Adjusted EBITDA [a] $ 12,973 4.6 % $ 11,102 4.8 % $ 47,870 6.0 % $ 38,849 6.0 %
 
Shares used in computing basic and diluted net income (loss) per share 100 100 100 100
Basic and diluted net income (loss) per share $ 16,850 $ (48,300 ) $ 155,730 $ (34,660 )
 
Pro forma shares used in computing basic and diluted net income (loss) per share [b] 32,188,891 32,188,891
Pro forma basic and diluted net income (loss) per share $ 0.05 $ 0.48
 
Adjusted net income [c] $ 2,662 $ 13,582
Adjusted shares used in computing adjusted basic and diluted net income (loss) per share 36,971,500 36,971,500
Adjusted basic and diluted net income per share [d] $ 0.07 $ 0.37
 
 
Notes:
[a] EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, Generally Accepted Accounting Principles (GAAP). We define EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items including non-cash or other items that we do not consider representative of our ongoing financial performance. EBITDA and Adjusted EBITDA are included in this press release because they are key metrics used by management, our Board of Directors and our principal shareholders to assess our financial performance, and Adjusted EBITDA is used in connection with determining incentive compensation under our Management Incentive Program (MIP). Additionally, EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use EBITDA and Adjusted EBITDA, alongside other GAAP measures such as gross profit, operating income (loss) and net income (loss), to measure profitability, as a key profitability target in our annual and other budgets, and to compare our performance against that of peer companies. We believe that Adjusted EBITDA provides useful information facilitating operating performance comparisons from period to period and company to company. Please see the table titled "Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA" for further information.
[b] On a GAAP basis, the Company reported 100 basic and diluted shares outstanding. On a pro forma basis, basic and diluted shares outstanding include the impact of the Company's "reorganization", as further described in the Company's final prospectus filed with the Securities and Exchange Commission on November 5, 2012. As a result of the reorganization, and before giving effect to the Company's initial public offering, 32,188,891 vested shares of our common stock were outstanding.
[c] Adjusted net income is used in calculating our adjusted basic and diluted net income per share and excludes the impact of certain unusual and non-recurring items. See table titled "Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income" for additional details.

[d] Adjusted basic and diluted net income per share is calculated based on dividing adjusted net income by 36,971,500 diluted shares. Such adjusted shares include the 32,188,891 shares in [b] as well as the 4,782,609 shares of common stock that the Company issued and sold on November 7, 2012 in its initial public offering.

 

6

               
 
RESTORATION HARDWARE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
October 27, January 28,
2012 2012
 
ASSETS
Cash and cash equivalents $ 15,568 $ 8,511
Merchandise inventories 333,825

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