Restoration's sales spike cuts losses

A strong gain in sales helped Restoration Hardware Inc. slash its third-quarter losses. The home furnishings specialty retailer posted a loss of slightly more than $2.4 million, a significant improvement over the $8.3 million net loss from the third quarter of one year ago.

Restoration Hardware reported a sales increase of more than 20 percent for the quarter just ended, reaching $90.7 million. Same-store sales for the quarter increased by an impressive 14.8 percent, and direct-to-customer sales (catalog and Internet) jumped by 66.0 percent. Gary Friedman, president and ceo, termed these growth rates "among the best in the industry despite a difficult economic environment.

"Clearly, the numbers this quarter demonstrates that our strategy to reposition the Restoration Hardware brand and return the company to profitability is working," Friedman said.

Along with the sales increase, Restoration Hardware closed in on the black in the third quarter by improving its expense picture. Its ratio of selling, general and administrative expenses to sales fell by 160 basis points, to 33.1 percent in the third quarter. Average gross margin ballooned by 1,170 basis points, to 29.8 percent.

Its third-quarter performance has given Restoration Hardware plenty of reason for optimism. "On the basis of the third quarter and current trends, we are forecasting net sales for the fourth quarter to increase approximately 12 percent to 14 percent over the same period a year ago," said Kevin Shahan, the company's cfo. "Comparable-store sales for the nine-week November to December holiday period are forecast to be in the mid- to high single-digit range, with comparable-store sales for the quarter in the high single digits to low double digits."

Friedman added, "We are encouraged by the early response to our holiday offer. Our stores, catalogues and website are merchandised with compelling products reflecting Restoration Hardware's authentic American point of view. We've centered our assortment around family traditions such as tree decorating, game night, stocking stuffers and unique gift ideas with a touch of nostalgia, which we believe reflect the current trends in our country."

Restoration Hardware Inc.

11/2/02 (x000) 2002 2001 %chg
( ): loss
Net sales $90,727 $75,504 20.2
Operating income (2,960) (12,503)
Net income (2,428) (8,318)
Per share (0.08) (0.36)
Avg. gross margin 29.8% 18.1%
SG&A %age 33.1% 34.7%
9 months
Net sales 245,123 222,075 10.4
Operating income (24,010) (29,740)
Net income (12,887) (21,523)
Per share (0.45) (1.10)
Avg. gross margin 24.8% 18.9%
SG&A %age 34.6% 32.3%

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