Restoration Hardware Progresses in Repositioning Brand

Michele SanFilippo, Staff Staff, November 29, 2004

Corte Madera, Calif. — In ongoing efforts to reposition its brand, Restoration Hardware achieved significant progress in the third quarter with an 8.7 percent increase in comparable-store sales, a 23 percent increase in net revenue to $118.2 million and a 78 percent increase in direct-to-customer net revenue.

In a third-quarter conference call, company president and CEO Gary Friedman stated, “Our efforts to reposition the Restoration Hardware brand continue to resonate with our customers as we generated another quarter of strong comparable-store performance and direct-to-customer growth.”

The company also launched a revamped larger catalog in August to communicate brand repositioning and differentiation.

He added that the quarter's comp-store sales increase on top of increases in the two years prior represents compounded comp-store sales growth of 29 percent since the launch of its revised merchandising strategy. Friedman said, “These results clearly demonstrate the company's ability to gain market share even during a difficult economic environment.”

The company continues to seek strength in areas it is currently merchandising — textiles, bath, hardware and furniture — in order to build a competitive barrier against other retailers. “We need to become more dominant and authoritative in the areas we are already in before we enter into new businesses, such as tabletop, for example,” Friedman explained, adding that current categories tend to be less seasonal and offer higher margins.

Friedman said, “Although pleased with our overall sales performance and product margin expansion in the third quarter, we experienced higher than anticipated advertising, distribution and compliance costs, which resulted in flat earnings per share for the quarter compared to last year. While making progress in improving execution in our distribution centers, identifying optimum catalog circulation strategies and improving internal controls, these items negatively impacted earnings in the quarter by approximately 5 to 6 cents per share.”

During the quarter, the company continued to make investments in its supply chain and distribution center operations. It hired a new chief operating officer and a senior vice president of supply chain operations.

In addition, the company has employed the services of outside consultants to manage its East and West coast distribution centers and related transportation network since the first quarter of 2004.

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