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Restoration profits slump 18 percent

With margins thinning out and costs rising, fourth-quarter profits at Restoration Hardware Inc. fell by 18.7 percent, to $7.9 million from $9.7 million last year.

Acting as a drag were lower-than-expected holiday sales and higher markdowns to clear the shelves of holiday merchandise, the retailer said.

Helped by a surging catalog and Internet business, overall sales increased by 6.3 percent, to $165 million from $155.2 million.

In a big lift to the top line, direct-to-consumer sales shot up by 50.8 percent, to $26.6 million from $17.6 million last year. The company's store sales were relatively flat, however, edging up just 0.6 percent, to $138.4 million from $137.6 million. Same-store sales decreased by 0.7 percent.

Gary Friedman, president and CEO, commented, "While holiday sales in seasonal items were disappointing, our January 2004 comparable-store sales increase of 23 percent and direct-to-customer division growth of 51 percent in the fourth quarter demonstrate the underlying strength of our core businesses."

Restoration Hardware Inc.

Qtr. 1/31 (x000) 2003 2002 % chg
(...) - denotes decline
a-12-month results include an income-tax benefit of $1.8 million, compared with $8.5 million a year ago. Prior-year results include a charge of $289,000 stemming from a change in the fair value of warrants; and a preferred shareholder dividend of $358,000.
Sales $164,955 $155,167 6.3
Oper. income (EBIT) 13,791 15,665 -12.0
Net income 7,892 9,710 -18.7
Per share (diluted) 0.21 0.26 -19.2
Average gross margin 35.8% 36.7%
SG&A expenses 27.4% 26.6%
52 weeks 2003 2002 % chg
Sales 438,508 400,337 9.5
Oper. income (EBIT) (2,590) (9,025)
Net income (2,941)a (3,603)a
Per share (diluted) (0.10) (0.13)
Average gross margin 30.2% 29.3
SG&A expenses 30.8% 31.5%


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