— Furniture Today,
CORTE MADERA, Calif. (PR) — Restoration Hardware said net revenue for the second quarter rose 24%, to $179.3 million, compared to $144.8 million for the same period last year.


Comparable store sales increased 4.3% for the second quarter over a 5.6% increase for the same period last year. Direct-to-customer revenue increased 58% to $67.9 million in the second quarter compared to a 50% increase in the same period last year.

Income from operations improved to $2.1 million for the second quarter compared to a loss from operations of $3.2 million for the same period last year.  The current year income from operations included a $0.7 million non-cash charge associated with the expensing of stock options resulting from the adoption of SFAS 123R and a $0.6 million non-cash, stock-based compensation charge relating to the Company’s voluntary review of its stock option practices (as discussed further below).

Net income for the second quarter was $0.2 million, inclusive of the $0.7 million non-cash charge associated with the expensing of stock options required under SFAS 123R and the $0.6 million non-cash, stock- based compensation charge.  The fiscal 2013 second quarter results did not include a federal income tax provision due to U.S. losses incurred for the year-to-date period and the valuation allowance against the Company’s net deferred tax asset.  In the same period last year, the net loss was $2.5 million inclusive of a net $1.5 million tax benefit.

Diluted net income per share in the second quarter was $0.01.  The net income includes a non-cash charge of $0.02 per share associated with the expensing of stock options required under SFAS 123R and $0.01 per share related to the non-cash, stock-based compensation charge.   In the same period last year, there was a net loss per share of $0.07 per share, inclusive of recording a tax benefit of $0.05 per share.

Inventory was $181.2 million at the end of the second quarter compared to $137.0 million in the same period last year due to planned growth and acceleration of in-transit orders for the third quarter as part of our efforts to improve in-stock positions for seasonal transitions.

“We are proud to announce that for the first time in the Company’s history, we were profitable outside of the fourth quarter,” said Gary Friedman, president, CEO and chairman. “This milestone, and the strong customer response to our product offerings, validates our work to position Restoration Hardware as the premium home furnishings brand in the marketplace.”

Friedman continued: “Results were driven by total revenue growth of 24%, coupled with significantly improved product margins in both our retail and direct channels despite a difficult retail home furnishings environment. Comparable store sales growth was 4.3% on a top of a 5.6% increase in the second quarter last year. Direct revenues increased 58% on top of a 50% increase last year, and a 103% increase in 2004. While we are pleased with our second quarter results, we are even more excited about the opportunities ahead of us as we launch two new growth initiatives in the second half of the year.”

“Brocade Home, our new brand with decidedly feminine appeal, will launch with an innovative home catalog this September. While our initial launch this fall is small in scope, we expect to develop a multi-channel retailing platform over the next several years. Customers can preview the brand and request a catalog through the website: www.brocadehome.com .”

“In addition, we will introduce our second category extension this holiday, the Restoration Hardware Gift Catalog. Supported by a unique assortment and fresh merchandising approach, the Gift Catalog, as well as a supporting web experience, will be an important addition to our holiday business.”

He concluded: “Given the strength of our second quarter, and plans for holiday, we are raising our fiscal year 2013 guidance and now expect operating margins of 1.7% to 2.2%, inclusive of the estimated impact of adopting SFAS 123R and the stock-based compensation charge. In the third quarter, we expect retail comparable store sales to increase in the mid single-digits and direct to customer sales to increase 30 to 35%.”

Results of Stock Option Review

The company also announced that it has completed a voluntary review of stock option practices that was overseen by the Audit Committee of the Company’s Board of Directors with the assistance of outside legal counsel. The company has determined that it used incorrect measurement dates with respect to the accounting for certain previously granted stock options, primarily during the years 2002 through 2004 as a result of lapses in documentation and deficiencies in option plan administration controls.

The cumulative impact of the errors resulted in additional non-cash compensation of $0.6 million. The cumulative charge was reported in the current period since the amount of the stock option compensation expense attributable to each of the previous periods was not material to any previously reported historical period and is not expected to be material to the current fiscal year.

The company provides the following guidance for the third quarter 2013:

* Total revenue growth of 17 to 20%.
* Increase in comparable store sales of mid single digits.
* Direct to customer revenue increase of approximately 30 to 35%.
* Loss from operations between $3.0 and $5.5 million, which includes a charge of approximately $0.9 million attributable to the adoption of SFAS 123R.  Loss from operations in the third quarter of fiscal 2012 was $5.9 million.
* The weighted average share count is estimated at approximately
38 million
* shares, which is the same as the third quarter of last year.
* Quarter-end inventory increase of approximately 25 to 30% from the third quarter last year due to the planned acceleration of holiday receipts.
* Due to the valuation allowance provided against the Company’s net deferred tax assets, income tax benefits or expense will be negligible in the third quarter.
* Loss per share will be in the range of $(0.13) to $(0.19) per share, which includes a charge of approximately $0.02 per share attributable to the adoption of SFAS 123R.  Fiscal 2012 third quarter loss per share was $(0.11) per share and included a tax benefit of $0.08 per share.

The company provides the following guidance for the full year 2013:
* Total revenue growth of 19 to 23%.
* Increase in comparable store sales of mid single digits.
* Direct to customer revenue increase of 40 to 45%.
* Operating margins of 1.7 to 2.2%, which includes a charge of approximately $3.5 million, or 0.5% of net revenue, attributable to the adoption of SFAS 123R, and $0.6 million, or 0.1% of net revenue, attributable to the stock-based compensation charge.
* The weighted average diluted share count estimated at approximately 39.5 million.
* Year-end inventory increase of 10% to 15% over 2012.
* Income tax expense for the year will be approximately $1.0 million.