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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

Business Wire

CORTE MADERA, Calif. -- December 12, 2012

Restoration Hardware Holdings, Inc. (NYSE: 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,       % of Net   October 29,    % of Net   October 27,       % of Net    October 29,    % of Net
                        2012              Revenues   2011           Revenues   2012              Revenues    2011           Revenues
Net                     $ 284,171         100.0 %    $ 232,459      100.0 %    $ 794,991         100.0 %     $ 652,842      100.0  %
revenues
Cost of                  182,291        64.1  %     148,066     63.7  %     503,716        63.4  %      414,019     63.4   %
goods sold
Gross                     101,880         35.9  %      84,393       36.3  %      291,275         36.6  %       238,823      36.6   %
profit
Selling, general
and administrative       99,886         35.2  %     88,496      38.1  %     271,716        34.1  %      238,891     36.6   %
expenses
Income
(loss)                    1,994           0.7   %      (4,103  )    -1.8  %      19,559          2.5   %       (68     )    0.0    %
from
operations
Interest                 (1,544     )    -0.5  %     (1,598  )    -0.7  %     (4,598     )    -0.6  %      (3,486  )    -0.5   %
expense
Income (loss)             450             0.2   %      (5,701  )    -2.5  %      14,961          1.9   %       (3,554  )    -0.5   %
before income taxes
Income tax               (1,235     )    -0.4  %     (871    )    -0.4  %     (612       )    -0.1  %     (88     )    0.0    %
benefit
Net income              $ 1,685          0.6   %    $ (4,830  )    -2.1  %    $ 15,573         2.0   %   $ (3,466  )    -0.5   %
(loss)
                                                                                                                            
Adjusted
EBITDA                  $ 12,973          4.6   %    $ 11,102       4.8   %    $ 47,870          6.0   %     $ 38,849       6.0    %
^[a]
                                                                                                                            
Shares used in
computing basic and       100                          100                       100                           100
diluted net income
(loss) per share
Basic and diluted
net income (loss)       $ 16,850                     $ (48,300 )               $ 155,730                     $ (34,660 )
per share
                                                                                                                            
Pro forma shares
used in computing
basic and diluted         32,188,891                                             32,188,891
net income (loss)
per share ^[b]
Pro forma basic and
diluted net income      $ 0.05                                                 $ 0.48
(loss) per share
                                                                                                                            
Adjusted
net income              $ 2,662                                                $ 13,582
^[c]
Adjusted shares
used in computing
adjusted basic and        36,971,500                                             36,971,500
diluted net income
(loss) per share
Adjusted basic and
diluted net income      $ 0.07                                                 $ 0.37
per share ^[d]
                                                                                                                            
                                                                                                                            
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           245,876
  Other current assets                             110,952          68,490
  Total current assets                              460,345           322,877
  Property and equipment—net                        93,663            83,558
  Goodwill and other intangibles                    173,509           175,121
  Other assets                                     14,715           5,253
  Total assets                                   $  742,232        $  586,809
                                                                   
LIABILITIES AND STOCKHOLDERS’ EQUITY
  Accounts payable and accrued expenses          $  156,382        $  105,694
  Other current liabilities                        73,203           56,280
  Total current liabilities                         229,585           161,974
  Revolving line of credit and term loan            187,529           122,300
  Other long term liabilities                      57,880           52,073
  Total liabilities                                474,994          336,347
Stockholders’ equity                               267,238          250,462
  Total liabilities and stockholders’            $  742,232        $  586,809
  equity
                                                                   
  7

                                                          
                                                                  
RESTORATION HARDWARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                                               Nine Months Ended
                                               October 27,        October 29,
                                               2012               2011
                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                              $ 15,573           $ (3,466   )
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization                    19,485             22,356
Stock-based compensation expense and             1,102              7,563
other non-cash compensation
Other non-cash items                             212                1,080
Change in assets and liabilities:
Merchandise inventories                          (87,933  )         (73,089  )
Accounts payable, accrued expenses,             31,543           (2,768   )
and other
Net cash used in operating activities           (20,018  )        (48,324  )
                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                             (25,631  )         (19,837  )
Purchase of domain name                         (310     )        —        
Net cash used in investing activities           (25,941  )        (19,837  )
                                                                  
CASH FLOWS FROM FINANCING ACTIVITIES
Gross borrowings under line of credit            910,551            759,575
Gross repayments under line of credit            (845,357 )         (689,354 )
Debt issuance costs                              —                  (2,516   )
Payments on capital leases                       (3,088   )         (3,073   )
Capitalized initial public offering             (9,118   )        —        
costs
Net cash provided by financing                  52,988           64,632   
activities
Effects of foreign currency exchange            28               124      
rate translation
Net increase (decrease) in cash and              7,057              (3,405   )
cash equivalents
Cash and cash equivalents
Beginning of period                             8,511            13,364   
End of period                                  $ 15,568          $ 9,959    
                                                                  
8

                                                             
                                                                    
RESTORATION HARDWARE HOLDINGS, INC.
OPERATING METRICS AND OTHER DATA
(Unaudited)
                                                                    
                       Three Months Ended              Nine Months Ended
                       October 27,      October 29,    October      October
                                                       27,          29,
                       2012             2011           2012         2011
Growth in
net
revenues:
Stores ^(a)               21      %        32     %      19     %     25     %
Direct                    24      %        17     %      25     %     29     %
Total                     22      %        25     %      22     %     26     %
Retail ^(b):
Comparable
store sales               29      %        36     %      29     %     25     %
change ^(c)
Retail stores open at     73               87            74           91
beginning of period
Stores                    —                —             3            3
opened
Stores                    —                3             4            10
closed
Retail stores open at     73               84            73           84
end of period
Retail sales per
selling square foot    $  282           $  210         $ 763        $ 560
^(d)
                                                                             
Total gross square
footage at end of         792              896           792          896
period (in thousands)
                                                                             
Total selling square
footage at end of         516              570           516          570
period (in thousands)
Direct:
Catalogs circulated       11,721           8,356         26,851       21,079
(in thousands) ^(e)
Catalog pages
circulated (in            7,944            4,832         15,360       8,121
millions) ^(e)
Direct as a percentage    44      %        43     %      46     %     44     %
of net revenues ^(f)
                                                                    
                                                                    
Notes:
[a] Store data represent retail stores plus outlet stores. Net revenues for
outlet stores for the three months ended October 27, 2012 and October 29, 2011
were $13.9 million and $10.7 million, respectively. Net revenues for outlet
stores for the nine months ended October 27, 2012 and October 29, 2011 were
$38.2 million and $31.2 million, respectively.
[b] Retail data have been calculated based upon retail stores, which include
our Baby & Child stores, and exclude outlet stores.
[c] Comparable store sales have been calculated based upon retail stores that
were open at least fourteen full months as of the end of the reporting period
and did not change square footage by more than 20% between periods. Comparable
store net revenues exclude revenues from outlet stores.
[d] Retail sales per selling square foot is calculated by dividing total net
revenues for all retail stores, comparable and non-comparable, by the average
selling square footage for the period.
[e] The catalogs and catalog pages circulated from period to period do not
take into account different page sizes per catalog distributed. Page sizes and
page counts vary for different catalog mailings and we sometimes mail
different versions of a catalog at the same time. Accordingly, period to
period comparisons of catalogs circulated and catalog pages circulated do not
take these variations into account.
[f] Direct revenues include sales through our catalogs and websites.
                                                                    
9

                 
                                                                    
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(In thousands)
(Unaudited)
                                                                    
                                                                    
                       Three Months Ended            Nine Months Ended
                       October 27,    October 29,    October 27,    October
                                                                    29,
                       2012           2011           2012           2011
Net income             $  1,685       $  (4,830  )   $  15,573      $ (3,466 )
(loss)
Depreciation and          6,593          7,373          19,485        22,356
amortization
Interest                  1,544          1,598          4,598         3,486
expense
Income tax               (1,235  )     (871    )     (612    )    (88    )
benefit
EBITDA [a]                8,587          3,270          39,044        22,288
Management and pre-IPO    1,198          1,149          3,285         3,545
board fees ^[b]
Non-cash compensation     364            6,687          1,102         7,563
^[c]
Terminated operations     —              14             —             1,680
^[d]
Severance and other       —              443            —             471
transaction costs ^[e]
Lease termination         —              (461    )      (386    )     3,110
costs ^[f]
Special committee
investigation and         2,789          -              4,778         —
remediation ^[g]
Other ^[h]               35           -            47          192    
Adjusted               $  12,973     $  11,102     $  47,870     $ 38,849 
EBITDA [a]
                                                                    
                                                                    
Notes:
[a] EBITDA and Adjusted EBITDA are supplemental measures of financial
performance that are not required by, or presented in accordance with 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 believe that
Adjusted EBITDA provides useful information facilitating operating performance
comparisons from period to period and company to company. EBITDA and Adjusted
EBITDA are not GAAP measures of our financial performance or liquidity and
should not be considered as alternatives to net income (loss), as a measure of
financial performance, cash flows from operating activities, as a measure of
liquidity, or any other performance measure derived in accordance with GAAP
and they should not be construed as an implication that our future results
will be unaffected by unusual or non-recurring items. Our measures of EBITDA
and Adjusted EBITDA are not necessarily comparable to other similarly titled
captions for other companies due to different methods of calculation.
[b] Includes fees and expenses paid in accordance with our management services
agreement with Home Holdings, as well as fees and expense reimbursements paid
to our Board of Directors prior to the IPO.
[c] The Company excludes non-cash compensation because it is non-cash in
nature and because the Company believes that the non-GAAP financial measures
excluding this item provide meaningful supplemental information regarding
operational performance and liquidity. The Company further believes this
measure is useful to investors in that it allows for greater transparency to
certain line items in its financial statements and facilitates comparison to
competitors' operating results. The three and nine months ended October 29,
2011 include a $6.4 million non-cash compensation charge related to the
repayment of loans owed to Home Holdings by our former Chairman and Co-Chief
Executive Officer, Gary Friedman, through the reclassification by Home
Holdings of Mr. Friedman’s Class A and Class A-1 ownership units into an equal
number of Class A Prime and Class A-1 Prime ownership units. Mr. Friedman
served as our Chairman and Co-Chief Executive Officer at the time of such loan
repayment.
[d] Includes costs related to the restructuring of our Shanghai office
location.
[e] Amounts include executive severance and other related costs.
[f] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the nine months
ended October 27, 2012 and three months ended October 29, 2011 relate to
changes in estimates regarding liabilities for future lease payments for
closed stores.
[g] Represents legal and other professional fees, incurred in connection with
the investigation conducted by the special committee of the Board of Directors
relating to our former Chairman and Co-Chief Executive Officer and our
subsequent remedial actions.
[h] Represents certain other items which management believes are not
indicative of our ongoing operating performance. The nine months ended October
29, 2011 include consulting fees related to organizational matters and state
franchise tax amounts. All periods include foreign exchange gains and losses.
                                                                    
10

                      
                                                                    
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED NET INCOME
(In thousands)
(Unaudited)
                                                                    
                                                                    
                            Three Months Ended         Nine Months Ended
                            October 27,    October 29, October 27,  October
                                                                    29,
                            2012           2011        2012        2011
GAAP net income             $  1,685      $ (4,830 )  $ 15,573    $ (3,466 )
(loss)
Adjustments
(pre-tax):
Management and
pre-IPO board               $  1,198       $ 1,149     $ 3,285      $ 3,545
fees ^[a]
Non-cash
compensation                   —             6,350       —            6,350
^[b]
Terminated                     —             14          —            1,680
operations ^[c]
Severance and
other                          —             443         —            471
transaction
costs ^[d]
Lease
termination                    —             (461   )    (386   )     3,110
costs ^[e]
Special
committee
investigation                 2,789       -         4,778      —      
and remediation
^[f]
Subtotal                       3,987         7,495       7,677        15,156
adjusted items
Impact of
income tax                    (3,010  )    (1,589 )   (9,668 )    (4,729 )
items ^[g]
Adjusted net                $  2,662      $ 1,076    $ 13,582    $ 6,961  
income ^[h]
                                                                    
                                                                    
Notes:
[a] Represents fees paid in accordance with our management services agreement
with Home Holdings, as well as fees and expense reimbursements paid to our
Board of Directors prior to the IPO.
[b] Amount relates to a $6.4 million compensation charge related to the
repayment of loans owed to Home Holdings by our former Chairman and Co-Chief
Executive Officer, Gary Friedman, through the reclassification by Home
Holdings of Mr. Friedman’s Class A and Class A-1 ownership units into an equal
number of Class A Prime and Class A-1 Prime ownership units. Mr. Friedman
served as our Chairman and Co-Chief Executive Officer at the time of such loan
repayment.
[c] Represents costs related to the restructuring of our Shanghai office
location.
[d] Amounts include executive severance and other related costs.
[e] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the nine months
ended October 27, 2012 and three months ended October 29, 2011 relate to
changes in estimates regarding liabilities for future lease payments for
closed stores.
[f] Represents legal and other professional fees, incurred in connection with
the investigation conducted by the special committee of the Board of Directors
relating to our former Chairman and Co-Chief Executive Officer and our
subsequent remedial actions.
[g] Income tax items exclude the tax benefit related to the resolution of our
Canadian Revenue Agency examination in the three months and nine months ended
October 27, 2012, exclude the tax benefit from the utilization of federal and
state net operating losses, and assume a normalized tax rate of 40% for all
periods presented.
[h] Adjusted net income is a supplemental measure of financial performance
that is not required by, or presented in accordance with GAAP. Adjusted net
income is a supplemental measure of financial performance that is not required
by, or presented in accordance with GAAP. We define adjusted net income as
consolidated net income (loss) less unusual and non-recurring items. Adjusted
net income is included in this press release because management believes that
adjusted net income provides meaningful supplemental information for investors
regarding the performance of our business and facilitates a meaningful
evaluation of actual results on a comparable basis with historical results.
Our management uses this non-GAAP financial measure in order to have
comparable financial results to analyze changes in our underlying business
from quarter to quarter.
                                                                    
11

                                                          
                                                                 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF PRO FORMA NET INCOME PER SHARE TO
ADJUSTED NET INCOME PER SHARE
(Unaudited)
                                                                 
                                                                 
                                             Three Months        Nine Months
                                             Ended               Ended
                                             October 27,         October 27,
                                             2012                2012
Pro forma diluted net income per share       $   0.05           $   0.48   
(pre-IPO share count of 32,188,891) ^[a]
                                                                 
Pro forma diluted net income per share       $   0.05            $   0.42
(post-IPO share count of 36,971,500) ^[b]
                                                                 
EPS impact of
adjustments
(pre-tax):
Management and pre-IPO board fees ^[c]       $   0.03            $   0.09
Lease termination                                -                   (0.01  )
costs ^[d]
Special committee investigation and             0.07              0.13   
remediation ^[e]
Subtotal adjusted                                0.10                0.21
items
Impact of income tax                            (0.08   )          (0.26  )
items ^[f]
Adjusted diluted net income per share        $   0.07           $   0.37   
(post-IPO share count of 36,971,500)^[g,h]
                                                                 
                                                                 
Notes:
[a] Pro forma diluted net income per share is calculated based on GAAP net
income and the Company's vested share count prior to November 7, 2012 initial
public offering. See table titled "Reconciliation of GAAP Net Income (Loss) to
Adjusted Net Income" for pro forma net income calculation.
[b] Pro forma diluted net income per share is calculated based on GAAP net
income and the Company's share count after the November 7, 2012 initial public
offering. See table titled "Reconciliation of GAAP Net Income (Loss) to
Adjusted Net Income" for pro forma net income calculation.
[c] Represents fees and expenses paid in accordance with our management
services agreement with Home Holdings, as well as fees and expense
reimbursements paid to our Board of Directors prior to the IPO.
[d] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the nine months
ended October 27, 2012 and three months ended October 29, 2011 relate to
changes in estimates regarding liabilities for future lease payments for
closed stores.
[e] Represents legal and other professional fees, incurred in connection with
the investigation conducted by the special committee of the Board of Directors
relating to our former Chairman and Co-Chief Executive Officer and our
subsequent remedial actions.
[f] Income tax items adjust pro forma net income to 1) exclude the tax benefit
related to the resolution of our Canadian Revenue Agency examination in the
three months and nine months ended October 27, 2012, 2) exclude the tax
benefit from the utilization of federal and state net operating losses, and 3)
assume a normalized tax rate of 40% for all periods presented.
[g] Adjusted diluted net income per share includes the 4,782,609 shares of
common stock that the Company issued and sold on November 7, 2012 in its
initial public offering.
[h] Adjusted diluted net income per share is a supplemental measure of
financial performance that is not required by, or presented in accordance with
GAAP. We define adjusted net income per share as consolidated net income
(loss) less unusual and non-recurring items divided by the Company’s
post-initial public offering share count. Adjusted net income per share is
included in this press release because management believes that adjusted net
income per share provides meaningful supplemental information for investors
regarding the performance of our business and facilitates a meaningful
evaluation of actual results on a comparable basis with historical results.
Our management uses this non-GAAP financial measure in order to have
comparable financial results to analyze changes in our underlying business
from quarter to quarter.
                                                                 
12

Contact:

Restoration Hardware Holdings, Inc.
Cammeron McLaughlin, 415-945-4998
VP, Investor Relations
cmclaughlin@restorationhardware.com
 
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