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Restoration Hardware Holdings, Inc. Reports Record Third Quarter Fiscal 2013 Financial Results



  Restoration Hardware Holdings, Inc. Reports Record Third Quarter Fiscal 2013
  Financial Results

  Q3 Net Revenues Increased 39%; Q3 Comparable Store Sales Increased 29%; Q3
                 Adjusted Diluted EPS Increased 357% to $0.32

Company Increases Fiscal 2013 Adjusted Diluted EPS Guidance to $1.71 to $1.74
                   from Previous Guidance of $1.65 to $1.70

Business Wire

CORTE MADERA, Calif. -- December 12, 2013

Restoration Hardware Holdings, Inc. (NYSE: RH) today announced financial
results for the third quarter ended November 2, 2013.

Third Quarter Highlights

  * Net revenues increased 39% on top of a 22% increase for the same period
    last year

       * Comparable store sales increased 29% on top of 29% growth for the
         same period last year
       * Direct revenues increased 47% on top of a 24% increase for the same
         period last year

  * Adjusted operating income increased 299% to $23.9 million from $6.0
    million for the same period last year; GAAP operating income of $23.9
    million compared to $2.0 million for the same period last year
  * Adjusted net income increased 389% to $13.0 million from $2.7 million for
    the same period last year; GAAP net income of $9.5 million compared to
    $1.7 million for the same period last year
  * Adjusted diluted earnings per share increased 357% to $0.32 compared to
    $0.07 last year; GAAP diluted earnings per share of $0.23 during the
    period

Gary Friedman, Chairman and Co-Chief Executive Officer, said, “We are pleased
to report another quarter of record financial results. Our exclusive products,
dominant assortments, taste and style continue to resonate with consumers
across all channels. We delivered 39% growth in total revenues driven by a 47%
increase in direct revenues, and 29% comp store sales growth on top of 29% in
the year ago quarter. We believe that the significant growth in our direct and
total business provides the initial data points demonstrating that the most
recent evolution of our Source Book strategy was a highly profitable decision.
The strong top-line growth coupled with advertising savings and operating
leverage drove a 390 basis point increase in adjusted operating margins and
389% growth in adjusted net income during the quarter while we continued to
invest in our infrastructure and new businesses to support our future growth.”

Mr. Friedman continued, “Based on our strong performance during the third
quarter and continued confidence in the fourth quarter, we are increasing our
fiscal year 2013 guidance.”

Carlos Alberini, Co-Chief Executive Officer, commented, “The transformation of
our real estate continues to be our highest priority and represents a
tremendous opportunity to unlock the value of our dominant assortment. Our
five Full Line Design Galleries continue to exceed our expectations. We remain
on track with our plan to open Full Line Design Galleries in Greenwich, Los
Angeles and Atlanta in 2014 and anticipate opening 10 or more locations per
year beginning in 2015.”

Three Month Period Financial Results

Revenue - Net revenues for the third quarter of fiscal 2013 increased 39% to
$395.8 million from $284.2 million for the third quarter of fiscal 2012. This
is on top of a 22% increase in net revenues for the third quarter of fiscal
2012.

  * Comparable store sales increased 29% for the third quarter of fiscal 2013.
    This growth is on top of an increase of 29% in comparable store sales for
    the third quarter of fiscal 2012.
  * As of November 2, 2013, the Company operated a total of 70 retail stores,
    consisting of 62 Galleries, 5 Full Line Design Galleries and 3 Baby &
    Child Galleries, as well as 17 outlet stores throughout the United States
    and Canada. This compares to a total of 73 retail stores, consisting of 69
    Galleries, 2 Full Line Design Galleries and 2 Baby & Child Galleries, as
    well as 12 outlet stores open at the end of the third quarter of fiscal
    2012.
  * Direct revenues increased 47% in the third quarter of fiscal 2013. This
    growth is on top of the 24% increase in direct revenues for the third
    quarter of fiscal 2012.

Operating Income (Loss)* - Adjusted operating income for the third quarter of
fiscal 2013 increased 299% to $23.9 million compared to $6.0 million for the
third quarter of fiscal 2012. Including the impact of non-recurring and other
items, GAAP operating income for the third quarter of fiscal 2013 was $23.9
million compared to GAAP operating income of $2.0 million for the year ago
period.

EBITDA* - Adjusted EBITDA for the third quarter of fiscal 2013 increased 136%
to $30.6 million compared to adjusted EBITDA of $13.0 million for the third
quarter of fiscal 2012. Including the impact of non-recurring and other items,
EBITDA for the third quarter of fiscal 2013 was $30.6 million compared to $8.6
million for the year ago period.

Net Income (Loss)* - Adjusted net income increased 389% to $13.0 million for
the third quarter of fiscal 2013 from $2.7 million for the third quarter of
fiscal 2012. Adjusted net income is calculated using a 40% effective tax rate.
GAAP net income for the third quarter of fiscal 2013 was $9.5 million compared
to GAAP net income of $1.7 million for the third quarter of fiscal 2012.

Earnings Per Share* - Adjusted diluted EPS increased 357% to $0.32 for the
third quarter of fiscal 2013 from $0.07 for the third quarter of fiscal 2012.
GAAP diluted EPS for the third quarter of fiscal 2013 was $0.23. GAAP diluted
EPS of $1,685 for the third quarter 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 Company’s November 2012 initial public offering (IPO) or the
reorganization of the Company’s capital structure in connection with the IPO.

Nine Month Period Financial Results

Revenue - Net revenues for the nine months ended November 2, 2013 increased
36% to $1.079 billion from $795.0 million for the first nine months of fiscal
2012. This is on top of a 22% increase in net revenues for the first nine
months of fiscal 2012.

  * Comparable store sales increased 31% for the first nine months of fiscal
    2013. This growth compares to an increase of 29% in comparable store sales
    for the first nine months of fiscal 2012.
  * Direct revenues increased 39% in the first nine months of fiscal 2013.
    This growth is on top of the 25% increase in direct revenues for the first
    nine months of fiscal 2012.

Operating Income (Loss)* - Adjusted operating income for the first nine months
of fiscal 2013 increased 130% to $62.6 million compared to $27.2 million in
the first nine months of fiscal 2012. Including the impact of variable and
one-time non-cash stock-based compensation charges, costs related to the
Company’s follow-on offerings and other non-recurring items, GAAP operating
loss was $3.4 million compared to GAAP operating income of $19.6 million for
the year ago period.

EBITDA* - Adjusted EBITDA for the first nine months of fiscal 2013 increased
73% to $82.6 million compared to adjusted EBITDA of $47.9 million for the
first nine months of fiscal 2012. Including the impact of variable and
one-time non-cash stock-based compensation charges, costs related to the
Company’s follow-on offerings and other non-recurring items, EBITDA for the
first nine months of 2013 was $16.6 million compared to $39.0 million for the
prior year period.

Net Income (Loss)* - Adjusted net income increased 158% to $35.1 million for
the first nine months of fiscal 2013 from $13.6 million for the first nine
months of fiscal 2012. GAAP net loss for the first nine months of fiscal 2013
was $8.4 million compared to GAAP net income of $15.6 million for the year ago
period.

Earnings Per Share* - Adjusted diluted EPS increased 135% to $0.87 for the
first nine months of fiscal 2013 from $0.37 for the same period last year.
GAAP diluted EPS during the first nine months of fiscal 2013 was a loss of
$0.22. GAAP diluted EPS of $15,573 for the first 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 Company’s November 2012
initial public offering (IPO) or the reorganization of the Company’s capital
structure in connection with the IPO.

Outlook

The Company is providing the following guidance for the fourth quarter of
fiscal 2013:

  * Net revenues in the range of $490 million to $500 million
  * Adjusted net income in the range of $34.3 million to $35.5 million
  * Adjusted diluted EPS to a range of $0.82 to $0.85
  * Diluted shares outstanding of 41.6 million compared to prior guidance of
    42.2 million diluted shares outstanding

The Company is increasing its guidance for the fiscal year ending February 1,
2014:

  * Net revenues in the range of $1.57 billion to $1.58 billion
  * Adjusted net income in the range of $69.4 million to $70.6 million
  * Adjusted diluted EPS in the range of $1.71 to $1.74
  * Diluted shares outstanding of 40.5 million compared to prior guidance of
    41.7 million diluted shares outstanding

Note: The Company’s adjusted net income and adjusted diluted earnings per
share guidance does not include certain charges and costs such as for unusual
items which are expected to be similar in future periods to the kinds of
charges and costs excluded from adjusted net income and adjusted diluted
earnings in prior quarters. The Company’s fiscal year 2013 will include 52
weeks compared to fiscal year 2012 which included 53 weeks.

Conference Call and Webcast Information

Restoration Hardware Holdings, Inc. 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 (866) 394-6658 (United States/Canada)
or (706) 679-9188 (International). A live broadcast of Restoration Hardware’s
quarterly conference call 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 27 by dialing (855)
859-2056 or (404) 537-3406 and entering passcode 19582570  as well as on the
Company’s investor relations website.

About Restoration Hardware Holdings, Inc.

RH (Restoration Hardware Holdings, Inc. - NYSE:RH) is a curator of design,
taste and style in the luxury lifestyle market. The Company offers collections
through its retail galleries, source books, and online at RH.com.

*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
operating income, adjusted EBITDA, adjusted net income, adjusted EPS, pro
forma EPS and adjusted diluted EPS (collectively, “non-GAAP financial
measures”). We compute these measures by adjusting the applicable GAAP
measures to remove the impact of certain recurring and non-recurring charges
and gains and the tax effect of these adjustments. 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 financial 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 include details on the GAAP financial
measures that are most directly comparable to non-GAAP financial measures and
the related reconciliations between these financial measures. With respect to
the Company’s adjusted net income and adjusted diluted EPS guidance for the
fourth fiscal quarter and the full year of fiscal 2013, the Company is not
able to provide a reconciliation of these non-GAAP financial measures to GAAP
without unreasonable effort as our estimated results are preliminary and may
change as we complete the quarter close process and management’s review of our
financial statements.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the
federal securities laws including statements related to the transformation of
our real estate, the Company’s plans to open Full Line Design Galleries in
Greenwich, Atlanta and Los Angeles in 2014, the Company’s belief that it can
open 10 or more locations a year beginning in 2015, the impact of the
Company’s Source Book strategy on future financial results, and the Company’s
future financial guidance, including for the fourth fiscal quarter of 2013 and
the full year ending February 1, 2014. 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, our ability
to retain key personnel, general economic conditions and the impact on
consumer confidence and spending, changes in customer demand for our products,
our ability to anticipate consumer preferences and buying trends, risks
related to the number of new business initiatives we are undertaking, risks in
the implementation or our real estate portfolio transformation, delays in
store openings, risks related to “conflict minerals” compliance and its impact
on sourcing, if any, 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’ Form 10-K filed with the Securities and Exchange Commission on April
29, 2013, and similar disclosures in subsequent reports filed with the SEC,
which are 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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
                                                                                                                         
                   Three Months Ended                                        Nine Months Ended
                   November 2,      % of Net   October 27,      % of Net     November 2,      % of Net   October 27,      % of Net
                   2013             Revenues   2012             Revenues     2013             Revenues   2012             Revenues
Net revenues       $ 395,832        100.0  %   $ 284,171        100.0  %     $ 1,079,267      100.0  %   $ 794,991        100.0  %
Cost of goods        255,032        64.4   %     182,291        64.1   %       697,364        64.6   %     503,716        63.4   %
sold
Gross profit         140,800        35.6   %     101,880        35.9   %       381,903        35.4   %     291,275        36.6   %
Selling, general
and                  116,940        29.5   %     99,886         35.2   %       385,312        35.7   %     271,716        34.1   %
administrative
expenses
Income (loss)        23,860         6.1    %     1,994          0.7    %       (3,409     )   -0.3   %     19,559         2.5    %
from operations
Interest expense     (2,165     )   -0.6   %     (1,544     )   -0.5   %       (4,196     )   -0.4   %     (4,598     )   -0.6   %
Income (loss)
before income        21,695         5.5    %     450            0.2    %       (7,605     )   -0.7   %     14,961         1.9    %
taxes
Income tax
expense              12,146         3.1    %     (1,235     )   -0.4   %       842            0.1    %     (612       )   -0.1   %
(benefit)
Net income         $ 9,549          2.4    %   $ 1,685          0.6    %     $ (8,447     )   -0.8   %   $ 15,573         2.0    %
(loss)
                                                                                                                           
Weighted-average
shares used in
computing basic      38,888,208                  1,000                         38,558,952                  1,000
net income
(loss) per share
Basic net income   $ 0.25                      $ 1,685                       $ (0.22      )              $ 15,573
(loss) per share
                                                                                                                           
Weighted-average
shares used in
computing            41,053,211                  1,000                         38,558,952                  1,000
diluted net
income (loss)
per share
Diluted net
income (loss)      $ 0.23                      $ 1,685                       $ (0.22      )              $ 15,573
per share
                                                                                                                           
Pro forma
weighted-average
shares used in
computing pro                                    36,971,500                                                36,971,500
forma basic and
diluted net
income per share
^[a]
Pro forma basic
and diluted net                                $ 0.05                                                    $ 0.42
income per share

[a] On a pro forma basis, basic and diluted shares outstanding for the three
and nine months ended October 27, 2012 include (1) 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 (the
“Reorganization”), as well as (2) the 4,782,609 shares of common stock that
the Company issued and sold on November 7, 2012 in its initial public
offering, as if such events had been completed as of the beginning of the
respective periods and the common stock resulting therefrom was outstanding
for the respective periods.

 
RESTORATION HARDWARE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
                                                                  
                                                                    
                                       November 2,   February 2,   October 27,
                                       2013          2013          2012
                                                                    
ASSETS
Cash and cash equivalents              $  8,197      $  8,354      $  15,568
Merchandise inventories                   448,150       353,329       333,825
Other current assets                      147,215       131,075       110,952
Total current assets                      603,562       492,758       460,345
Property and equipment—net                190,069       111,406       93,663
Goodwill and other intangibles            171,480       172,724       173,509
Other assets                              26,987        12,725        14,716
Total assets                           $  992,098    $  789,613    $  742,233
                                                                    
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued           $  209,228    $  145,353    $  156,382
expenses
Other current liabilities                 101,715       74,071        73,203
Total current liabilities                 310,943       219,424       229,585
Revolving line of credit and term         108,245       82,501        187,529
loan
Other long term liabilities               64,001        36,077        57,880
Total liabilities                         483,189       338,002       474,994
                                                                    
Stockholders’ equity                      508,909       451,611       267,239
Total liabilities and stockholders’    $  992,098    $  789,613    $  742,233
equity

 
RESTORATION HARDWARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                                                                  
                                                     Nine Months Ended
                                                     November 2,   October 27,
                                                     2013          2012
                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                    $ (8,447  )   $ 15,573
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
       Depreciation and amortization                   19,959        19,485
       Stock-based compensation expense                65,847        1,102
       Other non-cash items                            (13,415 )     212
Change in assets and liabilities:
       Merchandise inventories                         (94,980 )     (87,933 )
       Accounts payable, accrued expenses, and         61,491        31,542   
       other
                  Net cash provided by (used in)       30,455        (20,019 )
                  operating activities
                                                                    
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                   (57,622 )     (25,631 )
Purchases of trademarks                              —               (310    )
                  Net cash used in investing           (57,622 )     (25,941 )
                  activities
                                                                    
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line of credit          25,744        65,194
Payments on capital leases                             (1,418  )     (3,088  )
Capitalized initial public offering costs            —               (9,118  )
Stock options exercised                                1,436         —
Excess tax benefit from exercise of stock options      1,440         —
Tax withholdings related to issuance of                (178    )     —        
stock-based awards
                  Net cash provided by financing       27,024        52,988   
                  activities
Effects of foreign currency exchange rate              (14     )     28       
translation
                  Net increase (decrease) in cash      (157    )     7,056
                  and cash equivalents
Cash and cash equivalents
                  Beginning of period                  8,354         8,512    
                  End of period                      $ 8,197       $ 15,568   

 
RESTORATION HARDWARE HOLDINGS, INC.
OPERATING METRICS AND OTHER DATA
(Unaudited)
                                                                 
                        Three Months Ended          Nine Months Ended
                        November 2,   October 27,   November 2,   October 27,
                        2013          2012          2013          2012
Growth in net
revenues:
Stores ^[a]                33    %      21     %      33     %        19     %
Direct                     47    %      24     %      39     %        25     %
Total                      39    %      22     %      36     %        22     %
Retail ^[b]:
Comparable store           29    %      29     %      31     %        29     %
sales change ^[c]
Retail stores open at      70           73            71              74
beginning of period
Stores opened              —            —             2               3
Stores closed              —            —             3               4
Retail stores open at      70           73            70              73
end of period
Retail sales per
leased selling square   $  364        $ 282         $ 1,002       $   763
foot ^[d]
Total leased square
footage at end of          796          780           796             780
period (in thousands)
Total leased selling
square footage at end      521          502           521             502
of period (in
thousands) ^[e]
Direct:
Catalogs circulated        4,330        11,721        12,325          26,851
(in thousands) ^[f]
Catalog pages
circulated (in             892          7,944         6,583           15,360
millions) ^[f]
Direct as a
percentage of net          46    %      44     %      47     %        46     %
revenues ^[g]

[a] Store data represents retail stores plus outlet stores. Net revenues for
outlet stores for the three months ended November 2, 2013 and October 27, 2012
were $22.4 million and $13.9 million, respectively. Net revenues for outlet
stores for the nine months ended November 2, 2013 and October 27, 2012 were
$57.5 million and $38.2 million, respectively.

[b] Retail data has been calculated based upon retail stores, which includes
our Baby & Child stores and excludes 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. If a store
is closed for seven days during a month, that month will be excluded from
comparable store sales. Comparable store net revenues exclude revenues from
outlet stores.

[d] Retail sales per leased selling square foot is calculated by dividing
total net revenues for all retail stores, comparable and non-comparable, by
the average leased selling square footage for the period.

[e] Leased selling square footage is retail space at our stores used to sell
our products. Leased selling square footage excludes backrooms at retail
stores used for storage, office space or similar matters. Leased selling
square footage excludes exterior sales space located outside a store, such as
courtyards, gardens and rooftops. Leased selling square footage includes
approximately 4,500 square feet related to one owned store location.

[f] 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.

[g] Direct revenues include sales through our catalogs and websites.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS
(In thousands, except share and per share amounts)
(Unaudited)
                                                                                                                          
                   Three Months Ended
                   Reported                       Adjusted                    Reported                    Adjusted
                   November 2,      Adjustments   November 2,      % of Net   October 27,   Adjustments   October 27,      % of Net
                   2013                                            Revenues                               2012             Revenues
                                                  2013                        2012
Net revenues       $ 395,832        $ —           $ 395,832        100.0  %   $ 284,171     $  —          $ 284,171        100.0  %
Cost of goods        255,032           —            255,032        64.4   %     182,291        —            182,291        64.1   %
sold
Gross profit         140,800           —            140,800        35.6   %     101,880        —            101,880        35.9   %
Selling, general
and                  116,940           —            116,940        29.6   %     99,886         (3,987 )     95,899         33.8   %
administrative
expenses ^[a]
Income from          23,860            —            23,860         6.0    %     1,994          3,987        5,981          2.1    %
operations
Interest expense     (2,165     )      —            (2,165     )   -0.5   %     (1,544  )      —            (1,544     )   -0.5   %
Income before        21,695            —            21,695         5.5    %     450            3,987        4,437          1.6    %
income taxes
Income tax
expense              12,146            (3,468 )     8,678          2.2    %     (1,235  )      3,010        1,775          0.7    %
(benefit) ^[b]
Net income ^[c]    $ 9,549          $  3,468      $ 13,017         3.3    %   $ 1,685       $  977        $ 2,662          0.9    %
                                                                                                                            
EBITDA ^[d]        $ 30,591                       $ 30,591                    $ 8,587                     $ 12,973
                                                                                                                            
Weighted-average
shares used in
computing basic      38,888,208                     38,888,208                  1,000                       36,971,500
net income per
share ^[e]
Weighted-average
shares used in
computing            41,053,211                     41,053,211                  1,000                       36,971,500
diluted net
income per share
^ [e]
                                                                                                                            
Basic net income   $ 0.25                         $ 0.33                      $ 1,685                     $ 0.07
per share
Diluted net        $ 0.23                         $ 0.32                      $ 1,685                     $ 0.07
income per share

[a] The adjustments for selling, general, and administrative expenses include
management and pre-initial public offering board fees, certain non-cash and
other one-time compensation, follow-on offering fees, lease termination costs
and special committee investigation and remediation costs. See table titled
“Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for
additional details.

[b] Assumes a normalized tax rate of 40% for all periods presented. See table
titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for
additional details.

[c] 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 non-recurring and
other 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.

[d] 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 and our
Board of Directors 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. 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.
Please see the table titled “Reconciliation of Net Income (Loss) to EBITDA and
Adjusted EBITDA” for further information.

[e] On an adjusted basis for the three months ended October 27, 2012, basic
and diluted shares outstanding include (1) the impact of the Reorganization,
as well as (2) the 4,782,609 shares of common stock that the Company issued
and sold on November 7, 2012 in its initial public offering, as if such events
had been completed as of the beginning of the period and the common stock
resulting therefrom was outstanding for the period.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF ADJUSTED INCOME STATEMENT ITEMS
(In thousands, except share and per share amounts)
(Unaudited)
                                                                                                                          
                   Nine Months Ended
                                                  Adjusted                    Reported                    Adjusted
                   Reported                       November 2,      % of Net   October 27,                                  % of Net
                   November 2,      Adjustments                    Revenues                 Adjustments   October 27,      Revenues
                   2013                           2013                        2012
                                                                                                          2012
Net revenues       $ 1,079,267      $ —           $ 1,079,267      100.0  %   $ 794,991     $  —          $ 794,991        100.0  %
Cost of goods        697,364          —             697,364        64.6   %     503,716        —            503,716        63.4   %
sold
Gross profit         381,903          —             381,903        35.4   %     291,275        —            291,275        36.6   %
Selling, general
and                  385,312          (66,050 )     319,262        29.6   %     271,716        (7,677 )     264,039        33.2   %
administrative
expenses ^[a]
Income (loss)        (3,409     )     66,050        62,641         5.8    %     19,559         7,677        27,236         3.4    %
from operations
Interest expense     (4,196     )     —             (4,196     )   -0.4   %     (4,598  )      —            (4,598     )   -0.6   %
Income (loss)
before income        (7,605     )     66,050        58,445         5.4    %     14,961         7,677        22,638         2.8    %
taxes
Income tax
expense              842              22,536        23,378         2.2    %     (612    )      9,668        9,056          1.1    %
(benefit) ^[b]
Net income         $ (8,447     )   $ 43,514      $ 35,067         3.2    %   $ 15,573      $  (1,991 )   $ 13,582         1.7    %
(loss) ^[c]
                                                                                                                            
EBITDA ^[d]        $ 16,550                       $ 82,600                    $ 39,044                    $ 47,870
                                                                                                                            
Weighted-average
shares used in
computing basic      38,558,952                     38,558,952                  1,000                       36,971,500
net income
(loss) per share
^[e]
Weighted-average
shares used in
computing            38,558,952                     40,170,430                  1,000                       36,971,500
diluted net
income (loss)
per share ^ [e]
                                                                                                                            
Basic net income   $ (0.22      )                 $ 0.91                      $ 15,573                    $ 0.37
(loss) per share
Diluted net
income (loss)      $ (0.22      )                 $ 0.87                      $ 15,573                    $ 0.37
per share

[a] The adjustments for selling, general, and administrative expenses include
management and pre-initial public offering board fees, certain non-cash and
other one-time compensation, follow-on offering fees, lease termination costs
and special committee investigation and remediation costs. See table titled
“Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for
additional details.

[b] Assumes a normalized tax rate of 40% for all periods presented. See table
titled “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” for
additional details.

[c] 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 non-recurring and
other 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.

[d] 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 and our
Board of Directors to assess our financial performance, and Adjusted EBITDA is
used in connection with determining incentive compensation under our 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. 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. Please see the table titled
“Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA” for
further information.

[e] On an adjusted basis for the nine months ended October 27, 2012, basic and
diluted shares outstanding include (1) the impact of the Reorganization, as
well as (2) the 4,782,609 shares of common stock that the Company issued and
sold on November 7, 2012 in its initial public offering, as if such events had
been completed as of the beginning of the period and the common stock
resulting therefrom was outstanding for the period.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF NET INCOME TO OPERATING INCOME (LOSS)
AND ADJUSTED OPERATING INCOME
(In thousands)
(Unaudited)
                                                                  
                                                                    
                         Three Months Ended          Nine Months Ended
                         November 2,   October 27,   November 2,   October 27,
                         2013          2012          2013          2012
Net income (loss)        $   9,549     $  1,685      $  (8,447 )   $  15,573
Interest expense             2,165        1,544         4,196         4,598
Income tax expense           12,146       (1,235 )      842           (612   )
(benefit)
Operating income             23,860       1,994         (3,409 )      19,559
(loss)
Management and pre-IPO       —            1,198         —             3,285
board fees ^[a]
Non-cash compensation        —            —             63,155        —
^[b]
Follow-on offering           —            —             2,895         —
fees ^[c]
Lease termination            —            —             —             (386   )
costs ^[d]
Special committee
investigation and            —            2,789         —             4,778   
remediation ^[e]
Adjusted operating       $   23,860    $  5,981      $  62,641     $  27,236  
income

[a] Represents fees paid in accordance with our management services agreement
with Home Holdings, LLC (“Home Holdings”), as well as fees and expense
reimbursements paid to our Board of Directors prior to the initial public
offering. All management fees were paid in full at the time of the initial
public offering. Board fees and expenses subsequent to the initial public
offering are not included in the above adjustments and are included in both
the operating and adjusted operating income (loss) amounts.

[b] Includes non-cash compensation charges related to the performance-based
vesting of certain shares granted to Mr. Friedman, as well as the one-time,
fully vested option granted to Mr. Friedman upon his reappointment as Chairman
and Co-Chief Executive Officer in July 2013. All other equity related awards
granted to employees are not included in the above adjustments and are
included in both the operating and adjusted operating income (loss) amounts.

[c] Represents legal and other professional fees incurred in connection with
our follow-on offerings in May 2013 and July 2013.

[d] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the three and nine
months ended October 27, 2012 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 Mr. Friedman and our subsequent remedial actions.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(In thousands)
(Unaudited)
                                                                  
                                                                    
                         Three Months Ended          Nine Months Ended
                         November 2,   October 27,   November 2,   October 27,
                         2013          2012          2013          2012
Net income (loss)        $   9,549     $  1,685      $  (8,447 )   $  15,573
Depreciation and             6,731        6,593         19,959        19,485
amortization
Interest expense             2,165        1,544         4,196         4,598
Income tax expense           12,146       (1,235 )      842           (612   )
(benefit)
EBITDA ^[a]                  30,591       8,587         16,550        39,044
Management and pre-IPO       —            1,198         —             3,285
board fees ^[b]
Non-cash compensation        —            364           63,155        1,102
^[c]
Follow-on offering           —            —             2,895         —
fees ^[d]
Lease termination            —            —             —             (386   )
costs ^[e]
Special committee
investigation and            —            2,789         —             4,778
remediation ^[f]
Other ^[g]                   —            35            —             47      
Adjusted EBITDA ^[a]     $   30,591    $  12,973     $  82,600     $  47,870  

[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 and our
Board of Directors to assess our financial performance, and Adjusted EBITDA is
used in connection with determining incentive compensation under our 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. 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. 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 non-recurring and other 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] 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 initial public offering. All management fees
were paid in full at the time of the initial public offering. Board fees and
expenses subsequent to the initial public offering are not included in the
above adjustments and are included in both the EBITDA and Adjusted EBITDA
amounts.

[c] The nine months ended November 2, 2013 include non-cash compensation
charges related to the performance-based vesting of certain shares granted to
Mr. Friedman, as well as the one-time, fully vested option granted to Mr.
Friedman upon his reappointment as Chairman and Co-Chief Executive Officer in
July 2013. The three and nine months ended October 27, 2012 includes
stock-based compensation expense incurred prior to the initial public
offering. All other equity related awards granted to employees subsequent to
the initial public offering are not included in the above adjustments and are
included in both the EBITDA and Adjusted EBITDA amounts.

[d] Represents legal and other professional fees incurred in connection with
our follow-on offerings in May 2013 and July 2013.

[e] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the three and nine
months ended October 27, 2012 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 Mr. Friedman and our subsequent remedial actions.

[g] Represents certain other items which management believes are not
indicative of our ongoing operating performance, which includes foreign
exchange gains and losses for the three and nine months ended October 27,
2012.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED NET INCOME
(In thousands)
(Unaudited)
                                                                  
                                                                    
                         Three Months Ended          Nine Months Ended
                         November 2,   October 27,   November 2,   October 27,
                         2013          2012          2013          2012
GAAP net income (loss)   $   9,549     $  1,685      $ (8,447  )   $  15,573  
Adjustments (pre-tax):
Management and pre-IPO   $   —         $  1,198      $ —           $  3,285
board fees ^[a]
Non-cash compensation        —            —            63,155         —
^[b]
Follow-on offering           —            —            2,895          —
fees ^[c]
Lease termination            —            —            —              (386   )
costs ^[d]
Special committee
investigation and            —            2,789        —              4,778   
remediation ^[e]
Subtotal adjusted            —            3,987        66,050         7,677
items
Impact of income tax         3,468        (3,010 )     (22,536 )      (9,668 )
items ^[f]
Adjusted net income      $   13,017    $  2,662      $ 35,067      $  13,582  
^[g]

[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 initial public offering. All management fees
were paid in full at the time of the initial public offering. Board fees and
expenses subsequent to the initial public offering are not included in the
above adjustments and are included in both the GAAP and adjusted net income
(loss) amounts.

[b] Includes non-cash compensation charges related to the performance-based
vesting of certain shares granted to Mr. Friedman, as well as the one-time,
fully vested option granted to Mr. Friedman upon his reappointment as Chairman
and Co-Chief Executive Officer in July 2013. All other equity related awards
granted to employees are not included in the above adjustments and are
included in both the GAAP and adjusted net income (loss) amounts.

[c] Represents legal and other professional fees incurred in connection with
our follow-on offerings in May 2013 and July 2013.

[d] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the three and nine
months ended October 27, 2012 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 Mr. Friedman and our subsequent remedial actions.

[f] Assumes a normalized tax rate of 40% for all periods presented.

[g] 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 non-recurring and
other 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.

 
RESTORATION HARDWARE HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) PER SHARE TO
ADJUSTED NET INCOME PER SHARE
(Unaudited)
                                                                  
                                                                    
                         Three Months Ended          Nine Months Ended
                         November 2,   October 27,   November 2,   October 27,
                         2013          2012          2013          2012
                                                                    
GAAP diluted net
income (loss) per        $    0.23     $  1,685      $  (0.22  )   $  15,573  
share
                                                                    
                                                                    
Pro forma diluted net
income (loss) per        $    0.23     $  0.05       $  (0.21  )   $  0.42
share ^[a]
                                                                    
EPS impact of
adjustments (pre-tax):
Management and pre-IPO   $    —        $  0.03       $  —          $  0.09
board fees ^[b]
Non-cash compensation         —           —             1.57          —
^[c]
Follow-on offering            —           —             0.07          —
fees ^[d]
Lease termination             —           —             —             (0.01  )
costs ^[e]
Special committee
investigation and             —           0.07          —             0.13    
remediation ^[f]
Subtotal adjusted             —           0.10          1.64          0.21
items
Impact of income tax          0.09        (0.08  )      (0.56  )      (0.26  )
items ^[g]
Adjusted diluted net     $    0.32     $  0.07       $  0.87       $  0.37    
income per share ^[h]

[a] Pro forma diluted net income (loss) per share for the three and nine
months ended November 2, 2013 is calculated based on GAAP net income (loss)
and diluted weighted-average shares of 41,053,211 and 40,170,430,
respectively. Pro forma diluted net income per share for the three and nine
months ended October 27, 2012 is calculated based on GAAP net income and the
Company’s vested share count as if (1) the Reorganization and (2) initial
public offering had been completed as of the beginning of the respective
periods and the common stock resulting therefrom was outstanding for the
respective periods.

[b] 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 initial public offering. All management fees
were paid in full at the time of the initial public offering. Board fees and
expenses subsequent to the initial public offering are not included in the
above adjustments and are included in both the GAAP and adjusted net income
(loss) amounts.

[c] Includes non-cash compensation charges related to the performance-based
vesting of certain shares granted to Mr. Friedman, as well as the one-time,
fully vested option granted to Mr. Friedman upon his reappointment as Chairman
and Co-Chief Executive Officer in July 2013. All other equity related awards
granted to employees are not included in the above adjustments and are
included in both the GAAP and adjusted net income (loss) amounts.

[d] Represents legal and other professional fees incurred in connection with
our follow-on offerings in May 2013 and July 2013.

[e] Includes lease termination costs for retail stores that were closed prior
to their respective lease termination dates. The amounts in the three and nine
months ended October 27, 2012 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 Mr. Friedman and our subsequent remedial actions.

[g] Assumes a normalized tax rate of 40% for all periods presented.

[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 non-recurring and other 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.

Contact:

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