Q3 2016 Net Revenues and Adjusted Diluted
EPS Ahead of Guidance
Lowering Q4 2016 Outlook Due to Slower
Quarter-To-Date Holiday Sales and Later than Planned In Home of
Fall 2016 Source Book
RH (Restoration Hardware Holdings, Inc. - NYSE:RH) today
announced financial results for the third quarter ended October 29,
2016.
The Company will post a video presentation between
approximately 1:15 p.m. – 1:30 p.m. PT (4:15 p.m. – 4:30 p.m. ET)
today highlighting its continued evolution and recent performance
on the RH Investor Relations website at
ir.restorationhardware.com.
Third Quarter Highlights
- Net revenues increased 3% on top of
a 10% increase last year
- Comparable brand revenues declined
6% compared to a 7% increase last year
- GAAP net income of $2.5 million
compared to $20.7 million last year
- Adjusted net income of $8.0 million
compared to $27.7 million last year
- GAAP diluted earnings per share of
$0.06 compared to $0.49 last year
- Adjusted diluted earnings per share
of $0.20 compared to $0.65 last year
Gary Friedman, Chairman and Chief Executive Officer, commented,
“Third quarter fiscal 2016 net revenues of $549 million and
adjusted EPS of $0.20 were ahead of our guidance for the quarter.
Net revenues were driven by a higher conversion of orders into
sales than expected given our strong in stock levels and supply
chain improvements. In addition, our margins continued to be
negatively impacted by many of the temporal factors impacting our
fiscal 2016 earnings in addition to one-time costs associated with
the remodel and refresh of our legacy Galleries during the
quarter."
Mr. Friedman added, “As previously communicated, we are making
several strategic investments and changes to our business model in
fiscal 2016 that are temporarily depressing financial results in
the short term, that we believe will strengthen our brand and
position the business for accelerated growth in 2017 and beyond.
These temporal issues include the costs related to the launch of RH
Modern; the timing of recognizing membership revenues related to
the transition from a promotional to a membership model; efforts to
reduce inventories and rationalize our SKU count; and the decision
to push our 2016 Source Book mailing from the Spring to the
Fall.”
Mr. Friedman continued, “We are lowering our outlook for fiscal
2016 net revenues and adjusted EPS based on trends to-date during
the fourth quarter. First, our business in November was below our
expectations, which we largely attribute to consumer softness
related to the US election and our Fall 2016 Source Books getting
in homes later than planned. While our Fall 2016 Source Books began
mailing in mid-September, the vast majority of the circulation is
just getting in homes over the last few weeks versus our original
expectations for the Books to be building earlier in the mailing
cycle. This is resulting in a shift of sales that would have been
booked in the fourth quarter into the first quarter of next year.
In addition, sales of our Holiday Collection are trending lower
than our expectations. We are taking a more aggressive approach to
clear seasonal merchandise as well as taking deeper markdowns to
accelerate our overall SKU rationalization efforts which are
expected to result in lower product margins during the quarter. We
are lowering our fiscal 2016 capital expenditures guidance to a
range of $180 million to $190 million from our prior range of $180
to $210 million.”
Mr. Friedman concluded, “While we are clearly disappointed in
our fourth quarter outlook, we believe we are making the necessary
investments and changes to position our business for the long-term.
As we look forward to fiscal 2017, we expect to anniversary the
costs related to the launch of RH Modern; benefit from the deferral
of membership revenue, plus capture additional revenue from new
members and renewals; cycle our efforts to reduce inventories and
rationalize our SKU count; and expect revenues to build from the
mailing of our Fall 2016 Source Books and the second mailing of the
RH Modern Source Book next Spring. We also expect incremental
revenues from the 4 new Design Galleries opened in 2016, and the 6
new Design Galleries opening in 2017, 5 of which will have Cafes,
Wine Vaults, and Coffee Bars similar to our successful hospitality
experience at our Gallery at the 3Arts Club in Chicago. As we cycle
these investments and changes, we expect sales to reaccelerate,
operating margins to expand, and to generate free cash flow in
2017. At RH, we have demonstrated an ability to navigate through
challenging periods before, and emerge an even stronger business
and brand. We are confident that our choices will prove to be the
right ones, driving long-term sustainable growth, improved returns
on capital, and shareholder value.”
Third Quarter Fiscal 2016
Results
Revenue - Net revenues for the third quarter of fiscal
2016 increased 3% to $549.3 million from $532.4 million in the
third quarter of fiscal 2015.
- Comparable brand revenue, which
includes direct, declined 6% in the third quarter of fiscal 2016
compared to 7% growth for the same period last year.
- Stores revenues increased 9% to $306.8
million in the third quarter of fiscal 2016. This growth is on top
of a 16% increase in stores revenues in the third quarter of fiscal
2015.
- Direct revenues decreased 3% to $242.5
million in the third quarter of fiscal 2016. Direct revenues during
the third quarter of fiscal 2016 represented 44% of total net
revenues.
Revenue Metrics* Three Months
Ended
October 29,2016
October 31,2015
Stores as a percentage of net revenues 56 % 53 % Direct as a
percentage of net revenues 44 % 47 % Growth in net revenues: Stores
9 % 16 % Direct -3 % 4 % Total 3 % 10 % Comparable brand revenue
growth (1)(2) -6 % 7 % * See the Company’s most recent Form
10-K and Form 10-Q filings for the definitions of stores, direct,
and comparable brand revenue. (1) Waterworks is excluded from
comparable brand revenue growth and will be added in the first full
quarter following the anniversary of the acquisition.
(2) Membership revenue is excluded from
comparable brand revenue growth and will be added in the first full
quarter following the anniversary of the program launch.
Retail Galleries - As of October 29, 2016, the Company
operated a total of 85 retail galleries, consisting of 51 legacy
Galleries, 6 larger format Design Galleries, 7 next generation
Design Galleries, 1 RH Modern Gallery, and 5 RH Baby & Child
Galleries throughout the United States and Canada, as well as 15
Waterworks showrooms in the United States and UK. This compares to
a total of 68 retail galleries, consisting of 54 legacy Galleries,
6 larger format Design Galleries, 3 next generation Design
Galleries, and 5 RH Baby & Child Galleries throughout the
United States and Canada, as of October 31, 2015.
In addition, as of October 29, 2016, the Company operated 28
outlet stores compared to 17 as of October 31, 2015.
Retail Gallery Metrics*
Three Months Ended
October 29,2016
October 31,2015
Store Count
Total Leased SellingSquare
Footage
Store Count
Total Leased SellingSquare
Footage
(in thousands) (in thousands)
Beginning of period
84 776 67 605 Retail galleries opened Leawood next generation
Design Gallery 1 33.5 — — Waterworks San Francisco Showroom 1 5.8 —
— Austin next generation Design Gallery 1 39.6 — — Las Vegas next
generation Design Gallery 1 47.6 — — Baby & Child West Palm
Beach Gallery — — 1 2.5 Baby & Child Greenwich Gallery — — 1
4.2 Chicago next generation Design Gallery — — 1 44.8 Denver next
generation Design Gallery — — 1 46.4 Retail galleries closed Kansas
City Legacy Gallery (1 ) (9.9 ) — — Waterworks - Kansas Street, SF
(1 ) (2.0 ) — — Austin Legacy Gallery (1 ) (6.2 ) — — Chicago (Deer
Park) Legacy Gallery — — (1 ) (6.1 ) Chicago (Lincoln Park) Legacy
Gallery — — (1 ) (8.4 ) Denver Legacy Gallery — —
(1 ) (7.5 )
End of period 85
884 68 681 % Growth 30 %
18 %
Weighted-average leased selling square
footage
816 624 % Growth 31 % 10 % * See the Company’s
most recent Form 10-K and Form 10-Q filings for square footage
definitions. Total leased square footage as of October 29, 2016 and
October 31, 2015 was 1,208,000 and 958,000, respectively.
Weighted-average leased square footage for the three months ended
October 29, 2016 and October 31, 2015 was 1,146,000 and 886,000,
respectively. Retail sales per leased selling square foot for the
three months ended October 29, 2016 and October 31, 2015 was $325
and $384, respectively.
Operating Income and Margin** - On an unadjusted basis,
GAAP operating income was $15.4 million in the third quarter of
fiscal 2016 compared to $44.9 million for the same period last year
and GAAP operating margin was 2.8% compared to 8.4% for the same
period last year.
Adjusted operating income in the third quarter of fiscal 2016
was $18.1 million compared to $50.0 million in the third quarter of
fiscal 2015. Adjusted operating margin in the third quarter of
fiscal 2016 was 3.3% compared to 9.4% for the same period last
year.
Net Income** - On an unadjusted basis, GAAP net income
for the third quarter of fiscal 2016 was $2.5 million compared to
$20.7 million for the same period last year.
Adjusted net income in the third quarter of fiscal 2016 was $8.0
million compared to $27.7 million in the third quarter of fiscal
2015.
Earnings Per Share** - On an unadjusted basis, GAAP
diluted earnings per share for the third quarter of fiscal 2016 was
$0.06 compared to $0.49 for the same period last year.
Adjusted diluted earnings per share for the third quarter of
fiscal 2016 was $0.20 compared to $0.65 for the same period last
year.
A reconciliation of GAAP to non-GAAP financial measures is
provided in the tables accompanying this release.
Outlook
The Company is providing the following outlook for the fourth
quarter of fiscal 2016:
- Net revenues in the range of $562
million to $592 million
- Adjusted net income in the range of
$24.5 million to $28.5 million
- Adjusted diluted EPS in the range of
$0.60 to $0.70
- Income tax rate of approximately
39%
- Diluted shares outstanding of
approximately 41 million
The Company is updating its outlook for fiscal year 2016 as
follows:
- Net revenues in the range of $2.11
billion to $2.14 billion, representing flat to 1% growth from the
prior year
- Adjusted diluted EPS in the range of
$1.19 to $1.29
- Capital expenditures in the range of
$180 million to $190 million
Note: The Company’s adjusted net income and adjusted diluted
earnings per share guidance does not include certain charges and
costs. The adjustments to net income and diluted earnings per share
in future periods are generally expected to be similar to the kinds
of charges and costs excluded from adjusted net income and adjusted
diluted earnings per share in prior quarters, such as non-cash and
other compensation expense; one-time income tax expense; legal
claim related expenses; reorganization costs including severance
costs and related taxes; and charges and costs in connection with
the acquisition of Waterworks, among others. The exclusion of these
charges and costs in future periods will have a significant impact
on the Company’s adjusted net income and adjusted diluted earnings.
The Company is not able to provide a reconciliation of the
Company’s non-GAAP financial guidance to the corresponding GAAP
measures without unreasonable effort because of the uncertainty and
variability of the nature and amount of these future charges and
costs.
Company Name Change
Effective January 1, 2017, the Company will change its corporate
name from Restoration Hardware Holdings, Inc. to “RH”. The
Company’s stock ticker symbol “RH” will remain the same.
Video Presentation and Q&A
Conference Call Information
Accompanying this release, RH will today post a video
presentation highlighting the Company’s third quarter fiscal 2016
performance and outlook on the Company’s Investor Relations
website, ir.restorationhardware.com. Management will then host a
live question and answer conference call at 2:30 p.m. PT (5:30 p.m.
ET). Interested parties may access the call by dialing (866)
394-6658 (United States/Canada) or (706) 679-9188 (International).
A live broadcast of the question and answer session conference call
will also be available online at the Company’s investor relations
website, ir.restorationhardware.com. A replay of the question and
answer session conference call will be available through December
21, 2016 by dialing (855) 859-2056 or (404) 537-3406 and entering
passcode 28847543, as well as on the Company’s investor relations
website.
About RH
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, RHModern.com, and Waterworks.com.
**Non-GAAP Financial
Measures
To supplement its condensed 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 operating margin, adjusted net income, and adjusted
diluted earnings per share (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 non-GAAP financial measures, including similarly titled
measures, 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.
Forward-Looking
Statements
This release and the accompanying video presentation contain
forward-looking statements within the meaning of the federal
securities laws including statements related to our future
financial guidance, including for the fourth quarter of fiscal 2016
and full year 2016, including net revenues, adjusted net income,
adjusted EPS and capital expenditures; the impact of certain
changes in the Company’s business model, including the launch of RH
Modern, the Company’s new membership model, the Company’s efforts
to reduce inventories and rationalize its SKU count, the timing of
the distribution of the Company’s 2016 Source Book and RH Modern
Source Book mailings, and the ability of those changes to
accelerate growth in 2017 and later periods; the effect of
macroeconomic factors, including the US election; plans regarding
seasonal merchandise; the Company’s expectations with respect to
fiscal 2017 that it will anniversary costs related to the launch of
RH Modern, benefit from the deferral of membership revenue plus
capture additional revenue from new members and renewals, cycle its
efforts to reduce inventories and rationalize its SKU count, and
will build revenues from the mailing of its Fall 2016 Source Books
and the second mailing of the RH Modern Source Book next Spring;
the Company’s expectations with respect to revenues associated with
the four new Design Galleries opened in 2016 and the six new Design
Galleries opening in 2017, including with respect to revenues
associated with Cafes, Wine Vaults, and Coffee Bars at five such
new Design Galleries; and, any statements or assumptions underlying
any of the foregoing. These forward-looking statements include
factors having a temporary, one-time or temporal impact on the
Company’s business and results of operation, and there is inherent
uncertainty and risks relating to the impact of such factors on the
Company’s business and results of operation, whether such factors
and impact will be recurring and the exact timing of any such
impact on the Company’s business and results of operation. 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; successful implementation of our growth strategy; our
ability to leverage Waterworks; uncertainties in the current
performance of our business including a range of risks related to
our operations as well as external economic factors; general
economic conditions and the impact on consumer confidence and
spending; changes in customer demand for our products; factors
affecting our outstanding convertible senior notes; our ability to
anticipate consumer preferences and buying trends, and maintaining
our brand promise to customers; changes in consumer spending based
on weather and other conditions beyond our control; risks related
to the number of new business initiatives we are undertaking;
strikes and work stoppages affecting port workers and other
industries involved in the transportation of our products; our
ability to obtain our products in a timely fashion or in the
quantities required; our ability to employ reasonable and
appropriate security measures to protect personal information that
we collect; our ability to support our growth with appropriate
information technology systems; 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’ most recent Form 10-K and Form 10-Q filed with
the Securities and Exchange Commission, 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
October 29,2016
% of NetRevenues
October 31,2015
% of NetRevenues
October 29,2016
% of NetRevenues
October 31,2015
% of NetRevenues
Net revenues $ 549,328 100.0 % $ 532,411 100.0 % $
1,548,165 100.0 % $ 1,461,798 100.0 % Cost of goods
sold 373,509 68.0 % 341,661
64.2 % 1,065,032 68.8 % 933,367
63.9 % Gross profit 175,819 32.0 % 190,750 35.8 %
483,133 31.2 % 528,431 36.1 %
Selling, general and administrative
expenses
160,433 29.2 % 145,874
27.4 % 457,207 29.5 % 410,103
28.0 % Income from operations 15,386 2.8 % 44,876 8.4 %
25,926 1.7 % 118,328 8.1 % Interest expense—net 11,091
2.0 % 11,003 2.0 % 32,528
2.1 % 24,058 1.7 %
Income (loss) before income taxes
4,295 0.8 % 33,873 6.4 % (6,602 ) -0.4 % 94,270 6.4 % Income tax
expense (benefit) 1,778 0.3 % 13,163
2.5 % (2,567 ) -0.1 % 36,469
2.4 % Net income (loss) $ 2,517 0.5 % $
20,710 3.9 % $ (4,035 ) -0.3 % $ 57,801
4.0 %
Weighted-average shares used in computing
basic net income (loss) per share
40,730,059 40,282,734 40,653,091 40,080,843
Basic net income (loss) per share
$ 0.06 $ 0.51 $ (0.10 ) $ 1.44
Weighted-average shares used in computing
diluted net income (loss) per share
40,926,450 42,413,657 40,653,091 42,237,967 Diluted net income
(loss) per share $ 0.06 $ 0.49 $ (0.10 ) $ 1.37
RESTORATION HARDWARE HOLDINGS,
INC.
RECONCILIATION OF GAAP NET INCOME
(LOSS) TO ADJUSTED NET INCOME
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
October 29,2016
October 31,2015
October 29,2016
October 31,2015
GAAP net income (loss) $ 2,517 $ 20,710 $ (4,035 ) $
57,801
Adjustments (pre-tax): Cost of goods sold:
Impact of inventory step-up [a] 1,786 — 5,187 — Legal claim [b] —
4,801 7,729 11,024 Selling, general and administrative expenses:
Reorganization related costs [c] 974 — 5,698 — Non-cash
compensation [d] — — 3,672 — Acquisition related costs [e] — —
2,847 — Legal claim [b] — 275 972 1,094 Interest expense—net:
Amortization of debt discount [f] 6,629 6,415
19,550 13,610 Subtotal adjusted
items 9,389 11,491 45,655 25,728 Impact of income tax on adjusted
items [g] (3,887 ) (4,465 ) (17,759 )
(9,929 ) Adjusted net income [h] $ 8,019 $ 27,736 $
23,861 $ 73,600 [a] Represents the non-cash
amortization of the inventory fair value adjustment recorded in
connection with our acquisition of Waterworks. [b] Represents the
estimated cumulative impact of coupons redeemed in connection with
a legal claim alleging that the Company violated California’s
Song-Beverly Credit Card Act of 1971 by requesting and recording
ZIP codes from customers paying with credit cards. [c] Represents
costs associated with a reorganization, which include severance
costs and related taxes, partially offset by a reversal of
stock-based compensation expense related to unvested equity awards.
[d] Represents a non-cash compensation charge related to one-time,
fully vested option grants made in connection with our acquisition
of Waterworks. [e] Represents costs incurred in connection with our
acquisition of Waterworks including professional fees. [f] Under
GAAP, certain convertible debt instruments that may be settled in
cash on conversion are required to be separately accounted for as
liability and equity components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate.
Accordingly, in accounting for GAAP purposes for the $350 million
aggregate principal amount of convertible senior notes that were
issued in June 2014 (the “2019 Notes”) and for the $300 million
aggregate principal amount of convertible senior notes that were
issued in June and July 2015 (the “2020 Notes”), we separated the
2019 Notes and 2020 Notes into liability (debt) and equity
(conversion option) components and we are amortizing as debt
discount an amount equal to the fair value of the equity components
as interest expense on the 2019 Notes and 2020 Notes over their
expected lives. The equity components represent the difference
between the proceeds from the issuance of the 2019 Notes and 2020
Notes and the fair value of the liability components of the 2019
Notes and 2020 Notes, respectively. Amounts are presented net of
interest capitalized for capital projects of $0.6 million and $0.4
million during the three months ended October 29, 2016 and October
31, 2015, respectively. Amounts are presented net of interest
capitalized for capital projects of $1.9 million and $1.5 million
during the nine months ended October 29, 2016 and October 31, 2015,
respectively. [g] The adjustments for the three months ended
October 29, 2016 and October 31, 2015 represent the tax effect of
the adjusted items based on our effective tax rates of 41.4% and
38.9%, respectively. The adjustments for the nine months ended
October 29, 2016 and October 31, 2015 represent the tax effect of
the adjusted items based on our adjusted effective tax rates of
38.9% and 38.7%, respectively. [h] 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 net income (loss), adjusted for the impact of certain
non-recurring and other items that we do not consider
representative of our underlying operating performance. Adjusted
net income is included in this filing 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 DILUTED NET INCOME
(LOSS) PER SHARE TO
ADJUSTED DILUTED NET INCOME PER
SHARE
(Unaudited)
Three Months Ended Nine Months Ended
October 29,2016
October 31,2015
October 29,2016
October 31,2015
Diluted net income (loss) per share $ 0.06 $ 0.49 $ (0.10 ) $ 1.37
Pro forma diluted net income (loss) per share [a] $ 0.06 $
0.49 $ (0.10 ) $ 1.37
EPS impact of adjustments (pre-tax)
[b]: Amortization of debt discount $ 0.17 $ 0.15 $
0.48 $ 0.32 Legal claim — 0.12 0.21 0.29 Reorganization related
costs 0.02 — 0.14 — Impact of inventory step-up 0.04 — 0.13 —
Non-cash compensation — — 0.09 — Acquisition related costs —
— 0.07 — Subtotal
adjusted items 0.23 0.27 1.12 0.61 Impact of income tax on adjusted
items [b] (0.09 ) (0.11 ) (0.44 ) (0.24
) Adjusted diluted net income per share [c] $ 0.20 $ 0.65
$ 0.58 $ 1.74 [a] Pro forma diluted net
loss per share for the nine months ended October 29, 2016 is
calculated based on GAAP net loss and diluted weighted-average
shares of 40,892,878. [b] Refer to table titled “Reconciliation of
GAAP Net Income (Loss) to Adjusted Net Income” and the related
footnotes for additional information. [c] 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 diluted net income per share as net income (loss),
adjusted for the impact of certain non-recurring and other items
that we do not consider representative of our underlying operating
performance divided by the Company’s share count. Adjusted diluted
net income per share is included in this press release because
management believes that adjusted diluted net income per share
provides meaningful supplemental information for investors
regarding the performance of our business and facilitates a
meaningful evaluation of operating 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) TO
OPERATING
INCOME AND ADJUSTED OPERATING
INCOME
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
October 29,2016
October 31,2015
October 29,2016
October 31,2015
Net income (loss) $ 2,517 $ 20,710 $ (4,035 ) $ 57,801 Interest
expense—net 11,091 11,003 32,528 24,058 Income tax expense
(benefit) 1,778 13,163 (2,567 )
36,469 Operating income 15,386 44,876 25,926 118,328
Legal claim [a] — 5,076 8,701 12,118 Reorganization related costs
[a] 974 — 5,698 — Impact of inventory step-up [a] 1,786 — 5,187 —
Non-cash compensation [a] — — 3,672 — Acquisition related costs [a]
— — 2,847 — Adjusted
operating income $ 18,146 $ 49,952 $ 52,031 $
130,446 Net revenues $ 549,328 $ 532,411
$ 1,548,165 $ 1,461,798 Operating margin [b]
2.8 % 8.4 % 1.7 % 8.1 % Adjusted
operating margin [b] 3.3 % 9.4 % 3.4 %
8.9 % [a] Refer to table titled “Reconciliation of GAAP Net
Income (Loss) to Adjusted Net Income” and the related footnotes for
additional information. [b] Operating margin is defined as
operating income divided by net revenues. Adjusted operating margin
is defined as adjusted operating income divided by net revenues.
RESTORATION HARDWARE HOLDINGS,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands)
(Unaudited)
October 29,2016
January 30,2016
October 31,2015
ASSETS Cash and cash equivalents $ 55,426 $ 349,897 $
226,979 Short-term investments 170,153 130,801 160,670 Merchandise
inventories 776,586 725,392 760,854 Other current assets
149,639 107,587 122,138 Total current
assets 1,151,804 1,313,677 1,270,641 Long-term investments 21,056
22,054 2,005 Property and equipment—net 656,569 515,605 556,594
Goodwill and intangible assets 276,568 172,837 172,824 Other
non-current assets 50,304 62,201
56,944 Total assets $ 2,156,301 $ 2,086,374 $
2,059,008
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities Accounts payable and accrued expenses $ 231,079 $
280,714 $ 300,888 Other current liabilities 188,342
171,841 128,113 Total current liabilities
419,421 452,555 429,001 Convertible senior notes due 2019—net
308,649 297,703 294,739 Convertible senior notes due 2020—net
231,876 220,000 217,774 Financing obligations under build-to-suit
lease transactions 193,277 146,621 206,180 Other non-current
obligations 100,900 83,335
72,004 Total liabilities 1,254,123 1,200,214
1,219,698 Stockholders’ equity 902,178
886,160 839,310 Total liabilities and
stockholders’ equity $ 2,156,301 $ 2,086,374 $
2,059,008
RESTORATION HARDWARE HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
October 29,2016
October 31,2015
CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $
(4,035 ) $ 57,801 Adjustments to reconcile net income to net cash
used in operating activities: Depreciation and amortization 41,248
32,105 Other non-cash items 53,611 28,314 Change in assets and
liabilities—net of acquisition: Merchandise inventories (23,261 )
(201,674 )
Accounts payable, accrued expenses and
other
(96,687 ) 65,824
Net cash used in operating activities
(29,124 ) (17,630 )
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures—including
construction related deposits and purchase of trademarks and domain
names
(108,145 ) (85,874 ) Acquisition of building and land — (13,999 )
Net proceeds (purchases) of investments (39,133 ) (82,968 )
Acquisition of business—net of cash acquired (116,100 ) —
Net cash used in investing activities (263,378 )
(182,841 )
CASH FLOWS FROM FINANCING
ACTIVITIES Proceeds from issuance of convertible senior notes —
296,250 Proceeds from issuance of warrants — 30,390 Purchase of
convertible notes hedges — (68,250 ) Debt issuance costs related to
convertible senior notes — (2,382 ) Payments on capital leases (262
) (202 ) Net equity related transactions (2,049 )
22,734 Net cash provided by (used in) financing activities
(2,311 ) 278,540 Effects of foreign currency
exchange rate translation 342 (24 ) Net
increase (decrease) in cash and cash equivalents (294,471 ) 78,045
Cash and cash equivalents Beginning of period 349,897
148,934
End of period
$ 55,426 $ 226,979
RESTORATION HARDWARE HOLDINGS,
INC.
CALCULATION OF FREE CASH FLOW
(In thousands)
(Unaudited)
Nine Months Ended
October 29,2016
October 31,2015
Net cash used in operating activities $ (29,124 ) $ (17,630 )
Capital expenditures—including
construction related deposits and purchase of trademarks and domain
names
(108,145 ) (85,874 ) Acquisition of building and land — (13,999 )
Payments on capital leases (262 ) (202 ) Free cash
flow [a] $ (137,531 ) $ (117,705 ) [a] Free cash flow is
calculated as net cash used in operating activities less capital
expenditures, construction related deposits, acquisition of
building and land, purchase of trademarks and domain names, and
payments on capital leases. Free cash flow excludes all non-cash
items, such as the non-cash additions of property and equipment due
to build-to-suit lease transactions.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161208006181/en/
Restoration Hardware Holdings, Inc.Cammeron McLaughlin,
415-945-4998SVP, Investor Relations and
Strategycmclaughlin@rh.com
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