Restoration Lowers Outlook

Restoration Hardware officials, speaking at a conference call with financial analysts on Friday, explained that the company expects a higher dollar volume of sales revenue to be deferred into future periods as a result of a greater than planned shift in furniture sales to the company's new special order program. The special order program, implemented and promoted in the third quarter, offers custom furniture to be delivered in 45 days rather than the one to two weeks for stock furniture deliveries.

Restoration Hardware now estimates it will lose 10 cents to 12 cents per share for the third quarter, compared with a loss of 9 cents per share for the third quarter of last year. In addition, the company estimates that comparable store sales for the third quarter of fiscal 2005 will decline in the range of 3% to 4% compared to an 8.7% increase in the third quarter a year ago.

Company officials also cited sales during Restoration's Fall Lighting Sale event that increased versus a year ago but fell the planned levels for the event. The lighting sale results also were a factor in the decision to lower sales and earnings estimates.

Gary Friedman, the chairman, president and CEO of Restoration, explained in the conference call that the company generated the special order sales through a promotion event called the Upholstered Furniture Event during the third quarter. The event "performed above plan with a much higher than planned shift to special orders due to the company's advertised 45-day delivery," Friedman said. "The sales from this event were also much higher than planned in the final weeks, which resulted in a greater than planned deferral of revenues into future quarters."

In answer to questions from financial analysts, Restoration said it expects that 85% to 90% of the 45-day special orders will be delivered on time. One analyst questioned whether the chain could meet such a schedule because a shortage of foam in the furniture industry is putting pressure on delivery schedules, but Restoration officials say that their vendors have enough clout to get the foam they need and deliver on time. The 45-day schedule allows 30 days for manufacturing and 15 days for delivery, they said.

Restoration Hardware Inc. is a specialty retailer of home furnishings, bath fixtures and other decorative hardware and related merchandise. The chain operates 102 retail locations and five outlet stores in 30 states, the District of Columbia and Canada.