Restoration Plans New Brand

"We believe there is a tremendous opportunity to introduce a fresh brand that offers great design, quality and value to this large consumer segment," said Gary Friedman, the company's president, CEO and chairman. The fourth-quarter and full-year losses stemmed in part from a one-time non-cash charge having to do with corporate tax matters, and Restoration Hardware said in its earnings announcement that the charge "will have no impact on cash flow or future prospects, nor does it alter our ability to utilize the underlying tax net operating loss and carry forwards in the future."

For the quarter, the company's loss worked out to 52 cents per share, on revenue that grew 2% to $191 million. That compares with net income of $10.6 million, or 28 cents per share in last year's fourth quarter. This year's fourth quarter included the one-time non-cash charge, which amounted to 74 cents per share, or about $28 million. Comparable store sales declined 5.5% for the fourth quarter, against a 5.7% increase last year, but the company is forecasting that comparable store sales will increase 6% to 8% for the first quarter of this fiscal year.

For the full year, the loss worked out to 83 cents per share, against income of $1.7 million, or four cents per share, the previous fiscal year. Comparable store sales declined three-tenths of a percentage point against a 7.8% increase in the previous fiscal year, and net revenue increased 11% to $581.7 million.

"The demand for our core businesses remains strong," Friedman said, noting, "Our direct-to-customer business continues to grow faster than our retail business." This shift to more direct-to-customer sales versus in-store retail sales has produced an increase in "total revenue and order deferral," which represents the combination of back orders, special orders and in-transit orders that Restoration Hardware has on its books.

Back orders represent products that have been ordered by customers but are out of stock. Special orders are products that are made to order for customers and therefore are not in stock at the time the order is taken. In-transit orders represent items that have been billed and shipped to the customer but have not yet been delivered. In effect, these direct-to-customer items mean that Restoration Hardware expects to receive revenue from them in the future but has not yet realized that revenue.

The company, which opened one new retail store and one outlet location in the fourth quarter, operates 103 retail stores and six outlet stores in 30 states, the District of Columbia and Canada.