Restoration Hardware 2015 Annual Report Download - page 45

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The growth in our net revenues was negatively impacted by the timing of our new product introductions during fiscal 2015 as
compared to fiscal 2014. In fiscal 2015, more than half of our product newness was introduced in the fall of 2015, primarily with the
launch of RH Modern and RH Teen, whereas in fiscal 2014 the majority of our new product introductions coincided with our Spring
Source Book mailing. Further, there was a significant reduction in total circulated pages in fiscal 2015 as compared to fiscal 2014.
Gross profit
Gross profit increased $61.9 million, or 9.0%, to $752.7 million in fiscal 2015 from $690.8 million in fiscal 2014. As a
percentage of net revenues, gross margin decreased 1.3% to 35.7% of net revenues in fiscal 2015 from 37.0% of net revenues in fiscal
2014.
Gross profit for fiscal 2015 was negatively impacted by $17.2 million related to 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. We expect that these coupon redemptions could continue
to impact our gross margins until their expiration in March 2016 and until the related merchandise is delivered to customers. Refer to
Note 18—Commitments and Contingencies in our consolidated financial statements.
Excluding the impact of the coupons redeemed in connection with the legal claim mentioned above, gross margin would have
decreased 0.5% due primarily to higher shipping costs, lower merchandise margins associated with additional warehouse sales, and
deleverage in occupancy costs due to the addition of a new distribution center. These increased costs were partially offset by
improvements in other product related costs and leverage of our fixed supply chain and retail occupancy costs.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $42.1 million, or 8.0%, to $567.1 million in fiscal 2015 compared to
$525.0 million in fiscal 2014.
Selling, general and administrative expenses in fiscal 2015 included $1.8 million related to 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. Selling, general and administrative expenses in
fiscal 2014 included an approximately $8 million charge incurred in connection with the legal claim.
Excluding the impact of coupons redeemed and the charge incurred in connection with the legal claim mentioned above, the
increase in selling, general and administrative expenses of $47.9 million in fiscal 2015 compared to fiscal 2014 was primarily related
to an increase in employment and employment related costs of $32.8 million due to company growth and expansion, an increase in
professional fees and other corporate costs, an increase in corporate occupancy costs associated with our corporate office expansion
and upgraded technology systems, as well as an increase in credit card fees due to increased revenues. These increases were partially
offset by a decrease in advertising and marketing costs of $7.0 million.
Selling, general and administrative expenses were 26.8% and 27.7% of net revenues in fiscal 2015 and fiscal 2014, respectively,
excluding the impact of coupons redeemed and the charge incurred in connection with the legal claim mentioned above. The
improvement in selling, general and administrative expenses as a percentage of net revenues was primarily driven by leverage in our
advertising and marketing costs.