Restoration Hardware 2012 Annual Report Download - page 109

including the continuing economic uncertainty (particularly in the housing market in the United States) may continue
in future periods. Based on our research, we believe that the domestic housewares and home furnishings market is
anticipated to grow at a compound annual growth rate of 3 – 4% between 2011 and 2015. However, there can be no
assurance that the market will grow at this rate. The growth rate of the market could be affected by macroeconomic
conditions in the United States. Although we believe our annual net revenues currently represent less than 1% of the
domestic housewares and home furnishings market and therefore we have opportunities to grow market share in
future periods, slower rates of growth could negatively impact our results. For more information, see “Risk Factors—
Changes in consumer spending or the housing market may significantly harm our revenue and results of operations.”
Our Strategic Initiatives. We are in the process of implementing a number of significant business initiatives
that have had and will continue to have an impact on our results of operations, including the development of new
larger Full Line Design Galleries in a number of new locations, the optimization of our store sizes to better fit
anticipated demand in a given market, the expansion of our product categories and services and changes in the
ways in which we market with our catalogs. Although these initiatives are designed to create growth in our
business and continuing improvement in our operating results, the timing of expenditures related to these
initiatives, as well as the achievement of returns on our investments, may affect our results of operation in future
periods, and we may not achieve the desired benefits. Opening Full Line Design Galleries will require significant
capital expenditures, and retail store closures may lead to charges including lease termination and other exit
costs. These changes could affect our results of operation in future periods. In addition, the investments required
to continue our strategic initiatives may have a negative impact on cash flows in future periods and could create
pressure on our liquidity if we do not achieve the desired results from these initiatives in a timely manner. We
expect that we will continue to incur significant capital expenditures as part of our initiative to open more Full
Line Design Galleries over the next several years, and that these expenditures will have an impact on our cash
flows during this time. For fiscal 2012, we incurred total capital expenditures of $49.1 million and we anticipate
our capital expenditure requirements to be approximately $95 million to $100 million for fiscal 2013.
Consumer Preferences and Demand. Our ability to maintain our appeal to existing customers and attract new
customers depends on our ability to originate, develop and offer a compelling product assortment responsive to
customer preferences and design trends. We have successfully introduced a large number of new products during
recent periods, which we believe has been a contributing factor in our sales and operating results. Periods in which
our products have achieved strong customer acceptance generally have had more favorable results. If we misjudge
the market for our products, we may be faced with excess inventories for some products and may be required to
become more promotional in our selling activities, which would impact our net revenues and gross profit.
Our Ability to Source and Distribute Products Effectively. Our net revenue and gross profits are affected by
our ability to purchase our merchandise in sufficient quantities at competitive prices. While we believe our
vendors have adequate capacity to meet our current and anticipated demand, our level of net revenues have been
adversely affected in prior periods by constraints in our supply chain, including the inability of our vendors to
produce sufficient quantities of some merchandise in a manner that was able to match market demand from our
customers, leading to higher levels of customer back orders and lost sales.
Seasonality. Our business is seasonal. As a result, our net revenues fluctuate from quarter to quarter, which
often affects the comparability of our results between periods. Net revenues are historically higher in the second
and fourth fiscal quarters due primarily to the impact of the outdoor selling season and the holiday selling season,
respectively. Cash requirements are typically higher in the first and third quarters due to inventory-related
working capital requirements for the outdoor and holiday selling periods. See “Risk Factors—Our operating
results are subject to quarterly and seasonal fluctuations, and results for any quarter may not necessarily be
indicative of the results that may be achieved for the full fiscal year.”
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of financial and operating measures that
affect our operating results, including net revenues, gross profit, selling, general and administrative expenses,
adjusted EBITDA and adjusted net income.
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Form 10-K