Restoration Hardware 2012 Annual Report Download - page 117

Fiscal 2011 Compared to Fiscal 2010
The following table summarizes the financial impact of purchase accounting adjustments on gross profit and
selling, general and administrative expenses in dollars, and as a percentage of net revenues, for fiscal 2011 and
fiscal 2010:
Fiscal Year Ended
Increase (Decrease)January 28, 2012 January 29, 2011
(dollars in thousands)
Net revenues $958,084 100.0% $772,752 100.0% $185,332
Gross profit excluding purchase accounting
adjustments $359,639 37.5% $276,671 35.8% $ 82,968 1.7%
Decrease in gross profit from purchase accounting
adjustments (3,290) (0.3)% (5,051) (0.7)% 1,761 0.4%
Gross profit $356,349 37.2% $271,620 35.1% $ 84,729 2.1%
Selling, general and administrative expenses
excluding purchase accounting adjustments $328,211 34.3% $273,230 35.3% $ 54,981 (1.0)%
Increase in selling, general and administrative
expenses from purchase accounting
adjustments 1,295 0.1% 1,606 0.2% (311) (0.1)%
Selling, general and administrative expenses $329,506 34.4% $274,836 35.5% $ 54,670 (1.1)%
Net revenues
Net revenues increased $185.3 million, or 24.0%, to $958.1 million in fiscal 2011 compared to $772.8
million in fiscal 2010. We had 74 and 91 retail stores open at January 28, 2012, and January 29, 2011,
respectively. This decrease in the number of retail stores was part of our strategy to consolidate stores in markets
where we open new Full Line Design Galleries and to close stores that do not meet our profitability objectives. In
fiscal 2011, we opened five stores and closed 22 stores. Of the 22 closed stores, 16 were closed at the expiration
of the lease, while six were closed prior to the expiration of the lease. We incurred charges of $3.1 million related
to the early closures. Stores sales increased $95.9 million, or 21.9%, to $534.4 million in fiscal 2011 compared to
$438.5 million in fiscal 2010 due in large part to our comparable store sales increase of 25% in fiscal 2011
compared to fiscal 2010. Direct sales increased $89.4 million, or 26.7%, to $423.7 million in fiscal 2011
compared to $334.3 million in fiscal 2010. We believe that the increase in both comparable store and direct sales
was due primarily to our customers’ favorable reaction to our merchandise assortment, including expansions of
existing product categories and new product categories, an increase in circulated catalog pages and positive
customer reaction to our new Design Gallery format.
Gross profit
Gross profit increased $84.7 million, or 31.2%, to $356.3 million in fiscal 2011 from $271.6 million in
fiscal 2010. As a percentage of net revenues, gross margin increased 2.1%, to 37.2% of net revenues in fiscal
2011 from 35.1% of net revenues in fiscal 2010. Gross profit in fiscal 2011 included $3.3 million of unfavorable
gross profit impact due to purchase accounting compared to $5.1 million of unfavorable gross profit impact due
to purchase accounting in fiscal 2010.
Excluding the impact of purchase accounting, gross margin increased 1.7%. This increase was primarily
driven by an improvement in occupancy costs achieved due to improved leverage on the fixed portion of our
store and distribution center occupancy costs, partially offset by one-time costs associated with the opening of a
new distribution center during fiscal 2011. The overall increase in gross margin was also partially offset by
higher freight costs due to a change in shipping rates charged to customers as we moved to flat rate shipping fees
and experienced a higher percentage of furniture sales, which incurs greater shipping costs than our other
products, and due to increased promotional activity.
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Form 10-K