Restoration Hardware 2012 Annual Report Download - page 76

demand, our ability to efficiently source and distribute products, changes in our product offerings, competition,
current local and global economic conditions, changes in catalog circulation and the success of marketing
programs. These factors may cause our comparable store sales results to be materially lower than recent periods
and our expectations, which could harm our results of operations and result in a decline in the price of our
common stock.
Although we have recently experienced sales growth as a result of a number of new business initiatives, this
sales growth may not continue and the level of our sales could decrease if customer response to our product
offerings is not sustained. Many factors can influence customer response to our product offerings and store
formats including responses from our competitors, who may introduce similar products or merchandise formats.
In addition, sales levels for particular merchandise or product categories may not continue over time if customer
demand levels are not sustained. The level of customer response to our Full Line Design Galleries may vary in
different markets and store locations. Similarly, the level of customer response to our Source Book catalog
format, in which we display a greater percentage of our product assortment, may vary in different markets. In
addition, there can be no assurance that we will be able to migrate customer demand successfully when we
choose to close a store in a particular location in favor of a Full Line Design Gallery in the same or an adjacent
market location. While our objective is to retain a high percentage of customer demand from store locations that
we close, there can be no assurance that we will retain a high percentage of sales from stores closed in the future
or that we will continue to retain a high percentage of sales from stores previously closed.
In addition, these developments in our business could result in material changes in our operating costs, including
increased merchandise inventory costs and costs for paper and postage associated with the mailing and shipping of
catalogs and products. We cannot assure you that we will succeed in offsetting these expenses with increased
efficiency or that cost increases associated with our business will not have an adverse effect on our financial results.
If we fail to successfully anticipate consumer preferences and demand, or to manage our inventory
commensurate with demand, our results of operations may be adversely affected.
Our success depends in large part on our ability to originate and define home product trends, as well as to
anticipate, gauge and react to changing consumer demands in a timely manner. Our products must appeal to a
range of consumers whose preferences cannot always be predicted with certainty. We cannot assure you that we
will be able to continue to develop products that customers positively respond to or that we will successfully
meet consumer demands in the future. Any failure on our part to anticipate, identify or respond effectively to
consumer preferences and demand could adversely affect sales of our products. If this occurs, our sales may
decline significantly, and we may be required to mark down certain products to sell the resulting excess
inventory or to sell such inventory through our outlet stores, either of which could have a material adverse effect
on our financial condition and results of operations.
In addition, we must manage our merchandise in stock and inventory levels to track consumer demand.
Much of our merchandise requires that we provide vendors with significant ordering lead time, frequently before
market factors are known. In addition, the seasonal nature of our products requires us to carry a significant
amount of inventory prior to peak selling seasons. If we are not able to anticipate consumer demand for our
different product offerings, or successfully manage inventory levels for products that are in demand, we may
experience:
• back orders, order cancellations and lost sales for products that are in high demand for which we did
not stock adequate inventory; and
• overstock inventory levels for products that have lower consumer demand, requiring us to take
markdowns or other steps to sell slower-moving merchandise.
As a result of these and other factors, we are vulnerable to demand and pricing shifts and to misjudgments in the
selection and timing of merchandise purchases.
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