Restoration Hardware 2014 Annual Report Download - page 53

Our recent revenue growth has been accompanied by increased selling, general and administrative expenses,
excluding certain one-time and non-cash items discussed in “Basis of Presentation and Results of Operations”
below. The most significant components of these increases are employment costs due to Company growth,
advertising and marketing costs, credit card fees due to increased revenue and corporate occupancy costs
associated with our corporate headquarters expansion and upgrade of our information technology systems. We
expect these expenses to continue to increase as we continue to open new stores, develop new product categories
and otherwise grow our business.
Adjusted Net Income. We believe that adjusted net income is a useful measure of operating performance, as
the adjustments eliminate non-recurring and other items that are not reflective of underlying business
performance, facilitate a comparison of our operating performance on a consistent basis from period-to-period
and provide for a more complete understanding of factors and trends affecting our business. We also use adjusted
net income as one of the primary methods for planning and forecasting overall expected performance and for
evaluating on a quarterly and annual basis actual results against such expectations.
We define adjusted net income as consolidated net income (loss), adjusted for the impact of certain non-
recurring and other items that we do not consider representative of our ongoing operating performance.
Comparable Brand Revenue. We believe that comparable brand revenue is a meaningful and relevant non-
GAAP metric to evaluate period-to-period changes in net revenue performance given the integrated multi-
channel nature of our business, the synergies between our retail stores, websites and Source Books, and the fact
that customers shop across all of these channels.
Comparable brand revenue growth includes retail comparable store sales, including Baby & Child Galleries,
and direct net revenues. Comparable brand revenue growth excludes retail non-comparable store sales, closed
store sales and outlet store net revenues. Comparable store sales have been calculated based upon retail stores,
excluding outlet stores, that were open at least fourteen full months as of the end of the reporting period and did
not change square footage by more than 20% between periods. If a store is closed for seven days during a month,
that month will be excluded from comparable store sales.
Prior to fiscal 2014, we utilized the comparable store sales metric when evaluating performance. However,
we believe that comparable store sales is no longer the most useful basis for comparison of period-to-period sales
performance because it is limited to retail store net revenues only and does not include Source Book and website
sales which constitute a very large portion of our business and which sales channels are increasingly linked to the
sales performance of retail stores.
As the comparable brand revenue metric includes changes in retail store net revenues (i.e. comparable store
sales) on a period-to-period basis and also incorporates changes in net revenues resulting from Source Book and
websites sales, we believe this metric provides better information to investors in terms of evaluating our business
performance and a better basis to compare performance to that of key competitors.
Basis of Presentation and Results of Operations
On November 7, 2012, Restoration Hardware Holdings, Inc. completed an initial public offering and
acquired all of the outstanding shares of capital stock of Restoration Hardware, Inc. In connection with the initial
public offering, common stock of Restoration Hardware Holdings, Inc. was issued in replacement of prior unit
awards under the Team Resto Ownership Plan. These transactions are referred to as the “Reorganization.” Prior
to the Reorganization, Restoration Hardware Holdings, Inc. had not engaged in any business or other activities
except in connection with its formation and the Reorganization. Accordingly, all financial and other information
herein relating to periods prior to the completion of the Reorganization is that of Restoration Hardware, Inc.
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