Restoration Hardware 2014 Annual Report Download - page 56

factors impacting the year-over-year comparability of our comparable brand revenue growth include strong
customer response to the mailing of our large format Source Books introduced in 2013, the launch of our new
2014 assortment in our Galleries and on our websites, and our pricing and promotional strategy in fiscal 2014.
We believe our brand awareness has increased and has allowed us to further disrupt the highly fragmented home
furnishings landscape and achieve market share gains.
Gross profit
Gross profit increased $133.9 million, or 24.0%, to $690.8 million in fiscal 2014 from $556.9 million in
fiscal 2013. As a percentage of net revenues, gross margin increased 1.1% to 37.0% of net revenues in fiscal
2014 from 35.9% of net revenues in fiscal 2013.
The increase in gross margin was primarily driven by higher merchandise margins in our core business,
improvements in our shipping costs, and leverage of our fixed retail occupancy costs. These increases were
partially offset by higher outlet sales and deleverage in our supply chain occupancy costs.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $23.0 million, or 4.6%, to $525.0 million in fiscal
2014 compared to $502.0 million in fiscal 2013.
Selling, general and administrative expenses in fiscal 2014 included an approximately $8 million charge
incurred 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. Refer to Note
18—Commitments and Contingencies in our consolidated financial statements.
Selling, general and administrative expenses in fiscal 2013 included: (i) a $33.7 million non-cash
compensation charge related to the fully vested option granted to Mr. Friedman upon his reappointment as
Chairman and Co-Chief Executive Officer, (ii) a $29.5 million non-cash compensation charge related to the
performance-based vesting of certain shares granted to Mr. Friedman in connection with the initial public
offering, (iii) a $4.9 million charge incurred 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 and (iv) $2.9 million of costs incurred in connection with our May 2013 and July 2013
follow-on offerings.
The increase in selling, general and administrative expenses, excluding the charge incurred in connection
with a legal claim and the one-time and non-cash compensation items mentioned above, was primarily related to
an increase in employment costs of $44.3 million due to company growth, an increase in advertising and
marketing costs of $31.7 million associated with the increase in the page count of our 2014 Source Books, an
increase in credit card fees of $7.2 million due to increased revenues and increases in corporate occupancy costs
associated with our corporate headquarters expansion and upgrade of our information technology systems.
The decrease in selling, general and administrative expenses as a percentage of net revenues, excluding the
charge incurred in connection with a legal claim and the one-time and non-cash compensations items mentioned
above, was primarily driven by leverage in Gallery and distribution center employment, and by travel and
entertainment expenses, professional fees and other corporate costs increasing at a lower rate than our growth in
net revenues. These decreases were partially offset by advertising and marketing costs associated with the
significant increase in the page count of our 2014 Source Books.
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