Restoration Hardware 2015 Annual Report Download - page 12

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Item 1A. Risk Factors
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should
consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on
Form 10-K, including our consolidated financial statements and related notes. If any of the following risks actually occurs, our
business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the
trading price of our common stock could decline, and you could lose part or all of your investment. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe
are not material, may also become important factors that adversely affect our business.
Risks Related to Our Business
We have experienced a high rate of growth in our business during the last several years that may not be sustained and may not
generate a corresponding improvement in our results of operations.
We may not be able to maintain the high levels of growth in our business that we have experienced during the last several years.
Although we have continued to experience sales growth, the rate of sales growth in some recent quarters has been slower than in prior
periods. We attribute recent changes in our rate of sales growth to a variety of factors, including a slowdown in certain markets in
which we operate, as well as some other specific factors such as slower than anticipated deliveries of some products from our vendors.
In addition, as the size of our business grows, we would have to achieve increased incremental growth in each future period, in terms
of actual sales volume, in order to sustain the same percentage rate of growth as that which we have achieved in prior periods. Finally,
the current economic climate in the beginning of 2016 appears uncertain and we are not able to predict if there will be a larger
slowdown in economic activity in the United States and Canada, including a possible recession. If a significant slowdown or recession
were to develop, either broadly or in select portions of the economy such as the housing market or the market for higher-priced
housing, our business would likely be adversely affected.
In addition, sales growth may be adversely affected if favorable customer responses to our product offerings and store formats
are not sustained. We have introduced new product assortments in recent years, including RH Modern and RH Teen. Although we
anticipate a favorable response to these new product offerings, there can be no assurance that we will favorably execute on all the
elements required for introduction of a new merchandise category such as RH Modern. A successful introduction of new product
assortments requires that we successfully anticipate customer demand for new products and styles, that we create the right product
assortment within the new category, that our marketing of the new products is able to reach potential customers, and that we
successfully source the right products in the right quantities and at the right price to satisfy customer demand. We are likely to
encounter some elements of uncertainty with the introduction of a new product assortment as we estimate the quantity of such
products in anticipation of customer demand. It is not uncommon to overestimate or underestimate demand for specific products as we
assess potential customer demand across a range of new products. In addition, even where we have the right products and favorable
merchandising, other factors may slow our ability to fulfill customer orders such as backlog in production at specific vendors or other
manufacturing challenges as vendors produce new products in quantity. For instance, we encountered difficulties with respect to the
introduction of RH Modern despite favorable reception by customers because our vendors were not able to produce demanded
amounts of products at the required quality level. Any of the above factors can adversely affect both our revenue from quarter to
quarter and our results of operations.
Our strategy in opening newer and larger store formats typically involves closing legacy stores in the same market area.
Although we believe this approach has generally been successful in the past, there can be no assurance that it will continue to be
successful in particular new markets. While our objective is to migrate a high percentage of customer demand when we choose to
close a store in a particular location in favor of a next generation Design Gallery in the same or an adjacent market location, there can
be no assurance that we will be successful in doing so.
In addition, comparable brand revenue growth is another measure of the rate of growth in our business. For the reasons stated
above, we have recently experienced a decline in the rate of comparable brand revenue growth in recent quarters compared to prior
periods. Our rate of revenue growth and comparable brand revenue growth have sharply fluctuated from quarter to quarter over the
last three years.
As a high growth business, we expect volatility in the rates of our growth to continue in future quarterly periods. Unique factors
in any given quarter may affect period-to-period comparisons such as sales promotions or other changes in the business between the
two quarters being compared. The results for any quarter are not necessarily indicative of the results that we may achieve for a full
fiscal year. Our results of operations may also vary relative to corresponding periods in prior years. We may take certain pricing,
merchandising or marketing actions that could have a disproportionate effect on our business, financial condition and results of
operations in a particular quarter or selling season, and we believe that period-to-period comparisons of our results of operations are
not necessarily meaningful and cannot be relied upon as indicators of future performance.