Restoration Hardware 2015 Annual Report Download - page 40

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Our fiscal 2015 results reflect the ongoing strength of our business. We have continued to increase market share, and at the same
time invested in our infrastructure and supply chain to support future growth. Key financial achievements of fiscal 2015 include:
• Net revenues increased 13% to $2,109.0 million in fiscal 2015, on top of a 20% increase in fiscal 2014 and a 30% increase
in fiscal 2013.
• The fourth quarter of fiscal 2015 marked our 24th consecutive quarter of double-digit net revenue growth.
Factors Affecting Our Results of Operations
Various factors affected our results for the periods presented in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” including the following:
Overall Economic Trends. The industry in which we operate is cyclical, and consequently our revenues are affected by general
economic conditions. For example, reduced consumer confidence and lower availability and higher cost of consumer credit may
reduce demand for our products. We target consumers of high-end home furnishings. As a result, we believe that our sales are
sensitive to a number of macroeconomic factors that influence consumer spending generally, but are particularly affected by the health
of the higher end customer and demand levels from that customer demographic. While the overall home furnishings market may be
influenced by factors such as employment levels, interest rates, demographics of new household formation and the affordability of
homes for the first time home buyer, the higher end of the housing market may be disproportionately influenced by other factors
including the number of foreign buyers in higher end real estate markets in the U.S., the number of second and third homes being
bought and sold, stock market prices and the perceived prospect for capital appreciation in higher end real estate. We have
experienced volatility in our sales trends related to many of these factors in the past and believe our sales may be impacted by these
economic factors in future periods. For more information, see “Risk Factors—Changes in consumer spending and factors that
influence spending of the specific consumers we target, including the health of the high-end housing market, may significantly impact
our revenue and results of operations.”
Our Strategic Initiatives. We are in the process of implementing a number of significant business initiatives that have had and
will continue to have an impact on our results of operations, including the development of our new larger format Design Galleries,
which we refer to as next generation Design Galleries, in a number of new locations, the optimization of our store sizes to better fit
anticipated demand in a given market, the expansion of our product categories and services and changes in the ways in which we
market with our Source Books. In addition, we are in the process of implementing a number of initiatives to improve the quality of our
customers’ experience, which includes vendor product initiatives and changes to the way we operate our distribution centers, home
delivery hubs and customer service centers.
Although these initiatives are designed to create growth in our business and continuing improvement in our results of
operations, the timing of expenditures related to these initiatives, as well as the achievement of returns on our investments, may affect
our results of operation in future periods, and we may not achieve the desired benefits. Opening next generation Design Galleries will
require significant capital expenditures, and retail store closures may lead to charges including lease termination and other exit costs.
These changes could affect our results of operation in future periods. In addition, the investments required to continue our strategic
initiatives may have a negative impact on cash flows in future periods and could create pressure on our liquidity if we do not achieve
the desired results from these initiatives in a timely manner.
For January 30, 2016, we incurred total capital expenditures, including the acquisition of buildings and land, of $133.5 million
and we made payments of $20.0 million in fiscal 2015 to escrow accounts for future construction of next generation Design Galleries.
As an offset to gross capital expenditures in fiscal 2015 we received $9.2 million related to profit participation arrangements for our
distribution center facilities. We expect that we will continue to incur significant capital expenditures as part of our initiative to open
more next generation Design Galleries over the next several years and that these expenditures will have an impact on our cash flows
during this time. We anticipate our gross capital expenditures to be approximately $175 million to $200 million for fiscal 2016.
Consumer Preferences and Demand. Our ability to maintain our appeal to existing customers and attract new customers depends
on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences and design trends.
We have successfully introduced a large number of new products during recent periods, which we believe has been a contributing
factor in our sales and results of operations. Periods in which our products have achieved strong customer acceptance generally have
had more favorable results. If we misjudge the market for our products, we may be faced with excess inventories for some products
and may be required to become more promotional in our selling activities, which would impact our net revenues and gross profit.