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Expansion in the Works for Trendy Furniture Retailer Restoration Hardware

Firm Believes Legacy Real Estate Holding It Back
March 31, 2014
Based on 33% growth in revenue last year and adjusted net income growth of 92% to $69 million on a comparable week basis, Corte Madera, CA based Restoration Hardware Holdings Inc. is looking to transform its retail store footprint.

“As we enter 2014, we remain focused on our two largest value-driving strategies: the expansion of our offer and the transformation of our retail stores,” said Gary Friedman, chairman and CEO of Restoration Hardware. “In regards to the transformation of our retail stores, we believe we have a $4 billion to $5 billion company trapped in billion dollar legacy real estate.”

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Following the release of its spring 2014 catalogs, approximately just 10% of its assortment of products will be displayed in its retail stores.

“We believe the key to unlocking the value of the company is to transform our real estate portfolio into our next generation, full line design galleries,” Friedman said.

This year, Restoration Hardware will open new galleries in Greenwich, CT, Los Angeles and Atlanta. In addition, it is significantly expanding the size of its New York gallery, adding two floors to its top performing store in the company.

The retailer said it has signed leases for five new galleries and is in negotiations for an additional 25 locations.

"Once our real estate transformation is complete in North America, we believe we will deliver $4 billion to $5 billion in annual sales, achieve mid-teens operating margins, and generate significant free cash flow," Friedman added.

With its next-generation galleries, Restoration Hardware is opening stores with the same product density but approximately 10% to 12% less square footage, thus reducing its occupancy cost.

“As we have done thus far with our full-line design gallery strategy, we will continue to size the store to the potential of the market,” Friedman said in his earnings conference call week. “Looking forward, we expect stores to be in the range of 25,000 to 60,000 lease selling square feet, and believe we are well-positioned to significantly accelerate our annual lease selling square footage growth from 8% in 2014 to a range of 30% to 40% in 2015.”

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