Restoration Hardware Q1 2004 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lauri Brunner - Craig Hallum - Analyst : It's Lauri Brunner from Craig Hallum. Nice work, Gary and Pat. A couple of questions. Gary, you mentioned so many things. You are so busy. But I guess one of my questions is what is the project that you don't have time to tackle this year that you're going to tackle next year?

Question: Lauri Brunner - Craig Hallum - Analyst : Okay, great. And then I think you mentioned also, Gary, some investment in the supply chain. Could you give us a little more detail on that, or Pat?

Question: Lauri Brunner - Craig Hallum - Analyst : Okay, great. And then last question. With regard to the furniture launch coming up, can you tell us what month you're targeting, and how will that coincide with the catalog? And then in the stores I think, Gary, you mentioned four different kind of subcategories. Is this furniture launch in stages or do we see it all at once in the stores? Thanks.

Question: Rex Henderson - Raymond James - Analyst : This is Rex on Bud's behalf today. A couple of quick questions. First of all I was interrupted a few minutes ago and I did not hear your discussion of tabletop and where that initiative stands. I know you have discussed getting that done this year, and now it has been put off. Can you give me a review where you stand with the tabletop initiative?

Question: Rex Henderson - Raymond James - Analyst : Okay. So you may have some tabletop as gift items in the fourth quarter? Is that still part of the plan?

Question: Rex Henderson - Raymond James - Analyst : Okay. I wanted to look at gross margin, and your gross margin improvement was pretty impressive. Can you give me any sense of how much of that was leveraged on the store cost and how much of it was merchandise margin?

Question: Rex Henderson - Raymond James - Analyst : Okay.

Question: Rex Henderson - Raymond James - Analyst : Okay. Is there still significant room in the product margin area?

Question: Rex Henderson - Raymond James - Analyst : Okay. Can you give me a sense of how many basis points -- you know, is that something you talk about at this point? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rex Henderson - Raymond James - Analyst : Okay.

Question: Rex Henderson - Raymond James - Analyst : Okay. And finally, you mentioned that filling the backlog was what 150 basis points of your comp? Is there any left of that? Is there any more backlog left?

Question: Mike Napolitana - JMP Securities - Analyst : I have got a question with respect to your inventory going forward. I think the inventory build is related to maybe some of the demand you're anticipating on the catalog and Internet. Just kind of get some parameters on what you would like to see that roll out over the next couple of quarters?

Question: Mike Napolitana - JMP Securities - Analyst : With respect to the catalog and Internet, can you provide the breakout of revenues between those two? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Napolitana - JMP Securities - Analyst : Then while she's looking for that, Gary, what is the plan for 2Q as far as catalog drops versus a year ago?

Question: Mike Napolitana - JMP Securities - Analyst : Great. And then, Pat, could you give -- did you give the number for Capex?

Question: Mike Napolitana - JMP Securities - Analyst : It was 1.3. Great. Thanks. Great quarter.

Question: Kevin Full - Next Generation - Analyst : Let me add my congratulations on a great quarter. You guys bucked the trend of the overall midtier home sector this quarter. I kind of want to get a feel for the comp trends by month. I noticed on the midtier guys they kind of saw their sales fall off after Mother's Day. Did you see any deterioration at all?

Question: Kevin Full - Next Generation - Analyst : Okay, and I know you guys -- your furniture line was favorably mentioned on the Oprah Winfrey show. And did you see a benefit from that in the quarter as well?

Question: Kevin Full - Next Generation - Analyst : That's what we thought. In terms of you -- just to go back on to the supply chain, and for the fourth quarter what is your confidence level that we're not going to see the backlog issues again? And you know what the new Senior Supply Chain Manager coming on in the next month potentially, does she have enough time to -- does he or she have enough time to affect change in your opinion?

Question: Kevin Full - Next Generation - Analyst : Okay. And one final quick question. On the SG&A, the dollars came in a little bit heavier than I was modeling in the first quarter. What are your thoughts for the second quarter and maybe the full year in terms of the dollar? Do you see a significant -- just so I can run the leverage through my model?

Question: Kevin Full - Next Generation - Analyst : For the full year.

Question: Chris Krueger - MJSK - Analyst : It looks like you're off to a great start for the year.

Question: Chris Krueger - MJSK - Analyst : Most of my questions have answered, but I guess one quick one is your store base growth, is that still expected to stay at about 100 to 103 stores quarter after quarter for the next few quarters?

Question: Chris Krueger - MJSK - Analyst : Okay, I am looking forward to next year. Is it too early to tell where that might go?

Question: Chris Krueger - MJSK - Analyst : Okay. What is your answer when you get the question about interest rates increasing or the potential for rate increases, and how that affects your customer?

Question: Chris Krueger - MJSK - Analyst : Great quarter. Thanks.

Question: Rob Wilson - Tiburon Research - Analyst : Yes, Gary, could you talk about what you have done maybe over the last year on trade area versus non-store trade area, catalog circulation and maybe how that may or may not change this year?

Question: Rob Wilson - Tiburon Research - Analyst : Now that 30 to 35 percent compares to last year might have been maybe half of that? Is that a fair assessment?

Question: Rob Wilson - Tiburon Research - Analyst : And do you see that increasing or this sort of levels off?

Question: Rob Wilson - Tiburon Research - Analyst : Thanks for that explanation. And, Pat, one more, the tax rate is that now 39?

Question: Kevin Full - Next Generation - Analyst : Just to follow up on the non-core product, you mentioned the core products have very strong results in the quarter. Where there any categories that you weren't that pleased with?

Question: Kevin Full - Next Generation - Analyst : Okay. I am kind of surprised on the garden portion. I thought with the weather trends it might have seen -- it kind of warmed up a little earlier than expected, at least in the Midwest. It might have helped out, but -- and then on the DC costs that kind of hit the first quarter gross margin, was a portion of that from the higher air ships from the backlog from the fourth quarter? And are we going to see that continue to go forward?

Question: Kevin Full - Next Generation - Analyst : Okay. And can you comment on trends after the end of the month and of the quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Kevin Full - Next Generation - Analyst : Okay, and then sales, can you comment on sales trends after the quarter, so far this quarter?