For Restoration, a rough road

CORTE MADERA, CALIF. — Rising costs made for an ugly quarterly picture for Restoration Hardware. The retailer saw its net loss for the quarter widen to $2.9 million from $2.4 million in third quarter 2002, and its operating loss deepen from $2.9 million in 2002 to $4.2 million this year.

Selling, general and administrative expenses gained 140 basis points as a percentage of sales in the quarter just ended, to 34.5 percent. SG&A totaled $33 million, up 10 percent from last year's third quarter. They ballooned because the company incurred higher costs in advertising and payroll in support of its sales events for the period.

The inflation in SG&A negated a fairly positive sales performance. Third-quarter checkouts rose 5.6 percent, to more than $95.8 million, and same-store sales climbed 2.9 percent.

"Customers' reaction to our annual autumn furniture sale and our new special-order upholstery program created overall demand which exceeded our expectations," said Gary Friedman, president and ceo. "During the quarter, we opened two new Restoration Hardware prototype stores [in Cleveland and Richmond, VA], which have been designed to showcase our existing and new core businesses with greater clarity and authority."

For the first nine months, Restoration trimmed its net loss from $13.3 million in 2002 to $10.8 million this year, and its operating loss from $24.7 million to $16.4 million. Sales rose an impressive 11.6 percent for the first three quarters, to almost $273.6 million.