Restoration Hardware's future uncertain

CORTE MADERA, Calif. Restoration Hardware today said that it will not be providing guidance for its fourth quarter and full year 2007 results because of uncertainty regarding its holiday outlook and its pending merger with Catterton Partners.

Restoration Hardware today reported net revenue of $173.7 million for the third quarter ended Nov. 3, an increase of 10.6% over net revenue of $157.1 million in the third quarter of 2006.

The company reported a $12.9 million loss from operations for the third quarter, which included $1.4 million in costs related to its merger agreement with affiliates of Catterton Partners that was announced on Nov. 8. Loss from operations in the third quarter was $3.7 million. Net loss per fully diluted share was 39 cents, including 4 cents per share related to costs associated with the merger agreement. Net loss per fully diluted share was 15 cents in the third quarter of 2006.

Gary Friedman, president and ceo, stated, "Weakening consumer spending and traffic levels continued to affect our business in the third quarter, particularly higher ticket durable categories.  Revenue did not achieve our expectations, driving substantially all of our larger than anticipated operating loss in the quarter.  While we are encouraged by some of the early holiday trends in our business, we remain cautious due to the macro economic environment, which has proven highly challenging for the home furnishings sector this year."

As previously announced in connection with the signing of the merger agreement with an affiliate of Catterton Partners, an independent committee of the board of directors engaged in a "go shop" process of soliciting proposals from third parties for a period of 35 days through Dec. 13 (negotiations with "excluded parties" under the merger agreement may continue beyond December 13). 

On Nov. 26, Sears Holdings reported in an SEC that it had sent a letter to the special committee of the board of directors of Restoration Hardware, in which it proposed a tender offer to purchase the company’s shares for $6.75 per share, and that it would contemplate entering into a merger agreement. In the letter, Sears also sought to enter into a confidentiality agreement with Restoration Hardware.

According to Sears Holdings, after sending the Nov. 23 letter, its representatives, along with representatives from Restoration Hardware met to discuss Sears’ proposal. On Nov. 25, 2007, the special committee of Restoration Hardware informed Sears Holdings that it was unwilling to enter into a confidentiality agreement providing for the superior tender offer exception sought by Sears Holdings.