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Designs on IPO

Restoration Hardware Is Going Public


Upscale furniture and home accessories chain Restoration Hardware Inc. said on Monday that it intends to go public with an initial stock offering of up to $69 million to fuel expansion plans in the burgeoning home furnishings market that is being buoyed by baby boomers looking to feather their nests with stylish, high-quality designs.

The Corte Madera-based company plans to use capital generated from the offering, filed Monday with the Securities and Exchange Commission, to more than double the number of retail stores in its nationwide chain. The company now operates 44 stores in 21 states, including 14 in California. It plans to open 55 new stores by the end of 1999, according to the filing, and to begin selling merchandise by mail order.

Analysts said the company is positioning itself to take advantage of the fast-growing home fashions and design market that took in $141 billion in revenue last year, outpacing the growth in total retail sales nationwide.

Kevin Silverman, managing director of equity research for Chicago-based Everen Securities Inc., expects that revenue figure to double in the next 10 years given current trends.

"Baby boomers entering their 40s are moving into their peak earning years, and they're able to shift more of their spending toward durable goods for their homes," Silverman said. " . . . Not only do we have the biggest wave of people moving into this age group in history, but they're going to have more wealth than any group of that age in history.

"It's not that Restoration Hardware has figured out a new system that works. This is more the market demanding this type of product," he added.

The chain, launched 17 years ago by Chairman and CEO Stephen Gordon, offers a variety of fancy and unusual wares, from 18th century-style velvet couches to nickel-plated towel bars to antique-style switch plates. Although it sells such traditional hardware store items as hammers and drawer-pulls, the stores primarily trade in furniture and home accessories such as lamps and bed frames.

Neither Gordon nor other representatives from Restoration Hardware could be reached for comment. Last year, the company's net income rose to $1.7 million, from $796,000 the year before. Sales more than doubled to $97.9 million in 1997, from $39.7 million in 1996.

Silverman said the company's proposed expansion poses little threat to competitors such as Pottery Barn and other specialty home design retailers targeting wealthy consumers because of the market's size and projected growth.

"There's a lot of room in this market," he said. "Most of the furniture in this country is sold in regional or local mom-and-pop furniture stores. This is one of the greatest unconsolidated industries. You don't really have huge national furniture stores."

One of the biggest players in the home furnishings market, Fort Worth, Texas-based Pier 1 Imports Inc., which targets both college students looking for affordable furnishings and upscale baby boomers, accounted for just over 1% of the industry's total sales last year with a reported $1.7 billion in revenue. In comparison, San Francisco-based Williams-Sonoma Inc., which operates the Pottery Barn and four other home furnishing retail stores, posted sales last year of $933 million.

Representatives from Williams-Sonoma could not be reached for comment, but Joy Rich, spokeswoman for Pier 1, agreed with Silverman's assessment that the market can support both her company and its competitors.

"Home furnishings is a booming industry right now, and our sales certainly indicate that," Rich said. "We compete with a lot of different retailers, but there's nobody else out there who's doing exactly what we're doing."

Rich said Pier 1 buys from a near-exclusive network of suppliers and focuses on a niche of largely handmade and "hand-touched" crafts and wares. "It's a look that's been doing well for us."

And it's a look that consumers increasingly want, Silverman said.

"Back in the '50s, people didn't care too much about design," he said. "But now there's lots of room for upscale, well-tailored home furnishings, and all these baby boomers are going to spend more on furniture than they ever have before in their lives."

The registration filed with the SEC didn't indicate how many shares Restoration and its shareholders will sell in the IPO. The firm also didn't specify the stake new investors will own or the expected price range of the shares.

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