CONFIDENTIALITY AGREEMENT

Exhibit 99.1

R ESTORATION H ARDWARE

CONFIDENTIAL

December 7, 2007

William R. Harker

Sears Holdings Corporation

3333 Beverly Road

Hoffman Estates, IL 60179

Attention: William R. Harker

CONFIDENTIALITY AGREEMENT

Ladies and Gentlemen:

In connection with the analysis of a possible business combination transaction between Restoration Hardware, Inc. (the “ Company ”) and Sears Holdings Corporation (the “ Interested Party ”) (the “ Transaction ”), the Company may deliver to the Interested Party or its Representatives (as defined below) certain Information (as defined below) concerning the Company and the Transaction. Each of the Company and the Interested Party are referred to herein as a “ Party ” and collectively as the “ Parties .”

As used herein, “ Information ” means: (i) all oral and written communications, data, reports, analyses, compilations, studies, interpretations, forecasts, records, notes, asset lists, financial statements and other materials or information (in whatever form maintained, whether documentary, computer storage or otherwise) that contain or otherwise reflect information concerning the Company, any of its subsidiaries or affiliates or the Transaction, or any portion of any thereof, that the Company or its Representatives may provide to the Interested Party or its Representatives in the course of the evaluation of the Transaction (“ Provided Information ”), together with all oral and written communications, data, reports, analyses, compilations, studies, interpretations, forecasts, records, notes, asset lists, financial statements or other materials or information (in whatever form maintained, whether documentary, computer storage or otherwise) prepared by the Interested Party or its Representatives that contain or otherwise reflect or are based upon, in whole or in part, any Provided Information or that reflect the review of, interest in, or evaluation of all or any portion of the Transaction (“ Derived Information ”); (ii) the fact that discussions or negotiations are taking place concerning the Transaction or that any Information has been shared in connection therewith, the proposed terms and conditions of the Transaction (including any financial terms and conditions), and all Information related to such discussions or

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sharing of Information or otherwise with respect to the Transaction, including the status thereof; and (iii) the existence, context, and scope of this Agreement.

As used herein, “ Representatives ” means, collectively, the controlled affiliates of the Interested Party or the Company, as the case may be, and the respective directors, employees, members, financial advisers, lenders, accountants, attorneys, agents and controlling persons of the Interested Party or the Company, as the case may be, or their controlled affiliates, but excluding any person that would act as a co-bidder or other equity participant along with the Interested Party in connection with the Transaction. As used herein, the term “ person ” shall be broadly interpreted to include, without limitation, any corporation, entity, partnership, trust, group or individual.

The Interested Party and the Company agree that, in consideration of being furnished with Information by the Company, all Information shall be kept confidential, including any information about the terms or conditions or any other facts relating to a possible transaction between Interested Party and the Company, and shall not, without the prior written consent of the Company, be disclosed by the Interested Party or its Representatives in any manner whatsoever, in whole or in part, other than to the Interested Party’s Representatives (to the extent permitted by the next sentence), and shall not be used, directly or indirectly, for any purpose other than in connection with evaluating the Transaction. Moreover, the Interested Party agrees to reveal Information only to their Representatives if and only to the extent that such Representatives, in the reasonable judgment of the Interested Party, need to know such Information for the purpose of evaluating the Transaction and are informed of the confidential nature of the Information and such Representatives have agreed to maintain the confidential nature of the Information in accordance with the terms of this Agreement. The Interested Party shall be responsible for any disclosure or other action or inaction by the Interested Party’s Representatives that would constitute a breach of this Agreement if undertaken by the Interested Party, including such Representatives who, subsequent to the first date of disclosure of Information hereunder, become former Representatives. The Interested Party acknowledges that the Company is subject to certain obligations set forth in Section 5.3 of that certain Merger Agreement, date as of November 8, 2007, by and among the Company, Home Holdings, LLC, and Home Merger Sub, Inc. (the “ Home Merger Agreement ”).

To the extent that any Information may include material subject to the attorney-client privilege, work product doctrine or any other applicable privilege concerning pending or threatened legal proceedings or governmental investigations, the Parties understand and agree that they have a commonality of interest with respect to such matters and it is their desire, intention and mutual understanding that the sharing of such material is not intended to, and shall not, waive or diminish in any way the confidentiality of such material or its continued protection under the attorney-client privilege, work product doctrine or other applicable privilege. All

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Information provided by the Company that is entitled to protection under the attorney-client privilege, work product doctrine or other applicable privilege shall remain entitled to such protection. Nothing in this Agreement obligates the Company to reveal material subject to the attorney-client privilege, work product doctrine or other applicable privilege.

If either the Interested Party or the Company determines that it does not wish to proceed with the Transaction, such Party shall promptly advise the other Party of that decision. In such case, or if a Transaction is not otherwise consummated, or if the Company so requests, the Interested Party shall promptly destroy or return to the Company all copies (whether in hard-copy form or to the extent reasonably practicable, on intangible media, such as electronic mail or computer files) of the Provided Information in its possession and in the possession of its Representatives, and will destroy all copies (whether in hard-copy form or to the extent reasonably practicable, on intangible media, such as electronic mail or computer files) of any Derived Information (provided that any such destruction of the Provided Information and any Derived Information shall be certified by the Interested Party or its duly authorized Representative). Notwithstanding the return or destruction of any Information, or documents or material containing or reflecting any Information, the Interested Party will continue to be bound by its obligations of confidentiality and other obligations hereunder for the term of this Agreement, except as otherwise specifically provided herein.

The Interested Party shall not initiate or maintain contact with any person known by the Interested Party to be an officer, director, shareholder, employee or agent of the Company or its subsidiaries regarding a Transaction, except with the express written consent of the Company (which consent may be granted by the Independent Committee of the Board of Directors of the Company (the “ Independent Committee ”)). It is further understood that all (i) communications regarding a possible Transaction by the Interested Party with the Company, (ii) requests for additional information from the Company by the Interested Party, (iii) requests for on-site access or management meetings with the Company by the Interested Party and (iv) discussions with the Company or questions regarding procedures established by the Company by the Interested Party, will be submitted or directed to persons designated by the Independent Committee for such purpose, which may be designated legal counsel or financial advisor for the Independent Committee.

This Agreement shall not apply to such of the Information as: (i) is or becomes generally available to the public other than as a result of any disclosure or other action or inaction by the Interested Party in breach of this Agreement (including any disclosure or other action or inaction by the Interested Party’s Representatives that would constitute a breach of this Agreement if undertaken by the Interested Party); (ii) is or becomes known or available to the Interested Party or any of its Representatives on a nonconfidential basis from a source (other than the Company or any of its subsidiaries, affiliates or Representatives) that, to the best of the Interested Party’s

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knowledge, after reasonable inquiry, is not prohibited from disclosing such Information to the Interested Party by a contractual, legal or fiduciary obligation owed to the Company or its Representatives; (iii) is already in the possession of the Interested Party or any of its Representatives or is independently developed by the Interested Party or any of its Representatives without violation of any obligation under this Agreement; (iv) is or becomes known to the Interested Party or any of its Representatives prior to the Company’s disclosure of such Information to the Interested Party; or (v) is disclosed by the Interested Party with the prior written approval of the Company.

The Interested Party (i) acknowledges that except as may be set forth in definitive transaction agreements, neither the Company nor any of the Company’s subsidiaries, affiliates or Representatives makes any representation or warranty (express or implied) as to the accuracy or completeness of any Information, and (ii) agrees to assume full responsibility for all conclusions the Interested Party derives from the Information. The Interested Party shall be entitled to, and shall, rely solely on representations and warranties made by the Company in any final agreement relating to the Transaction. Nothing contained in this Agreement nor the conveying of Information hereunder shall be construed as granting or conferring any rights by license or otherwise in any intellectual property.

In the event that the Interested Party or any of its Representatives becomes legally compelled (by oral questions, interrogatories, requests for Information or documents, subpoenas, civil investigative demands or otherwise) to disclose any such Information, the Interested Party shall provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy, or both, or waive compliance with the provisions of this Agreement. In the event that the Company is unable to obtain a protective order or other appropriate remedy, or if it so directs the Interested Party, the Interested Party or its Representatives, as the case may be, may furnish only that portion