MILAN — Net income and sales are down, the economic outlook is uncertain, but that is not stopping RH from expanding worldwide and investing in its brand identity. The American furnishings retailer, which is on a mission to create a curated world of luxury living, travel, dining and design services, reported a decline in second-quarter earnings, but said it’s committed to its long-term vision of becoming a global luxury player.
The Corte Madera, Calif.-based company reported that in the quarter ended July 31, net income dropped to $76.5 million from $122.3 million in the same period a year earlier.
“We continue to expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023, and into next year, as mortgage rates continue to trend at 20-year highs and the current outlook for rates to remain unchanged until the second quarter of 2024,” chairman and chief executive officer Gary Friedman said during the company conference call, assuring the financial community that the company is on track to meet its long-term goals.
The company said it repurchased 3.7 million shares in the second quarter at an average price of $325.65, representing approximately 17 percent of the total shares outstanding at the beginning of the second quarter.
Formerly known as Restoration Hardware, RH’s brand revenue for the semester dipped to $800.5 million from $992 million in the second quarter a year earlier. RH posted an adjusted operating margin of 20.2 percent versus 24.7 percent in the second quarter of 2022.
Both figures exceeded company estimates released in May. The company forecasted revenues of $765 million to $775 million in the second quarter and adjusted operating margin in the range of 14 to 14.5 percent. RH’s earnings per share were $3.36 versus $4.54 in second quarter of 2022, which also beat analyst expectations.
RH raised its revenue outlook slightly for fiscal 2023 to a range of $3.04 billion to $3.1 billion (from $3 billion to $3.1 billion) and maintained its outlook for adjusted operating margin of a range of 14.5 to 15.5 percent.
For the third quarter of fiscal 2023, RH forecasts revenues of $740 million to $760 million, and adjusted operating margin in the range of 8 to 10 percent. In that period, RH expects to have increased advertising costs of approximately $50 million versus the second quarter of 2023, which includes costs associated with its RH Contemporary Sourcebook and the mailing of its first Sourcebook into the U.K. The 2023 RH Interiors source book is 604 pages and features 100 exclusive collections, boasting what the company says is the largest curated and fully integrated assortment of luxury home furnishings in the world. Friedman sees this mailing as a key driver in promoting the RH name in Europe.
RH’s global expansion also includes openings in Düsseldorf and Munich later this year, with Paris, Brussels and Madrid for 2024, and London, Milan and Sydney for 2025.
Over the last decade, RH has been promoting itself as a major high-end player and a multifaceted business that doesn’t depend on furniture sales alone. In June, it marked its European arrival with a bang — the firm’s most ambitious project — RH England, The Gallery at Aynho Park — a 73-acre, 17th-century estate, a new hub from where the majority of its revenues are expected to be driven by interior design and trade business. In response to analyst questions regarding traffic and performance, Friedman likened the decision to open RH England off-the-beaten-track to opening Disneyland in the middle of California’s orange orchards or Las Vegas in the middle of the desert.
“If we put it in London, it would do better. A lot of things in the world started as inconvenience. You have to think about long-term…,” he said. Earlier this week, RH announced it had submitted a proposal to reimagine One Ocean Drive on Miami Beach, estimating a total capital investment in the range of $150 million to $170 million.
The executive also said he thinks the company will see RH’s investments and hard work come to fruition next year.
“I think we’ll have the biggest inflection point we’ve ever had is my view by second quarter of next year. I look at all the lines and I think about production and in-stocks and floor sets and all the transition moves we have to make. I think that in the second cycle of the books, I think it will start to peak then, and then I think we’re going to have an incredible run.”
To further amplify its reach, RH will introduce RH Media, a content platform to highlight the world of industry leaders and innovators.
Friedman brushed off Thursday’s stock performance, after RH fell 8 percent in after-hours trading on the news. The executive also said he didn’t want to “jinx” anything but expressed confidence on the year ahead.
“I think 2024 is going to be a very good year unless there is some kind of crazy crisis that we don’t believe is on the horizon. “