Despite what the company termed a record sales performance in the fourth quarter and fiscal year, Restoration Hardware reported a decline in earnings in the quarter, saying that it felt a negative impact from several economic factors.
For the fiscal fourth quarter ended January 30, Restoration Hardware posted net income of $33.3 million, or 79 cents per diluted share, compared to $42.5 million, or $1.02 per diluted share, in the previous-year period. Adjusted net income was $41.2 million, or 98 cents per share, versus $42.5 million, or $1.02 per diluted share, in the quarter a year ago.
An analyst average estimate published by MarketBeat called for adjusted income per diluted share of $1.39.
Comparable brand revenues, including store and online RH operations, advanced 9%, the company reported. Net revenues were $647.2 million versus $582.7 million in the prior fiscal year quarter. Store revenues increased 15% to $318.8 million, while direct revenues increased 8% to $328.4 million from the fiscal 2014 fourth quarter. Direct sales in the fiscal 2015 quarter represented 51% of total net revenues.
For the full fiscal year, net income was $91.1 million, or $2.16 per diluted share, as compared to $91 million, or $2.20 per diluted share, in the year earlier. Adjusted net income was $114.8 million, or $2.72 per diluted share, versus $97.6 million, or $2.36 per diluted share.
Comp revenues gained 11%, according to RH. Net revenues were $2.11 billion versus $1.87 billion in fiscal 2014. For the year, store revenues increased 16% to $1.08 billion while direct revenues increased 10% to $1.03 billion from fiscal 2014. Direct sales in fiscal 2015 represented 49% of total net revenues.
Gary Friedman, Restoration Hardware chairman and CEO, said that the 2015 fiscal year was “one of record performance for RH. We reported record net revenues of $2.1 billion, up 13% on top of a 20% increase a year ago, and up nearly $1 billion from our initial public offering in 2012. Our adjusted operating income grew 18% to $205 million, on top of a 43% increase last year. Adjusted operating margins reached a record 9.7%, among the highest in our industry, and up from 5.8% at the time of our IPO just three years ago.”
However, he added, “While our fourth quarter demand sales/written orders were up a strong 21%, on top of up 26% last year, our delivered net revenues increased only 11% in the quarter, on top of up 24% last year, representing a shortfall to our plan. There are three key factors that had a negative effect on our fourth quarter results. First, while the initial response to RH Modern has been outstanding, we are experiencing shipping delays as certain vendors are struggling to ramp up production of this new product line. We expect these vendors to be substantially caught up by the end of the first half. Second, we continue to see underperformance in markets affected by energy, oil or currency fluctuations, specifically, Texas, Miami and Canada, representing a drag on total company revenues in the second half. Third, our attempts to drive incremental revenue through increased promotional activity in the fourth quarter were less successful than in prior periods, signaling a further pullback by the high-end consumer.”
Friedman said that, although challenges have emerged, “we believe the good news greatly outweighs the bad when you put it into the context of our long-term growth strategy. Despite the headwinds, our two key value-driving strategies, the expansion of our product offer and the transformation of our real estate, are working exceptionally well. The strong response to RH Modern, both in retail and direct, indicates this can quickly become a billion dollar plus brand. All of our new next generation design galleries are exceeding plan. With the one-year anniversary of Atlanta, plus the openings of Chicago, Denver, and Tampa, we continue to demonstrate that our strategy to transform our 7,500 square foot legacy stores into 45,000 to 60,000 square foot next generation design galleries will drive meaningful growth over the next seven to 10 years.”
Friedman continued, “Our key priorities for fiscal 2016 are centered on the optimization of our core business by improving in-stocks for RH Modern and our core newness launching this fall, elevating our end-to-end customer experience, optimizing our inventory and working capital, being opportunistic with real estate to achieve improved deal terms, and changing the promotional cadence via the launch of the RH Grey Card. We believe what should change in this environment is the pace at which we deploy our investments, with a focus on optimizing returns and cash flow generation in fiscal 2016.”
Restoration Hardware operates a total of 69 retail galleries as well as 17 outlet stores throughout the U.S. and Canada.