As it plans to expand in 2019, Restoration Hardware (RH) experienced a profit surge in the second quarter.
The company posted net income of $64 million, or $2.33 per diluted share, versus a net loss of $7.86 million, or 28 cents per diluted share, for the year-previous period. For the quarter ended August 4, adjusted net income was $67.4 million, or $2.49 per diluted share, versus $19.7 million, or 65 cents per diluted share, in the period the year before. Adjusted diluted earnings per share beat a Zacks Investment Research consensus analyst estimate of $1.73.
Comparable revenues increased 5% in the quarter year over year. Net revenues were $640.8 million versus $615.3 million in the year-prior quarter. Income from operations was $85.4 million as compared to $12.1 million in the year-earlier period.
Stores represented 56% of revenues versus 57% in the quarter a year previous.
In a note to shareholders, Gary Friedman, RH chairman and CEO, wrote, “Our record second quarter results demonstrate our commitment to earnings growth, the emerging power of our new business model and our continued success revolutionizing physical retailing. Based on our strong second quarter performance and current trends, we are raising our fiscal 2018 earnings guidance for a third time.
“As articulated since the beginning of the year, we continue to manage the business with a bias for earnings versus revenue growth. We will restrain ourselves from chasing low-quality sales at the expense of profitability, and instead focus on optimizing our new business model while building an operating platform that will enable us to compete and win over the long-term.”
Looking ahead to 2019, Friedman stated that the company would be updating its store strategy to include a new RH Design Gallery prototype developed based on key learnings from recent gallery openings and ranging in size from 33,000 square feet inclusive of integrated hospitality to 29,000 square feet without food service. With the new prototype, RH intends to ramp up its opening schedule from three to five new galleries per year to five to seven.
The company also is working on a 10,000 to 18,000 square foot gallery concept as a vehicle to gain share in markets currently served by smaller competitors, with limited tests slated for the next several years. In addition, RH plans to continue opening larger Bespoke Design Galleries in top metropolitan markets, with New York and San Francisco units set to open by next year’s end.