Restoration Hardware Pressured By Headwinds In Q1 Loss

Restoration Hardware said it was continuing to be pressured by headwinds in the luxury market, posting a first quarter net loss as the company worked to roll out its RH Modern collection and membership program. 

For the fiscal first quarter ended April 30, Restoration Hardware reported a net loss of $13.5 million, or 33 cents per diluted share, versus net income of $7.2 million, or 17 cents per diluted share, in the period a year prior. Adjusted net loss was $2.1 million, or five cents per diluted share, versus net income of $9.8 million, or 23 cents per diluted share, in the quarter a year before.

Comparable brand revenues gained 4%. Net revenues were $455.5 million versus $422.4 million in last year’s first quarter. Stores represented 56% of revenue and direct 44% versus 51% and 49% respectively in the year-earlier period.

“Our near term business performance is being pressured by the continued headwinds in the markets impacted by energy and currency, as well as a general slowdown in the luxury consumer market,” said Gary Friedman, RH chairman and CEO. “In addition, the costs associated with RH Modern production delays and investments to elevate the customer experience, the timing of recognizing membership revenues related to the transition from a promotional to a membership model, and a more aggressive approach to rationalizing our SKU count to optimize inventory, are expected to negatively impact our fiscal 2016 adjusted diluted EPS outlook by approximately 90 cents to $1. While there is uncertainty regarding the headwinds impacting revenues, we expect many of the cost and margin related issues to be short term in nature. This fall, we plan to expand the mailing of our source books, introduce new collections across RH Interiors and RH Modern, launch RH Modern across our entire retail fleet, and remodel our existing legacy galleries, including the installation of design ateliers and a significant product refresh. We expect our performance to improve in the fourth quarter and accelerate as we enter fiscal 2017. Additionally, we have taken steps to streamline our organization resulting in expected cost savings of approximately $20 million on an annual basis.”

Friedman added, “Our recent move from a promotional to a membership model, with the introduction of the RH Grey Card, further supports the evolution of our business from selling products to facilitating projects. While we are learning that the selling cycle with members is longer, as transactions are not closed with the urgency of artificially imposed sale deadlines, and the timing of recognizing membership revenues will put pressure on margins in the short term, we are pleased with the early adoption rate and growth in average order size. At this point, we have every reason to believe membership will prove to be a success, elevating our brand, improving the customer experience, and streamlining our business.”

RH operates a total of 69 retail galleries in the United States and Canada.