Restoration Hardware Unveils ‘Modern’ Concept On Heels Of Q1 Gains

RH, Restoration Hardware, launched a major initiative in contemporary furniture, building on what its chairman and CEO Gary Friedman, called a shift in tastes. And taste, he said, sets Restoration Hardware apart from other retailers in the home space and will drive rapid expansion at the company.

Besides contemporary furnishings, the larger, more comprehensive gallery-style brick and mortar stores the company is currently opening will fuel that expansion, Friedman said.

RH Modern debuts as a curated collection that combines the clean lines and a minimalist aesthetic with comfort and quality, the company stated. Friedman unveiled the new concept during the company’s first quarter fiscal 2015 earnings video. He described RH Modern as a fresh and compelling product offering that would “define a new way to live and redefine how to shop for modern furnishings.”

RH Modern will launch in the fall with a 300 page source book, a dedicated website, and a significant retail presence, including a freestanding RH Modern store on Beverly Boulevard in Los Angeles, the company maintained. In addition, Restoration Hardware plans to devote the entire ground floor of its Flatiron gallery in New York City and entire floors in its next generation design gallery to the product line. Those design galleries include a newly opened location in Atlanta to RH Modern and locations in Chicago, Tampa, Denver and Austin, TX, slated to open with the next few months.

“Later this year, 20 of our largest legacy stores will be designed to include 2 to 3,000 square feet dedicated to RH Modern,” Friedman said. “In total, RH Modern will have over 120,000 square feet of selling space in its first year of operations. Looking forward, with RH Modern occupying up to 15,000 square feet in our future next generation design galleries and the possibility for additional freestanding locations, RH Modern will have a retail footprint that grows by up to 100,000 square feet per year and will be a disruptive force in the highly fragmented modern market.”

To get the word out, Friedman said, “We will also support the launch of RH Modern with a national advertising campaign in the top design and luxury publications such as Architectural Digest, Elle Decor, Town & Country, and Wallpaper, as well as key online marketing, and opening events in Los Angeles and New York.”

Friedman said the RH Modern initiative is only one of many ideas that Restoration Hardware will roll out in the immediate future, with one to be announced shortly, even as it opens next generation galleries. Restoration Hardware plans to develop the new-format stores in all major markets in the United States, Friedman noted. As a format, the next generation galleries are significantly larger than Restoration Hardware’s legacy stores, which run in the vicinity of 7,000 square feet. The next-generation galleries offer six to eight times the product assortment of older stores, Karen Boone, Restoration Hardware’s chief administrative officer and CFO, said in the video presentation. She added that Restoration Hardware anticipates growing to reach $4 billion to $5 billion in revenues based on current assessments with a mid-teens operating margin.

Friedman asserted that Restoration Hardware would go against retail trends, expanding in bricks and mortar locations as it continues developing its successful online presence. He said that the emergence of online shopping has not been the cause of what he characterized as recent softness in the retail sector but, rather, cited a lack of imagination. He insisted that Restoration Hardware’s “culture of disruptive innovation” would produce a better-crafted retail experiences, unlock the company’s potential and drive better earnings and return on investment.

In its last fiscal year, Restoration Hardware Holdings posted net income of $91 million, or $2.20 per diluted share, versus $18.2 million, or 45 cents per diluted share, for the year prior. Adjusted net income increased 41% to $97.6 million and adjusted diluted EPS gained 38% to $2.36 versus the year earlier, the company maintained. Net revenues were $1.87 billion versus $1.55 billion in 2013, and comparable brand revenues, which includes store and direct to consumer sales, increased 20% year over year.

Restoration Hardware started its fiscal year strong as the company reported double-digit sales growth for the first quarter ended May 2.

According to the company, quarterly sales were up 15% to $422.4 million. Adjusted net income increased 38% to $9.8 million and diluted earnings per share for the quarter increased 28% to $0.23.  

Gary Friedman, chairman/CEO of Restoration Hardware, noted that his company continues to outperform the home furnishings industry and revenue growth shows the power of the retailer’s brand and of its multi-channel business model.

In the quarter, the company reported that its store accounted for 51% of net revenue, while direct sales accounted for 49% of Restoration Hardware’s quarterly net revenue.

Friedman noted that the retailer’s next generation Design Gallery, RH Atlanta – The Gallery at the Estate in Buckhead – continues to accelerate and gain momentum.

“With the 2015 Source Books just now reaching the Atlanta market, as well as the addition of our new businesses later this year, we believe that this gallery is well on track to exceed our original expectations,” he added.

The company also increased its financial outlook for fiscal 2015. Restoration Hardware is increasing its adjusted net income guidance to growth in the range of 30% to 36%, above its long-term target of mid to high twenties. Net revenues are now expected to grow in the range of 15% to 17%.

“Fiscal 2015 is a bridge year for RH, with revenue growth targeted in the mid-teens, and then reaccelerating to our long term goal of 20% as our real estate transformation and new product introductions ramp in fiscal 2016,” Friedman said.

“While still in the early stages of building RH into the leading home brand for the luxury customer, we are well on track towards our long-term goal of $4 billion to $5 billion in North American sales, mid-teens operating margins, significant free cash flow and industry-leading return on invested capital,” he added.