RH Credits Membership Model For Q3 Gains

As it touted the success of its membership operations model, Restoration Hardware gained in both net sales, comps and net income in the third quarter.

The company reported third quarter net income of $13.2 million, or 56 cents per diluted share, versus $2.5 million, or six cents per diluted share, in the year-earlier period. Adjusted net income increased to $24.4 million versus $8 million in the prior-year period, while adjusted diluted earnings per share increased to $1.04 versus 20 cents in the year-previous quarter. Adjusted earnings per diluted share matched a MarketBeat-published analyst average estimate.

The company pointed out that GAAP and adjusted net income include a negative impact of about $1.3 million from Hurricanes Harvey and Irma and a positive impact of about $2.5 million related to a lower effective tax rate.

Comparable revenues increased 6% in the quarter year over year. Net revenues were $592.5 million versus $549.3 million in the quarter a year prior. Stores represented 58% of net revenue and direct sales 42% in the quarter.

Gary Friedman, RH chairman and CEO, stated, “Our core RH business continued to build momentum as comparable brand revenues increased 6% in the quarter, on top of a 6% decrease a year ago, with merchandise margins up sharply versus last year. Investments in our interior design business, a key benefit of membership, continues to evolve the brand from creating and selling products to conceptualizing and selling spaces, deepening our relationship with customers, and positioning RH as the leading luxury interior design platform in the country.”

Friedman added, “Over the past 18 months, we transformed our business from a promotional to a membership model that is enhancing our brand, streamlining our operations and improving the customer experience. With 95% of our core RH business now generated from members, we can confidently declare our move from a promotional to a membership model a success. We currently have approximately 380,000 active RH members, with membership fee income up 37% year-to-date. Other positive trends we are experiencing include reductions in return, exchange, and cancel rates. We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model. We expect these factors to contribute to improved financial performance through higher conversion of demand into revenue, improved margins and lower costs across our operating platform. We also believe that these changes will result in an overall improvement in our customer experience.”