For the third quarter ended November 3, Restoration Hardware (RH) added two design galleries and beat a Wall Street earnings estimate by 46 cents as it posted a comp gain of 4%.
The company posted third quarter net income of $22.4 million, or 81 cents per diluted share, versus $13.2 million, or 56 cents per diluted share, in the year-prior quarter. Adjusted net income, excluding one-time charges, was $46.8 million, or $1.73 per diluted share, versus $24.4 million, or $1.04 per diluted share, in the year-earlier quarter. Adjusted diluted earnings per share topped a MarketBeat published analyst consensus estimate of $1.27.
Comparable brand revenue growth advanced by 4% in the quarter year over year. Adjusted for last year’s inventory reduction initiative, comps increased 6.5%. According to the company, slower special order receipts from China due to tariff-related shipping congestion reduced comp and net revenues by about one point.
Net revenues were $636.6 million versus $592.5 million in the year-before period. As was the case in the 2017 quarter, stores represented 58% of net revenues while direct sales represented 42%. Income from operations was $47 million versus $43.2 million in the year-previous period.
In comments on the quarter, RH chairman and CEO Gary Friedman stated that, while many retailers have been closing or downsizing stores, RH remains committed to “revolutionizing physical retailing.”
He added that RH had proven its ability to double the retail sales in markets with legacy stores while more than doubling profitability as, in 2018, the company opened RH Portland and RH Nashville during the first half of the year, and RH New York and RH Yountville in September.
“We continue to be pleased with the performance of our new galleries and now have six galleries with our integrated hospitality experience,” he said.
Friedman added, “Our plan is to pivot back to high-quality, sustainable growth in fiscal 2019 as we return to our product and brand expansion strategy, which has been on hold as we focused on our move to membership and the architecture of our new operating platform and to accelerate our retail estate transformation. President, chief creative and merchandising officer Eri Chaya and her team have several new brand extension plans in our development pipeline, such as RH Beach House and RH Color, launching in the spring and fall of fiscal 2019. Additionally, they have plans to expand our assortments in key categories and accelerate the introduction of new collections as we pivot back to growth over the next several years.
“We also plan to increase our investment in RH Interior Design with a goal of building the leading interior design firm in North America. We believe there is a significant revenue opportunity by offering world class design and installation services as we move the brand beyond creating and selling products to conceptualizing and selling spaces.”
“As previously mentioned, our plan is to accelerate our real estate transformation, opening five to seven new galleries per year, up from three to five per year. In fiscal 2019, we are planning to open five new galleries, including Edina, MN, Charlotte, NC, Corte Madera, CA, San Francisco, CA, and Columbus, OH, as well as our first Guesthouse in New York City. Growth in 2019 will also benefit from the acceleration of RH New York once the city completes street work and we add outdoor seating to our rooftop restaurant in the spring of 2019.”