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RH Membership Move Drives Strong Q4

Restoration Hardware is touting its shift to a membership-based business model for a strong fourth quarter performance.

For the fourth quarter ended February 3, Restoration Hardware posted net income of $261,000, or one cent per diluted share, versus $9.4 million, or 23 cents per diluted share, in the year-prior period. Adjusted net income was $43.3 million, or $1.69 per diluted share, versus $27.9 million, or 68 cents per diluted share, in the year-earlier period.

Adjusted earnings per share topped a MarketBeat-published analyst average estimate of $1.54.

Comparable revenues increased 2% in the quarter year over year. Net revenues were $670.3 million versus $586.7 million in the year-previous period. Operating income was $69.1 million compared with $27.1 million and adjusted operating income was $75.1 million compared with $50.9 million in the fiscal 2016 period.

In the quarter, RH derived 54% of its revenues from stores and 46% from direct sales versus 52% and 48% respectively, in year-before quarter, with sales gaining 18% in stores and 10% in direct channels for a total of 14%.

For the full fiscal year, Restoration Hardware posted net income of $2.2 million, or seven cents per diluted share, versus $5.4 million, or 13 cents per diluted share, in the year prior. Adjusted net income was $89.2 million, or $3.05 per diluted share, versus $51.8 million, or $1.27 cents per diluted share, in the year earlier.

Net revenues were $2.44 billion versus $2.13 billion in the fiscal year previous. Operating income was $131.3 million compared with $53 million and adjusted operating income was $171.3 million compared with $102.9 million in fiscal 2016.

In a note to shareholders, RH chairman and CEO Gary Friedman said, “Our fourth quarter results continue to demonstrate the earnings power of our new membership model and a dramatically more efficient operating platform.”

Friedman characterized fiscal 2017 as “the year of execution, architecture and cash at RH. Our efforts were focused on executing our new membership model, architecting a new operating platform and maximizing cash flow by increasing revenues and earnings, and decreasing inventory and capital spending. With 95% of our core RH business driven by members, we can confidently declare our move from a promotional to membership model a success. Membership has enhanced our brand, streamlined our operations and vastly improved the customer experience. We’ve made significant progress redesigning our operating platform, inclusive of closing two distribution centers, simplifying our reverse logistics and outlet model, and reducing inventory by $225 million, or 30% versus a year ago. Our focus on cash resulted in the company generating $433 million in free cash flow in 2017, enabling the repurchase of 20.2 million shares of RH stock, which we believe will continue to be an excellent allocation of capital for the long-term benefit of our shareholders.”