Restoration Hardware (RH) shrugged off tariff concerns with a strong first quarter, registering a big beat over Wall Street earnings estimates.
In the first quarter ended May 4, RH posted net income of $35.7 million, or $1.43 per diluted share, versus $25.5 million, or $1.01 per diluted share, in the period a year earlier. With one-time charges excluded, adjusted net income was $45.2 million, or $1.85 per diluted share, versus $30.6 million, or $1.21 per diluted share, in the year-previous quarter.
Adjusted diluted earnings per share topped a MarketBeat analyst consensus estimate of $1.54.
Net revenues were $598.4 million versus $557.4 million, in the quarter a year prior. Operating income increased 43% to $68.6 million as compared to the year-before quarter.
In a note to shareholders, Gary Friedman, RH chairman and CEO, noted, “First quarter revenues accelerated in late March, increasing 7.4% for the quarter compared to the prior-year quarter. Net of the approximately two point negative drag from eliminating fringe promotions, adjusted net revenues increased 9.4% in the first quarter fiscal 2019. We remain cautiously optimistic that business momentum will continue despite negative macro trends and increased tariffs, supported by the recent introduction of RH Beach House, the continued elevation and expansion of our product offering, investments in RH Interior Design, plus the launch of RH Ski House and new galleries opening this fall.”
He added, “Our largest and most important new gallery, RH New York, continues to build momentum and is trending comfortably in excess of $100 million in annualized revenue. Two of our projects scheduled to open late in the fourth quarter, RH San Francisco, The Gallery at The Historic Bethlehem Steel Building, and RH Charlotte, The Gallery at Phillips Place, are experiencing slight delays and will now open in the first quarter of fiscal 2020. We have productive legacy galleries in each of those markets, and due to the late planned openings, we don’t anticipate a material impact to this year’s revenues. We continue to be on track to achieve planned asset sales of $50 to $60 million in fiscal 2019. We are negotiating a letter of intent for the sale of RH Yountville and expect to begin receiving offers for RH Edina in the fall when the gallery opens. Looking forward, we expect to accelerate our real estate transformation to a rate of five to seven new galleries in fiscal 2020 and a minimum of seven new galleries in fiscal 2021.”
Regarding China tariffs, Friedman said, “We have renegotiated product costs and selectively raised prices to mitigate the impact of the increase from 10% to 25%. We are also moving certain production and new product development out of China, plus exploring new partnerships and expanding our own manufacturing facilities in the U.S. Long term, we do not believe the current trade climate will impair our ability to achieve our stated financial goals and the expected impact from the increased tariffs is embedded in our guidance for the year.”