RH Store Growth Strategy Lifts Q3 Results

Restoration Hardware (RH) emphasized its physical store presence as the foundation of its strong third quarter financial results.

Net income for the quarter was $52.5 million, or $2.17 per diluted share, versus $20.1 million, or 73 cents per diluted share, in the period a year before.

Adjusted net income, excluding one-time charges, was $65.4 million, or $2.79 per diluted share, versus $43.2 million, or $1.60 per diluted share, in the year-previous quarter. Restoration Hardware easily exceeded a MarketBeat-published adjusted income per diluted share consensus analyst estimate of $2.22.

Net revenues were $677.5 million versus $636.6 million in the year-prior quarter. Operating income was $89.2 million as compared to $42.2 million in the period a year earlier.

Gary Friedman, RH chairman and CEO, stated, “We generated record GAAP revenues of $678 million in the quarter, an increase of 6.4%, inclusive of a two point drag from eliminating unproductive product categories and fringe promotions. Taking into account the two point drag, revenues for the quarter would have increased 8.4%. We also generated record adjusted operating earnings of $88 million, up 44% versus last year, record adjusted operating margin of 13%, a 340 basis points increase versus 9.6% a year ago, record adjusted diluted earnings per share of $2.79, up 74% versus $1.60 last year, and $96 million of free cash flow in the quarter versus $16 million a year ago.”

He added that the RH model, combining online operations and unique store propositions has a substantial advantage in the retail marketplace.

“Our focus on elevating the RH brand by building architecturally inspiring spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality with seamlessly integrated restaurants and services, have rendered our brand more valuable while creating a customer experience that cannot be replicated online,” he said.

Friedman continued, “Our dominant physical presence combined with our integrated multi-channel platform that generates over a billion dollars online will continue to enable the RH brand to disrupt the highly fragmented luxury home furnishings market and take share for years to come. Add to the above the most efficient operating platform in our industry, a vertically integrated real estate development model that is dramatically lowering capital requirements and occupancy costs, and our discipline of driving high quality profitable growth and you begin to understand why RH is one of the only brands that is expanding operating margins while generating industry leading returns on invested capital and significant free cash flow.”