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RH Posts Steep Drop in Q1 Profits and Sales, but Raises Outlook

MILAN American furnishings retailer RH, which is on a mission to create a curated world of luxury living, travel, dining and design services, reported a decline in first-quarter earnings as it forges on with its long-term expansion plans.

The Corte Madera, California-based company said Thursday that in the first quarter of the year, net income dropped sharply to $41.9 million from $200.7 million in the same period a year earlier.

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“We are climbing the luxury mountain…we are on a climb that nobody has attempted to take,” chairman and chief executive officer Gary Friedman said during the conference call, assuring that the company is on track to meet its long-term goals as it transforms RH into a true U.S. luxury brand. He drew a comparison to the history of Tiffany & Co. “I don’t expect to be understood initially, but I do believe that it will be respected and inspire people eventually.”

Formerly known as Restoration Hardware, RH’s earnings per share were $2.21 versus $6.63 in first quarter of 2022, which beat analyst expectations.

Overall brand revenue for the quarter dipped to $739.2 million from $957.3 million in the first quarter a year earlier.

Adjusted operating margin stood at 14.9 percent versus 24.7 percent.

This exceeded company expectations. Revenues were slightly above an estimate released by the company in March, which forecast first-quarter revenues of $720 million to $735 million and its adjusted operating margin estimate in the range of 13 to 14 percent.

RH also raised its revenue outlook for fiscal 2023 to a range of $3 billion to $3.1 billion and lowered its outlook for adjusted operating margin to a range of 14.5 to 15.5 percent, which includes an approximate 150 basis point drag due to the ramp up of its global expansion.

This compares to a revenue forecast of $2.9 billion to $3.1 billion and an adjusted operating margin in the range of 15 to 17 percent that RH announced in March.

For the second quarter of fiscal 2023, RH forecast revenues of $765 million to $775 million and adjusted operating margin in the range of 14 to 14.5 percent.

Over the last decade, RH has been working hard on shedding its image as an upscale suburban mall reality and has emerged as a major high-end player and a multifaceted business.

“Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative, as we continue our quest to build the most admired brand in the world,” the company reiterated.

Driven by Friedman, RH has expanded into the world of exclusive lodging, the restaurant business and yachts, products, places, services and spaces. The company’s long-term plan is to elevate and expand its RH collection and introduce RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other collections scheduled to launch over the next decade.

Interior of the Restoration Hardware store in the Meatpacking district.
Interior of the RH store in the Meatpacking District.

RH has said its plan to open immersive Design Galleries in every major market will potentially generate revenues of $5 billion to $6 billion in North America, and $20 billion to $25 billion globally.

RH continues to fuel its hospitality efforts with RH Guesthouses, where “our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry.

“Additionally, we are creating bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley, RH1 and RH2, our private jets, and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation,” the company said, adding that these immersive experiences expose new and existing customers to its evolving authority in architecture, interior design and landscape architecture.

Its long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside its Galleries garnered recognition in New York City in 2018 when it opened a 90,000-square-foot RH shop-turned-gallery — after dramatically restoring the late 19th-century landmark building in Manhattan’s Meatpacking District once owned by John Jacob Astor.

It also has its sights set on becoming a major player in the housing market.

“Our strategy comes full circle as we begin to conceptualized and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences — fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers,” the company said.

RH’s global expansion includes opening doors in Brussels, Düsseldorf, Munich and Madrid as well as an Interior Design Studio in London over the next 18 months, followed by Paris, Milan and Sydney in 2024 and 2025.

“We also believe there is an opportunity to address new markets locally by opening Design Studios in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation. We have several existing locations that validate this strategy in East Hampton, Yountville, Los Gatos, Pasadena and our former San Francisco Gallery in the Design District…” the company said.

Interior of the Restoration Hardware store in the Meatpacking district.
Interior of the RH store in the Meatpacking District.

On June 3, RH will host a private event to fete its most ambitious project to date and hallmark of its international expansion, RH England, The Gallery at Aynho Park is a 73-acre, 17th-century estate that will be a luxury travel destination for design, food and wine.

RH England will open to the public on June 9 and will include three full-service restaurants, The Orangery, The Conservatory and The Loggia, plus three secondary hospitality experiences, The Wine Lounge, The Tea Salon and The Juicery. Guests will appreciate views of Europe’s largest herd of white deer grazing on the vast and scenic property from the 46 windows adorning the south-facing main building and can enjoy a glass of wine or afternoon tea service while sitting around monolithic stone fire-pits on the Grand Viewing Terrace. The company said that the Aynho Architecture & Design Library will feature rare books from the foundational masters of architecture, Palladio, Scamozzi and Alberti. The centerpiece of the collection is one of the first printings of “De architectura” the Ten Books on Architecture by Vitruvius, whose work from the 1st century BC is said to have inspired Leonardo da Vinci’s drawing of the “Vitruvian Man” 1,500 years after Vitruvius sketched the original.

“We believe we are being cautiously optimistic as we dip our toe in the water. RH England is a unique move in the market, where our goal is to create the right conversation,” Friedman said during the call.

“We usually look to Europe for inspiration. U.S. brands are usually more followers than leaders. To be a luxury brand, you need to be a leader, so we are approaching our introduction in an entirely unique and one-of-a-kind way by opening a store where someone has never opened a store or in the manner in which nobody has introduced a brand,” he added.

RH is listed on the New York Stock Exchange. Its shares closed down 2 percent to $254.63 following the earnings results and continued to decline another 2 percent in after-market trading.

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