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Financial, Retail

RH Reports Record First Quarter Results

RH, formerly known as Restoration Hardware, reports strong first quarter ended April 30, 2022, however, softening demand trends have resulted in the company revising downward its projections for 2022. 

6/3/2022
restoration hardware New York City gallery
RH continues to expand beyond home furnishings with future entry into the housing market. Above, its New York City Gallery

CORTE MADERA, Calif. -- RH (NYSE: RH) has released its financial results for the first quarter ended April 30, 2022, and reports record results with adjusted net revenues reaching $958 million, up 11 percent for the same period last year. 

FIRST QUARTER 2022 HIGHLIGHTS

-- Q1 adjusted net revenues increased 11% to $957 million vs. $861 million
-- Q1 adjusted gross margin increased 480 basis points to 52.1% vs. 47.3%
-- Q1 adjusted operating margin increased 210 basis points to 24.7% vs. 22.6%
-- Q1 adjusted net income increased 50% to $213 million vs. $142 million
-- Q1 adjusted diluted eps increased 59% to $7.78 vs. $4.89

According to a letter to the shareholders by Gary Friedman, company CEO and president, "We are pleased to report another quarter of record results as revenue increased 11 percent to $957 million versus $861 million a year ago, and up 98 percent versus 2020, representing one of the highest two-year growth rates in our industry." 

Gross margin expanded 480 basis points in the first quarter driven by a 390 basis point increase in product margins and our resistance to promote the business as demand trends began to slow.

"While there has been a widespread return to discounting across our industry as evidenced by the barrage of sale emails filling our inboxes, and there may be short-term risk of market share loss by choosing not to promote, we believe there is certain long-term risk of brand erosion and model destruction once you begin down that path," he continued.

"It’s that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry and our results now reflect those of the leading luxury brands as first quarter adjusted operating margin reached 24.7% versus 22.6% a year ago."

The company's results are inclusive of investments related to the opening of RH San Francisco and the RH Guesthouse, the development of RH International and the rollout of RH In-Your-Home, which led to approximately 200 of the 270 basis points of SG&A deleverage in the quarter. "We are forecasting SG&A as a percentage of revenue to peak in the second and third quarters as we return to mailing Source Books after a two-year hiatus. By the fourth quarter we expect SG&A as a percentage of revenue to be in-line with last year.

FISCAL 2022 OUTLOOK

"Despite our record financial performance in the first quarter, we have experienced softening demand trends which began at the time of the Russian invasion of Ukraine and have further slowed during the market disruption over the past several months," Friedman stated.
"Based on our current trends and the uncertain macro-economic environment we are providing the following revised outlook for the second quarter and fiscal 2022:"

-- Second quarter net revenue in the range of (1%) to (3%), versus up 39% last year, with adjusted operating margin in the range of 23.0% to 23.5%, versus 26.6% a year ago.

-- Fiscal 2022 net revenue growth in the range of 0% to 2%, versus up 32% last year, with adjusted operating margin in the range of 23.0% to 24.0%, versus 25.6% a year ago.

"While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID- driven spending shift, shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving industry-leading performance," he said.

2022: THE YEAR OF THE NEW

While many of the company's plans were delayed by the COVID virus, they were not disrupted by it. "We believe 2022 will mark the beginning of the next chapter of growth and innovation for the RH brand," Friedman continued.

2022, The Year of The New includes:

-- The May opening of RH San Francisco, The Gallery at the Historic Bethlehem Steel Building, our most extraordinary new Bespoke Gallery to date.

-- The launch of RH Contemporary, the most compelling and potentially disruptive product introduction in our history. The elevation of RH Interiors and RH Modern, inclusive of new collections and enhanced quality.

-- The unveiling of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market.

-- The introduction of an elevated new live-fire restaurant at RH San Francisco, with plans to open in RH England and the New York Guesthouse.

-- The debut of a Champagne and Caviar concept opening in the New York Guesthouse, with plans to expand to our future Galleries in Paris, London, Milan and Aspen.

-- The premier of The World of RH, our new digital portal highlighting the connective power of our evolving ecosystem. The lift-off of RH1 and RH2, our customized Gulfstream G650 and G550 that will be available for charter later this year.

-- The christening of RH3, our luxury yacht that will be available for charter in the Mediterranean and Caribbean where the wealthy and affluent visit and vacation.

-- The rollout of RH In-Your-Home, a unique and memorable experience with Brand Ambassadors guiding every detail of the delivery and extending the selling experience into the home.

-- The expansion of the RH brand globally, beginning with the opening of RH England, The Gallery at the Historic Aynho Park, a magical 17th-century, 73-acre estate in the English countryside that will introduce RH to the UK in a dramatic and unforgettable fashion.

-- The opening of RH Palo Alto, The Gallery at Stanford Shopping Center, which will represent the next evolution of our highly productive prototype Galleries.

"We believe, 'There are those with taste and no scale, and those with scale and no taste,' and the idea of scaling taste is large and far reaching," Freidman stated. "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.

"Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet.

"Our efforts to elevate and expand our collection will continue with the introductions of RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade.

"Our plan to open immersive Design Galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 to $6 billion in North America, and $20 to $25 billion globally.

"Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker.

"Our products are elevated and rendered more valuable by our architecturally inspiring Galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.

"Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our Galleries into 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. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture.

"This leads to our long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our Galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries.

"Our strategy comes full circle as we begin to conceptualize 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 entirety of our strategy will come to life digitally as we launch The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.

"Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 to $10 trillion, one of the largest and most valuable addressed by any brand in the world today. A one percent share of the global market represents a $70 to $100 billion opportunity," Friedman stated.
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