RH Q1 beat Street; raises some prices to mitigate tariffs

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RH Q1 beat Street; raises some prices to mitigate tariffs

By Marianne Wilson - 06/13/2019

RH got off to a strong start in its first quarter, with earnings that crushed analysts’ estimates.


Wall Street cheered the upscale furniture retailer, formerly known as Restoration Hardware, which not only raised its full-year guidance amid sales and earnings that beat estimates but also said it had taken several measures to avoid issues related to the U.S.-China trade.


In its earnings report, RH said that, with regards to China tariffs, it has “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 United States. 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,” stated RH chairmand and CEO Gary Friedman.


In the same report, Friedman noted that RH’s  flagship — and largest location to date — in downtown Manhattan, which opened in September, is trending “comfortably” in excess of $100 million in annualized revenue. Two locations open late in the fourth quarter, in San Francisco and Charlotte, are experiencing slight delays and will now open in the first quarter of fiscal 2020.  The company to accelerate its expansion to a rate of five to seven new locations in fiscal 2020 and a minimum of seven locations in fiscal 2021.


RH has repositioned itself as a luxury lifestyle retailer, with expansive stores (“galleries” in RH speak), complete with design services, fancy restaurants and wine bars. The transformation has resonated with shoppers.  Net income totaled $35.7 million, or $1.43 a share, for the quarter ended May 4, compared with $25.5 million, or $1.01 a share, in the year-ago period. Adjusted   earnings were $1.85 a share compared to analysts’ estimates of $1.53 a share.


Revenue rose to $598.4 million from $557.4 million.  Analysts had expected revenue of $584 million. The company raised its fiscal 2019 guidance and now expects full-year adjusted earnings of $8.76 to $9.27 a share on revenue of $2.64 billion to $2.66 billion.


“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,” Friedman said.

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