Restoration Hardware misses Street in tough Q1

Specialty home furnishings retailer Restoration Hardware Holdings Inc. (RH) had what could be termed a messy start to the fiscal year.



RH swung to a net loss of $13.5 million in the first quarter of fiscal 2016, compared to net earnings of $7.2 million the prior year period, falling short of Wall Street expectations. Revenue grew 8% to $455.5 million from $422.4 million, but also missed projections. Increases in cost of goods sold and selling, general and administrative (S,G&A) expenses helped push the retailer into the red despite improving sales.



The company’s results for fiscal 2016 will be impacted by certain short term operational items including costs associated with RH Modern production delays and investments to elevate the customer experience, timing issues related to the transition from a promotional to a membership model, and a more aggressive approach to rationalizing its SKU count and optimizing inventory. These factors are negatively impacting the company’s fiscal 2016 adjusted diluted EPS outlook by approximately $0.90 to $1.00.



For the second quarter of fiscal 2016, RH expects net revenues in the range of $505 million to $520 million and adjusted net income in the range of $11.5 million to $13.5 million. For the full fiscal year, the retailer is lowering its outlook to net revenues growth of 1-3%, with capital expenditures in the range of $180 million to $210 million.



RH expects performance to improve in the fourth quarter and accelerate as it enters fiscal 2017. Additionally, the company has taken steps to streamline its organization, resulting in expected cost savings of approximately $20 million on an annual basis.



“While there is uncertainty regarding the headwinds impacting revenues, we expect many of the cost and margin related issues to be short term in nature,” said Gary Friedman, chairman and CEO. “This fall, we plan to expand the mailing of our source books, introduce new collections across RH Interiors and RH Modern, launch RH Modern across our entire retail fleet, and remodel our existing legacy galleries – including the installation of Design Ateliers, and the most significant product refresh in the company’s history.”