Restoration Hardware slips in Q4; sees new brand as $1 billion business

Production and shipping delays related to its new collection of modern furniture, which it also has launched as a standalone business, are taking a toll on Restoration Hardware Holdings Inc. as the high-end retailer issued a weak outlook for the current quarter.



Restoration Hardware (RH) reported its fourth-quarter earnings slid to $33.3 million, or 79 cents a share, from $42.5 million, or $1.02 a share, a year earlier. On an adjusted basis, the company earned 98 cents a share, which fell short of its own projection released in February.



Revenue rose 11% to $647.2 million, less than expected. Comparable store sales increased 9%.



The company cited three key factors as having a negative impact on its fourth quarter results, including shipping delays as suppliers of its new RH Modern line struggle to ramp up production, and underperformance in areas — specifically Texas, Miami and Canada — that had grown sharply during the oil and energy boom. Promotional activity to drive sales was also less successful than expected, signaling a further pullback by the high-end consumer.



“While there is certainly a fair amount of bad news in the quarter, we believe the good news greatly outweighs the bad when you put it into the context of our long-term growth strategy,” stated Gary Friedman, chairman and CEO. “Despite the headwinds, our two key value driving strategies — the expansion of our product offer and the transformation of our real estate — are working exceptionally well.”



Friedman called the initial response to RH Modern “outstanding,” and said it indicated that the brand, both in retail and direct, can quickly become a billion dollar plus business.



He also said that RH’s next generation, larger- store format, “Design Galleries,” are exceeding plan. The company will continue to transform its 7,500-sq.-ft. legacy stores into 45,000-sq.-ft. to 60,000-sq.-ft. Design Galleries to drive growth over the next seven to 10 years.



“Our key priorities for fiscal 2016 are centered on the optimization of our core business by improving in-stocks for RH Modern … elevating our end-to-end customer experience, optimizing our inventory and working capital, being opportunistic with real estate to achieve improved deal terms, and changing the promotional cadence via the launch of the RH Grey Card,” Friedman said.



For the full year, the company reported that net revenues increased 13% to $2.109 billion from $1.867 billion in fiscal 2014. Adjusted net income in fiscal 2015 increased 18% to $114.8 million from $97.6 million in fiscal 2014. On an unadjusted basis, GAAP net income for fiscal 2015 was $91.1 million compared to $91.0 million for the same period last year.



As of January 30, 2016, RH operated a total of 69 retail stores, including one freestanding RH Modern, and 17 outlet stores, throughout the United States and Canada.