RH continues to expand with showcase destinations; developing smaller model

RH (formerly known as Restoration Hardware) reported first-quarter earnings above Street expectations and upped its guidance as it continues to expand in high-end brick-and-mortar.

RH will open four new stores (“Galleries”) this year, with locations in Portland, Oregon (opened in March); Nashville, Tennessee; Yountville, California; and New York City. The latter three will include a dining experience.

The New York City site, in Manhattan’s Meatpacking District, will feature 90,000 sq. ft. of indoor and outdoor space, with a transparent elevator that goes up to a glass-encased rooftop restaurant with retractable doors that open out to a landscaped park. (Also in Manhattan, in summer 2019, RH will open its first-ever hotel, called RH Guesthouse.)

“RH New York provides us the rare opportunity, in arguably the most important city in the world, to develop a ground up retail experience like no other,” stated RH chairman and CEO Gary Friedman. “Currently, our plan is to open in September pending the city completing the infrastructure and street work that has been massively disruptive to businesses in the neighborhood.”

In addition to its expansive gallery locations, RH is developed a new, smaller-sized prototype that will range in size from 33,000 sq. ft. inclusive of a hospitality experience to 29,000 sq. ft. without one. The company expects the smaller galleries will enable it to ramp from three to five new locations per year, to five to seven. RH is also looking at global expansion.

“We also believe there is tremendous potential for the RH brand internationally, and we continue to explore opportunities to open our first Gallery in London,” Friedman said.

RH earned $28.1 million, or $1.11 a share, in the period ended, versus a loss of $3.4 million, or 9 cents a share, in the year-ago period. Adjusted for one-time items, RH said it earned $33.5 million, or $1.33 a share. Analysts had expected adjusted earnings of $1.01 per share.

Sales fell 0.8% to $557 million, less than expected.

"We articulated at the beginning of the year that we will be managing the business with a bias for earnings versus revenue growth in fiscal 2018," stated Friedman. “We will restrain ourselves from chasing low-quality sales at the expense of profitability like many in our industry, and instead focus on building an operating platform that will enable us to compete and win over the long term."

Looking long term, Friedman said he saw a clear path to $4 billion to $5 billion in North American revenues.

Friedman said that company’s effort during the past year to consolidate its distribution center network from four facilities to two while streamlining operations throughout its supply chain, has resulted in a “significantly more efficient cost and working capital model.”

“We believe this new model will prove to be a long-term competitive advantage that will separate and distinguish RH’s operating results for years to come,” he said.

Displaying his signature bravura, Friedman noted that the strategies RH is pursuing — from opening the largest specialty retail experiences in the industry to continuing to mail catalogs to moving from a promotional to a membership model — are in direct conflict with the plans many other retailers are currently undertaking.

“We believe when you step back and consider: one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape, and, we would argue, will also prove to be equally valuable,” he said.