Dive Brief:
- RH on Thursday reported net revenues of $800 million, down 19% from $992 million last year, and net income of $76 million, down 37% from $122 million year over year.
- The high-end furniture retailer also reported an adjusted operating margin of 20.2%, which beat the company’s Q2 guidance. That was due to a $25 million revenue benefit from faster-than-anticipated deliveries. RH also said it shifted $40 million of advertising costs to the third quarter due to the later-than-expected mailing of the company’s interiors catalog.
- RH said it anticipates ongoing challenges in the luxury housing market and the broader economy to persist through this year into next as mortgage rates remain at 20-year highs. Despite that, the company raised its low-end full-year revenue guidance. RH now anticipates revenue will range from $3.04 billion to $3.1 billion, up from $3 billion to $3.1 billion.
Dive Insight:
The housing market influences the furniture and home sectors. Broad pressures on the industry are affecting consumer spending in discretionary categories like furniture and home decor. Wall Street reacted to RH’s earnings with a 15% stock drop, according to Yahoo Finance, after the retailer warned of ongoing soft demand in the home sector.
Late last month, furniture maker and retailer Mitchell Gold + Bob Williams went out of business. It was one of RH’s suppliers, RH CEO Gary Friedman confirmed on a call with analysts. He said there was about $30 million to $40 million of demand with the company but that RH “can re-source it all pretty easily” and that no meaningful interruptions are anticipated as a result of the company’s closure. Mitchell Gold + Bob Williams expanded beyond manufacturing and wholesale into the retail business and it’s challenging to do all three, Friedman said.
In response to an analyst’s question, Friedman said he didn’t see “any real fundamental risk to our business,” due to losing that company as a supplier. And despite industrywide challenges, RH plans to expand its commitment and interests in the luxury sector, Friedman said.
“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,” Friedman said, according to an earnings call transcript.
RH’s Q2 results “surpassed expectations on the top- and bottom-lines, but were more in line after factoring in sales and margin timing benefits,” analysts at Wedbush, led by Seth Basham, said in a Friday note. Wedbush said RH is still sharpening its value equation on current and future products “after acknowledging arrogance in its price increases during the pandemic, suggesting to us that gross margins may not rise much in 2024 even after lapping markdown-related pressure in 2023.”
Over the summer, the company opened RH England, a gallery at a 17th-century 73-acre estate. The company said its interior design and trade businesses will drive the majority of revenue at the U.K. location. Wedbush characterized early performance for RH England as “somewhat disappointing.”
RH has also pushed into the luxury hospitality and travel accommodations sector with offerings like transport aboard private jets and a yacht available for charter in the Caribbean and Mediterranean. RH also wants to step into the housing market by offering RH Residences, fully furnished, turnkey luxury homes, condos and apartments.
The retailer recently mailed its 600-plus page Interior Sourcebook. With 40% of the mailing in homes as of late last week, Friedman said the response so far looks promising. RH’s Contemporary Sourcebook and Modern Sourcebook are slated to send in October and January, respectively.
“We believe our inflection point will peak in the first half of 2024 as our new collections fully ramp and we begin another cycle of Sourcebook mailings, completely transforming and refreshing the assortment across the entire brand over a 12-month period,” Friedman said.
