RH’s numbers are down, but its outlook—and its stock—is up

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Retail Watch | Mar 28, 2024

By Warren Shoulberg

That corner that RH will supposedly be rounding remains somewhere down the road, but investors are more than happy to keep waiting for it.

In reporting its fourth-quarter and year-end financial results, the upscale furniture and furnishings retailer formerly known as Restoration Hardware continued to show declines in its revenues, as it has for most of the post-pandemic boom period. After falling into the red the previous quarter, there was some good news for RH: It showed a small profit for both the quarter and the year, though those numbers were down substantially from a year earlier.

The results come as the entire upscale home space continues to grapple with consumers who are more focused on travel and entertainment than on their living room decor. Others in the broader sector, including Williams-Sonoma, Arhaus and Ethan Allen, have all reported lackluster numbers in their recent financial results.

It was RH’s unexpectedly exuberant outlook for business going forward—12 to 14 percent increases for the year—that drove its stock price higher … much higher. Shares were up nearly 18 percent in Thursday morning trading.

RH also missed analysts’ estimates on its bottom line, but Wall Street being Wall Street, it chose to focus on the future. At press time, the company’s stock was approaching $350 a share, which would be its high for the year to date, though still off its 52-week high of $392 a share last August.

To dive into the numbers: For the fourth quarter, sales were $738.3 million, down about 4 percent from $772.5 million a year ago. For the year, revenues were $3 billion versus $3.6 billion for the previous year, a drop of about 16 percent. Net income for the quarter was $11.4 million against $106.9 million a year ago, down nearly 90 percent. For the full year, RH showed net income of $127.6 million versus $528.6 million the year before, a decline of close to 76 percent. All of these results were below what Wall Street had forecast.

Looking to add some context to some dismal numbers, in his letter to shareholders, RH chairman and CEO Gary Friedman described the year as one of “adversity, innovation and investment,” adding that supply chain issues in the Red Sea and winter weather added to its quarterly performance misery.

But to hear Friedman tell it, sunny skies lie ahead: “While we expect business conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout fiscal 2024,” he wrote.

He went on to say about the current year: “We are forecasting demand growth of 12 to 14 percent and revenue growth of 8 to 10 percent on a 52 versus 52-week basis. We are forecasting adjusted operating margin in the range of 13 to 14 percent and adjusted EBITDA margin in the range of 18 to 19 percent.”

Some of that growth will come from new openings: a 3,500-square-foot Waterworks showroom in its new Design Gallery in Newport Beach, opening in the fourth quarter of 2024; five North American RH Galleries, including the Newport Beach one, Cleveland (which opened last week), Palo Alto, Raleigh, and Montecito; an RH Interior Design studio in Palm Desert; and International Galleries in Brussels and Madrid (the former opened last week and the latter will launch this summer).

The RH Paris store opening is delayed until spring of 2025 due to construction restrictions related to preparations for the 2024 Summer Olympics, the company said. Its first location in Australia is now set for a fall 2026 opening in Sydney.

In the meantime, there will be new drops of its Sourcebook catalogs and continued long-range plans beyond retail into hospitality, residential and media, all previously discussed. As always, RH and Friedman have big plans, and despite ongoing downturns, both he and Wall Street remain confident. If realized, that kind of projected performance would go a long way toward restoring the company’s vaunted position within the home furnishings sector.

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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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