RH (NYSE: NYSE:RH), the home furnishings company formerly known as Restoration Hardware, detailed its financial performance and strategic vision during its Q3 2023 earnings call. Despite facing increased expenses and market headwinds, the company reported net revenues of $751 million and an adjusted operating margin of 7.3%. The current economic climate prompted RH to adjust its revenue guidance and delay the launch of its RH Modern Sourcebook. CEO Gary Friedman emphasized the company's focus on long-term investments, including global expansion and product transformations, aimed at establishing RH as a global thought leader in the luxury lifestyle space.
Key Takeaways
- RH reported Q3 net revenues of $751 million with an adjusted operating margin of 7.3%.
- The company faced increased expenses due to international openings and an acquisition.
- High mortgage rates and geopolitical events have led to a delay in the RH Modern Sourcebook mailing and narrowed revenue guidance.
- RH plans to elevate products and expand platforms, expecting demand trends to improve with new collections and gallery resets in the first half of 2024.
- Global expansion includes new galleries in Brussels, Madrid, and Paris, and five new design galleries in North America in 2024.
- The company aims to become a thought leader in the luxury lifestyle space, with expansions into hospitality and fully furnished luxury residences.
Company Outlook
RH's vision for the future is expansive and multifaceted. The company plans to launch new collections such as RH Bespoke furniture, RH Color, and RH Atelier, targeting revenues of $5 to $6 billion in North America and $20 to $25 billion globally. With a strategy to conceptualize and sell spaces rather than just products, RH is set to enter the hospitality industry with offerings like guesthouses, private jets, and a luxury yacht. The company is also looking to make its mark in the North American housing market with RH Residences and aims to foster an emotional connection with customers through The World of RH online portal and RH Media.
Bearish Highlights
RH experienced several challenges in Q3, with increased expenses from international openings and an unsuccessful property acquisition. The company also faced market headwinds due to high mortgage rates and geopolitical events, leading to a delay in marketing efforts and a more cautious revenue outlook for the remainder of the year.
Bullish Highlights
Despite the challenges, RH remains optimistic about its product transformation and global expansion plans. The company has opened new galleries internationally and is focusing on elevating the RH brand, expecting these initiatives to contribute to improved demand trends in the coming year. CEO Friedman expressed confidence in gaining market share and outperforming competitors by the end of Q2 next year.
Misses
The company acknowledged that elevated markdown activity was higher this year, which could potentially become a tailwind in the following year. There were also mentions of challenges in navigating the current housing market downturn and managing inventory with the introduction of new products.
QA Highlights
CEO Friedman addressed concerns about protecting the operating margin, stating that the company prioritizes long-term growth over short-term fluctuations. He also noted the impact of accounting rule changes on financials and discussed the unique challenges and opportunities presented by the performance of RH galleries in Germany and England.
Future Plans and Expansion
RH's plans for European expansion do not have set goals for ROIC or costs but focus on learning and building the business in different countries. With 10 galleries already in Europe and new openings planned, RH is optimistic about its growth potential. The company also raised its membership fee, reflecting the increased average order value, and aims to support interior designers with larger design offices that double as galleries.
The company's CEO concluded the earnings call with an expression of gratitude to the RH team and confidence in the brand's global potential, looking forward to the holiday season and peace in global regions of conflict.
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