retail watch | Dec 7, 2023 |
RH slips into the red

Its first new sourcebooks in nearly four years and its most aggressive new store agenda weren’t enough to keep RH in the black. In the third-quarter financial results announced today, the company’s revenues declined 13.6 percent, and it posted a loss of $2 million, compared with a profit of $99 million a year ago.

The results represented a miss from what analysts had been projecting. Though topline revenue ($751 million) fell within the expected range, Wall Street had forecasted a profitable quarter. In the first hours after the market closed, RH’s stock plummeted by close to 10 percent.

In its letter to investors explaining the loss, RH pointed to a frozen housing market and “higher than anticipated expenses, including international openings as well as costs related to our pending acquisition of the New York Guesthouse property and unsuccessful efforts to secure the iconic One Ocean Drive Miami Beach location.”

RH also referenced geopolitical upheaval, saying that the launches of new products in its Interiors line as well as Contemporary collections generated “improved demand trends,” but that the company had “experienced increased headwinds in early October when mortgage rates peaked above 8 percent, and the Hamas invasion of Israel triggered the war in the Middle East.”

RH said it would delay its RH Modern sourcebook drop until the first quarter of next fiscal year (spring 2024), when “demand conditions will likely be more favorable.”

Despite the disappointing quarter—the loss was its first in five years—chairman and CEO Gary Friedman continues to be optimistic about RH’s prospects for next year, based on new product collections, additional catalog mailings, and aggressive international expansion.

“Our next international openings include RH Brussels, The Gallery on the Boulevard De Waterloo, and RH Madrid, The Gallery on the Plaza Marques De Salamanca in the first half of 2024, followed by RH Paris, The Gallery on the Champs-Elysées in the fall of next year,” read the letter. A London location and RH Galleries in Milan and Sydney—its first in Asia—will follow in late 2025 or early the following year.

Domestically, the brand has three locations scheduled for the first half of 2024 (Cleveland, which was pushed back from this year; Raleigh, North Carolina; and Palo Alto, California), and two in the second half (Montecito and Newport Beach, both also in the Golden State).

Suggesting the prospect of a turnaround, Friedman wrote that RH anticipates “our inflection point will peak in the second quarter of 2024 as our new collections fully ramp and we begin another cycle of Sourcebook mailings. We believe our latest collections reflect a level of design and quality inaccessible in our current market and a value proposition that will be disruptive across multiple markets, positioning RH to gain market share throughout fiscal 2024.”

All of this will come at a short-term cost, he advised. “While a product transformation of this magnitude will be margin dilutive in the short term, we believe it will become margin accretive over the long term as selling rates stabilize and allow for supply chain and sourcing efficiencies.”

Never one to miss the opportunity to wax poetic on RH’s remarkable transformation under his leadership, Friedman’s shareholder letter put this quarter in historical perspective. “We avoided bankruptcy while being accused of lunacy. While others have been shrinking and closing stores, we’ve been building the largest and most inspiring spaces in the world. When Wall Street didn’t think our stock was worth buying, we bought 60 percent of it ourselves,” he wrote. “From the largest product transformation in our history, to the most inspiring and unusual retail experiences in the world. From couches to caviar, beds to Bellini’s, architecture to airplanes, homes to hotels (Guesthouses). From Pittsburgh to Paris, Los Angeles to London, Boston to Brussels, Miami to Munich, San Francisco to Sydney. Soon the world will be within our reach.”

On a call with analysts following the earnings release, Friedman conceded that the macroeconomic headwinds (political unrest and a gridlocked housing market) will continue to have an impact on the company’s business. But he held firm to his belief that RH is on the right track to get through this trial and emerge stronger on the other side—perhaps quite soon: “I’d be surprised if anyone outperforms us in Q2 of next year.”


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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