retail watch | Jun 2, 2022 |
RH debuts a new design direction and hits its numbers. Will Wall Street be satisfied?

RH once again played—and won—its quarterly game of “Beat the Street.” In releasing its first-quarter results after the market closed on Thursday, the upscale retailer handily outdid its sales from a year ago, as well as its bottom-line profits. It also topped analysts’ consensus forecasts on its financial performance for the period and announced a $2 billion stock buyback plan to boot. Concurrent with the earnings release was the official debut of the long-awaited RH Contemporary program, a massive collection of living, bedroom, dining and outdoor furniture, plus lighting and decor programs, that chairman and CEO Gary Friedman called “the best work we’ve ever done.”

Still, none of it was enough to please Wall Street, which kept the company’s stock essentially flat or off a few points in after-hours trading immediately following the earnings release.

That tepid reaction seemed to hinge largely on the COVID-tinged caveat Friedman once again included this quarter in his remarks to shareholders and on a call with analysts, one that paints the company as caught up in the ongoing turmoil of the overall home furnishings business, at least for the short term.

“It’s not really a good [time] for the home industry right now,” he said on the call, noting that comparisons between the luxury home and luxury apparel categories were not accurate or valid given how well the entire home sector has done over the past two years as opposed to the big drop in fashion sales during the pandemic. “While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift, shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving industry-leading performance,” he wrote in his letter.

Despite the doom and gloom, the numbers for the quarter were impressive: Net revenue was up 11 percent to $957 million; adjusted net income up 50 percent to $213 million; and adjusted diluted earnings per share at $7.78, a 59 percent increase over the results from a year ago. The only real negative was higher operating expenses, which the company attributed to the costs associated with its new San Francisco gallery opening and production expenses on its forthcoming wave of catalogs, which the company calls sourcebooks—the first it will send out in more than two years.

Friedman, as is his style on these occasions, listed all the works in progress, calling 2022 the company’s “year of the new,” which he believes will drive RH’s business over both the short and long term. That included the first phase of the company’s new “World of RH” website, which highlights its non-furniture offerings—restaurants, design services and transportation, including private jets and yachts available for charter. (The second phase, debuting this summer, will offer what Friedman described as a dramatically new presentation of its products.)

That newness also encompasses initiatives slated to premiere within the year, like the company’s first international store, situated just outside of London, which will include three restaurants, all housed in a 17th-century castle sited on 73 acres; and the debut of its first RH Guesthouse, the long-delayed lodging concept located just around the corner from its Meatpacking District gallery in Manhattan, which is expected to start taking reservations by the fall.

The company’s 2022 master strategy also includes the immense RH Contemporary collection, now viewable online. This digital catalog runs 320 pages and is heavy on curved upholstery, all made in Italy, alongside marble case goods, an array of glamorous lighting and a curated selection of extravagant fabrics from to-the-trade purveyor Holland & Sherry. Friedman likened the partnership with the textile brand—“arguably the best fabric house in the world,” he said—to the company’s decade-long partnership with Perennials. “A lot of people thought we were going to kill the Perennials business to the trade,” he told analysts. “It actually grew, and we became a massive part of that business. I think the same thing is going to happen with Holland & Sherry.”

Prices for the Contemporary collection are on average 35 percent higher than RH’s core products, with sofas hitting $9,000 price points, a travertine coffee table for $4,800 and drapery panels starting at $1,500. The most expensive piece may be the FreshBed sleep system, clocking in at close to $44,000. (It’s worth noting that RH member prices are 25 percent lower on all products.)

The Contemporary line will initially show up at RH’s New York store later this month, and then gradually roll out to additional high-profile gallery locations, where it will comprise as much as one-third of the floor space in physical stores. Friedman compared the line’s debut to the transformation the brand went through in 2009 and 2010, back when the company first began showing its upscale furniture. “RH is going to look entirely different by the third quarter,” he told analysts, explaining that Contemporary is expected to be a larger part of the retailer’s overall business than its RH Modern line, which now accounts for about $1 billion of its $2.8 billion in annual sales. “It’s almost a new company within the company,” he said. “It’s the most dramatic evolution of our brand toward where we want to go.”

Friedman spent much of the question-and-answer session of the analysts’ call—which ran for close to one and a half hours—talking about the Contemporary line. For someone who is generally enthusiastic and passionate about seemingly everything RH does, he was even more so on this subject. “You can tell I’m a little excited about Contemporary,” he said. Now it’s a matter of whether Wall Street will catch up to bridge the enthusiasm gap.

Homepage photo: RH’s new San Francisco gallery | Courtesy of RH


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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