RH chairman, CEO and impresario-in-chief Gary Friedman was in a buoyant mood on the company’s earnings call last week—and for good reason. Despite a stubborn housing market, the retailer formerly known as Restoration Hardware was reporting pretty darn good numbers. What’s more, Friedman had some new milestones to crow about, including the first stand-alone RH Interior Design Studio (in Palm Desert, California) and the biggest-ever RH Gallery (in Newport Beach). The weather is improving on the luxury mountain.
First, the money news. RH’s net revenue popped up to $812 million, 8 percent higher than where it had been during the same time last year—and of that figure, $33 million fell to the bottom line as profit. Demand growth was also up to 13 percent for the quarter. The numbers, Friedman said, reflect the company’s strategy of doubling down during the most recent home goods slump: “We believe the important investments we are making during this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world.”
There are caveats here. RH is still running free-cash-flow negative, and the company carries a sizable amount of debt on its books. But its positive momentum is building across the board as the company predicts more revenue, higher demand and better operating margins for the remainder of the fiscal year. Following the call, the stock hit a 52-week high at just shy of $458 per share.
A few other intriguing elements surfaced during the characteristically free-flowing chat with investors. RH England, according to Friedman, is on track to bring in roughly $31 million in revenue in its second full year in operation, plus $7 million from online sales. These are not record-breaking numbers, but they give some credence to Friedman’s assurances that the expensive, remote location would start to yield dividends over time.
The call also revealed some additional details about the first freestanding RH Interior Design Studio, which just opened in Palm Desert, California. According to Friedman, it’s as much about attracting talent as it is about reaching consumers. “Our theory is, by presenting RH Interior Design in a singular fashion as a professional interior design firm, we will attract the highest-caliber interior designers, and therefore, the highest-value consumers,” he said. “We believe this might be one of the most important strategies to elevate and distinguish the RH brand as a global design authority at the highest end of the market.”
Probably the biggest new jewel in the RH crown, however, is its Southern California retail palace. Ever since RH began opening its oversize gallery-format stores over a decade ago, it has consistently upped the ante, adding restaurants, wine bars, and increasingly grand furniture presentations. With each iteration, the spaces have grown ever larger, gobbling up more square footage. But its latest takes that strategy to an entirely new level.
At 97,000 square feet and four levels, the new RH, part of the Fashion Island retail center in Newport Beach, is the largest gallery the company has ever opened, surpassing the usual 60,000-to-70,000-square-foot template for most of the brand’s new retail locations.
The store features a number of other firsts, including an integrated Waterworks showroom. (At 3,300 square feet, this shop-in-shop concept makes good on Friedman’s proclamations that the kitchen and bathroom brand would start to play a larger role within the company.) The Newport Beach outpost also boasts the largest RH Interior Design Atelier, with 8,500 square feet dedicated to its team of in-house designers.
The first level of the new gallery features the brand’s Interiors and Modern collections, as well as its baby, child and teen assortments, all fanning out around a central hall with 14-foot ceilings. As always, Friedman’s imprint is everywhere, from his credit as the design principal of the store to the “one-of-a-kind antiques and artifacts from [his] world travels” that are on display.
On the rooftop, visitors will find the RH Ocean Grill—a departure from the dining experience at the brand’s other restaurants, featuring a seafood- and caviar-forward menu. And just so no one goes thirsty, there are not one but two wine bars.
While RH continues its expansion overseas, with new locations coming to both Europe and Asia over the next two years, it remains committed to new retail locations in the U.S. In addition to the Interior Design Studio in Palm Desert, it’s debuting a gallery just up the California coast in Montecito this month. Other recent openings include Galleries in Raleigh, North Carolina, and Cleveland, Ohio. The company has also said that additional freestanding Waterworks showrooms are underway.
All of these outposts are a far cry from those 5,000-square-foot Restoration Hardware mall stores that defined the chain when Friedman arrived in the early 2000s. Back then, the only furniture you’d find inside were a few pieces of Mission-style dressers, the front of the store featured cleaning products, and the only thing to eat were some Moon Pies. Now, pass the caviar. After that quarter, Friedman’s investors certainly will.
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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.
