As it revealed third-quarter financial results that topped expectations, Restoration Hardware also announced a pair of acquisitions and the addition of an executive to head up a new media operation.
Gary Friedman, RH chairman and CEO, said in announcing the acquisitions and hirings, “Today’s announcements, plus our previous acquisition of Waterworks, firmly plant four RH flags at the very top of the luxury mountain, and clearly state our intention of establishing RH as an arbiter of taste and design in the to-the-trade, luxury home furnishings market. These brands and businesses, thoughtfully integrated and amplified on what we believe will be the world’s most innovative and dynamic global design platform, will begin to fundamentally change the landscape of the interior design industry.”
For the third quarter, net income was $98.8 million, or $3.78 per diluted share, versus $184.1 million, or $5.88 per diluted share, in the year-prior period, the company reported. Adjusted for one-time events, earnings per share were $5.67 versus $7.03 in the year-earlier quarter.
RH beat a Zacks Investment Research-published analyst consensus adjusted diluted earnings per share estimate of $4.72. Revenues beat a Zacks estimate by 3.6%.
Net revenues were $869.1 million versus $1.01 billion in the year-previous quarter ago and up 28% versus 2019 third-quarter net revenues of $678 million, the company pointed out. Income from operations was $170.3 million versus $272.5 million, in the period a year past.
In a shareholder letter, Friedman stated, “We are pleased to report better-than-expected results for the third quarter. Gross margin contracted 50 basis points in the third quarter primarily due to fixed occupancy deleverage, partially offset by an increase in product margins as we continue to resist promoting the business.
“As previously mentioned, widespread discounting continues across our industry, and while it’s been almost two years since we’ve deployed a promotional email, we’ve been receiving two sale emails per day from many home furnishings retailers. Although the stark contrast in strategy may lead to a short-term risk of market share loss, we believe there is a certain long-term risk of brand erosion and model destruction for those who choose the promotional path.
“It’s that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry and our results now reflect those of luxury brands as we delivered a 20.8% adjusted operating margin in the third quarter, also exceeding our outlook despite the dramatic slowdown in the housing market.
“Our results are inclusive of investments related to the launch of RH Contemporary, the opening of our first RH Guesthouse, the development of RH International and the rollout of RH In-Your-Home, which led to approximately 200 of the 640 basis points of adjusted SG&A deleverage in the quarter. Additionally, we experienced adjusted SG&A deleverage due to lower revenues versus a year ago.
