Amid economic uncertainty, luxury home merchandise retailer Restoration Hardware had a difficult fourth quarter with earnings and revenues coming in well short of expectations.
Adjusted for one-time events, net income was $72.8 million, or $2.88 per diluted share, versus $164 million, or $5.66 per diluted share, in the year-prior quarter, the company noted.
RH adjusted diluted earnings per share fell short of a $3.35 analyst consensus estimate published by MarketBeat, with revenues also short of a $777.3 expectation.
Net revenues were $772.5 million versus $902.7 million in the year-before quarter. Income from operations was $112.2 million versus $217.8 million in the year-previous period while adjusted income from operations was $128.2 million versus $277 million.
For the full year, RH posted net income of $528.6 million, or $19.90 per diluted share, versus $688.5 million, or $22.13 per diluted share, in the year earlier.
Adjusted net income was $528.5 million, or $20.06 per diluted share, versus $766.5 million, or $26.12 million per diluted share, in the year prior.
Net revenues were $3.59 billion versus $3.76 billion in the year before. Income from operations was $722.2 million versus $927.2 million in the year previous while adjusted income from operations was $789.8 million versus $962.6 million.
In a letter to shareholders released with the financial results, RH chairman and CEO Gary Friedman, reported, “It’s times like these that businesses tend to move in herds, pursuing broadly adopted short-term plans that lead to mostly similar outcomes. It’s also times like these that present opportunities to pursue long-term strategies that can create strategic separation and significant value creation for those teams willing to take the road less traveled and pursue their own unique path.
That unique path for RH is our climb up the luxury mountain and our long-term strategies of product levation, platform expansion and cash generation.
“Our strategy to elevate the design and quality of our product is central to our strategy of positioning RH as the first fully integrated luxury home brand in the world. It is also the most difficult part of our climb as it requires attracting higher value, more discerning customers by offering higher quality, more desirable designs. While it’s a climb that becomes more difficult as we reach new heights, it’s also one we’ve navigated successfully over the past twenty-two years, so don’t expect us to waiver from our vision anytime soon.
“This spring/summer we will be unveiling the most prolific collection of new products in our history. With over 70 new furniture and upholstery collections across Outdoor, Interiors, Contemporary, Modern, Baby & Child and Teen, it represents a massive leapfrog for our brand. These new collections reflect a level of design and quality inaccessible in our current market and a value proposition that will be disruptive across multiple markets. We also believe the new collections will generate a level of excitement and serve as an inflection point for our business in the second half of the year.
“The new pieces will be gracing the pages of a new Source Book design with the objective of creating a cohesive collection of titles reinforcing our design and quality leadership. The first of those titles, RH Outdoor, began arriving in homes last week with our trademarked belief inscribed across the cover: There Are Pieces That Furnish A Home And Those That Define It.”
As for activity in North America, Friedman pointed out:
We will be introducing a new Gallery Design this year in Palo Alto and Cleveland, plus opening new Galleries at the Historic Firehouse in Montecito, and The Linden House, a 178-acre estate on a private lake in Indianapolis. Additionally, we have 12 North American Galleries in the development pipeline scheduled to open over the next several years.
We also believe there is an opportunity to address new markets locally by opening Design Studios in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation. We have several existing locations that validate this strategy in East Hampton, Yountville, Los Gatos, Pasadena and our former San Francisco Gallery in the Design District, where we have generated annual revenues in the range of $5 to $20 million in 2,000 to 5,000 square feet.
We have identified over 40 locations that are incremental to our previous plans in North America and believe the results of these Design Studios will provide data that could lead to opening larger Galleries in those markets. We have demonstrated that ‘those with capital in difficult markets are the ones who capitalize,’ and that’s why we raised $2.5 billion of long-term debt before the markets tightened and are now in a position to take advantage of the opportunities that may present themselves in times of uncertainty and dislocation.
Times like these also require us to have the discipline to say ‘no’ to the things that are nice to do in order to focus our time and resources on what is truly important. That includes making the difficult decision to graciously say goodbye to team members whose roles are no longer essential in our new view of the future, enabling us to work in a more integrated and collaborative fashion, on fewer more important priorities. Please know we’ve treated everyone with respect and dignity and appreciate the contributions all have made to our cause. Approximately 440 roles were eliminated as part of our organizational redesign, and we expect to achieve cost savings of approximately $50 million annually, inclusive of associated benefits and other cost savings.
Concurrently we will be focused on reducing inventories and generating cash, further strengthening our balance sheet to maximize optionality.