Restoration Hardware has big plans for the future, and it began this year beating a Wall Street earnings estimate for the first quarter.
In the quarter, net income was $130.7 million, or $4.19 per diluted share, versus a net loss of $3.2 million, or 17 cents per diluted share, in the year-prior period. Adjusted diluted earnings increased to $4.89 from $1.27 in the year-previous quarter.
RH beat a Zacks Investment Research analyst average estimate of $4.20 per adjusted diluted share.
Sales were $860.8 million versus $482.9 million in the COVID-19 impacted first quarter a year earlier.
In a letter to shareholders, chairman and CEO Gary Friedman stated;
“Fiscal 2021 is off to a strong start, with revenues up 78% in the first quarter versus down 19% a year ago. Total company demand increased 101% in Q1 and RH Core demand increased 109%, the strongest demand trends in our industry.
“We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin increasing 1,260 basis points in the first quarter to 22.6% versus 10% a year ago. Adjusted net income increased 375% and adjusted diluted EPS increased 285% to $4.89 per share versus $1.27 last year.
“We generated $228 million of adjusted EBITDA in the quarter and $136 million of free cash flow. Q1 ended with total net debt of $382 million and trailing twelve months adjusted EBITDA.
“Based on current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%. We now expect adjusted operating margin in the range of 23.5% to 24.3%, an increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points, with ROIC in excess of 60%.
“As it relates to the second quarter, we expect revenue growth in the range of 35% to 37% and adjusted operating margin in the range of 25.9% to 26.1%.
“While fiscal 2021 will surely be a tale of two halves, there are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021 with growth reaccelerating in fiscal 2022 and beyond. These include a strong housing and renovation market, both with pent up demand and a long tail, a record stock market, low interest rates and the reopening of several large parts of our economy. Additionally, the unmasking of the general public could lead to a Roaring Twenties type of consumer exuberance. Town & Country captured that feeling perfectly on the recent cover of their magazine, titled, ‘Remember Fun? Get Ready for the Comeback!’
“Combine that with the largest new product introduction cycle in our history beginning this fall, and the launch of RH International next year, and fun it could be.”
Friedman added that RH will launch an online initiative with a fresh approach to e-commerce.
“Our strategy is to digitally reimagine the RH brand and business model both internally and externally. Internally regarding how we innovate, curate and integrate all the dynamic aspects of our brand, and externally as we introduce our customers to The World of RH, a new digital portal presenting our products, services, places and spaces. This multi-year effort began internally last year with the reimagination of our Center of Innovation & Product Leadership, which will incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.
“Our external efforts will begin this fall with the launch of phase one of our new digital portal, The World of RH, which will include rich, immersive content with simplified navigation and search functionality, all designed to enhance the shopping experience and render our product and brand more valuable. We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be.”
Finally, Friedman noted that RH Dallas opened in May and “is off to a tremendous start with our rooftop restaurant booked until August. Our plan is to open three additional Design Galleries in 2021 including RH San Francisco, RH Oak Brook, RH Jacksonville, a freestanding RH Contemporary Gallery opening in San Francisco, plus our first RH Guesthouse, opening in New York this fall.”