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From Home Furnishing Business

RH Profits Tumble in Q3; Retailer Cuts Q4 Outlook

Restoration Hardware Holdings (NYSE: RH) said revenues rose 3.2% to $549.3 million for the quarter ended Oct. 30, but profits were well below the same quarter last year due to a variety of capital spending projects, including the launch of RH Modern.

Net income totaled $2.52 million or 6 cents per share. That was down from $20.7 million or 49 cents per share in the comparable period.

In addition to RH Modern, the retailer is undergoing a major effort to reduce inventories and SKU count, and also opted to shift the mailing of its Source Book catalog from spring to fall.

“We are making several strategic investments and changes to our business model in fiscal 2016 that are temporarily depressing financial results in the short term, that we believe will strengthen our brand and position the business for accelerated growth in 2017 and beyond,” said Gary Friedman, chairman and CEO.

He said revenues were driven by a higher conversion of orders into sales than expected, given the company’s strong in-stock levels and supply chain improvements.

Comparable-brand revenue, which includes catalog and internet sales, fell 6%.

The company said revenues from its retail stores accounted for 56% of the total, while catalog and internet revenues, which RH calls direct to consumer, made up 44%.

However, the retailer lowered its revenue and adjusted earnings per share guidance for the fiscal year ending Jan. 31 because of weak November sales, the late arrival of the Source Book in some homes, and lower-than-expected sales of its Holiday Collection.

“We are taking a more aggressive approach to clear seasonal merchandise as well as taking deeper markdowns to accelerate our overall SKU rationalization efforts which are expected to result in lower product margins during the quarter,” Friedman said.

The company said it is now projecting net revenues of $2.11 billion to $2.14 billion, representing growth of zero to 1%. A September forecast called for growth of 1% to 3%.

Adjusted earnings per share are now projected at $1.19 to $1.29, down from the September forecast of $1.60 to $1.80

For the nine months ended Oct. 30, revenue rose 5.9% to $1.548 billion. RH recorded a net loss of $4.04 million or 10 cents per share for the period. That compares with net income of $57.8 million or $1.37 per share in the first nine months of the previous fiscal year.

As of Oct. 30, RH had 85 retail stores, including 51 legacy galleries, six larger format Design Galleries, seven next generation Design Galleries, one RH Modern Gallery, five Baby & Child Galleries, and 15 Waterworks showrooms.

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