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From Home Furnishing Business

RH Q3 Profits Soar as New Business Model Takes Shape

Retailer RH (NYSE: RH) said third-quarter profits leaped to $13.2 million or 56 cents per share as the company began to reap the benefits of a new membership business model and streamlined operations.

In last year’s third quarter, profits totaled $2.52 million or 6 cents per share.

Revenue in the quarter ended Oct. 28 totaled $592.5 million, up 7.9% from $549.3 million in the same quarter last year. Comparable brand revenue rose 6%.

The retailer formerly known as Restoration Hardware said the profit surge came despite Hurricanes Harvey and Irma, which cost the bottom line about $1.3 million or 5 cents per share. A lower effective tax rate, however, added about $2.5 million or 11 cents per share.

“With 95% of our core RH business now generated from members, we can confidently declare our move from a promotional to a membership model a success,” said Gary Friedman, chairman and CEO.  “We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model. We expect these factors to contribute to improved financial performance through higher conversion of demand into revenue, improved margins and lower costs across our operating platform.”

As it moved to the membership model, he said the company also has re-designed its supply chain network by closing two distribution centers and reducing the number of SKUs.

“Moving forward, servicing our business from two coastal distribution centers will result in improved in-stocks, and significantly faster inventory turns,” said Friedman.

The retailer also has been placing greater emphasis on its brick-and-mortar retail stores, and he said results from the new format Design Galleries that already have opened show the stores have the potential to double RH’s retail sales in every market.

The newest Design Galleries include amenities such as a café and wine bar.

“Our ability to seamlessly integrate food, wine, art and design, activates all of the senses, drives significant traffic into our galleries, and creates a customer experience that cannot be replicated online,” Friedman said.

For the nine months ended Oct. 28, revenues were up 14.3% to $1.77 billion.

Nine-month net income was $1.92 million or 6 cents per share. In the first nine months of the previous fiscal year, the retailer recorded a net loss of $4.04 million or 10 cents per share.

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