RH Reports Third Quarter 2023 Results

December 7, 2023  by HFBusiness Staff in Business Strategy, Industry   

Q3 GAAP Gross Margin of 45.3% vs. 48.4% LY
Q3 adjusted gross margin of 45.3% vs. 49.7% LY

Q3 GAAP Operating Margin of 6.8% vs. 19.6% LY
Q3 Adjusted Operating Margin of 7.3% vs. 20.8% LY

Q3 GAAP Net Loss of $(2M) vs. Net Income of $99M LY
Q3 Adjusted Net Loss of $(8M) vs. Adjusted Net Income of $110m LY

Q3 GAAP Diluted EPS loss of $(0.12) vs. GAAP Diluted EPS of $3.78 LY
Q3 Adjusted Diluted EPS loss of $(0.42) vs. Adjusted Diluted EPS of $4.26 LY

TO OUR PEOPLE, PARTNERS AND SHAREHOLDERS, Net revenues of $751 million were at the mid-point of our guidance for the quarter, and adjusted operating margin of 7.3% was slightly below expectations due to higher than anticipated expenses, including international openings as well as costs related to our pending acquisition of the New York Guesthouse property and unsuccessful efforts to secure the iconic One Ocean Drive Miami Beach location.

While pleased with improved demand trends generated from the launch of our new RH Interiors and RH Contemporary collections, we experienced increased headwinds in early October when mortgage rates peaked above 8%, and the Hamas invasion of Israel triggered the war in the Middle East.

With 82% of homeowners having mortgages below 5%, and 62% below 4%, we continue to expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully. Additionally, the home furnishings market has become increasingly promotional, and we believe that will create a mix shift towards clearance products, pressuring gross margins. In light of the current market we are delaying the mailing of our RH Modern Sourcebook until the first quarter of fiscal 2024 when demand conditions will likely be more favorable.

As a result, we are narrowing our revenue guidance range for the year to $3.06 billion to $3.08 billion, and now expect adjusted operating margin to be in the range of 13.6% to 14.0%.

As mentioned, we are in contract to make an opportunistic purchase of the New York Guesthouse property for approximately $58 million, scheduled to close in the fourth quarter. The building was appraised at $85 million last September when the Federal Funds rate was half the level it is today. We believe controlling the outcome of this one of-a-kind property is in our best interest. However, we will be poised to take advantage of any opportunity to do a sale-leaseback with the appropriate investor when the commercial real estate market rebounds in the future.

PLANS TO EXPAND

Our plan to expand the RH brand globally, address new markets locally and transform our North American Galleries represents a multi-billion dollar opportunity.

RH BUSINESS VISION & ECOSYSTEM – THE LONG VIEW

Our plan to open immersive Design Galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 to $6 billion in North America, and $20 to $25 billion globally.

Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker.

Our products are elevated and rendered more valuable by our architecturally inspiring Galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.

Visit the RH Investor page to see the results, read the shareholder letter and listen to the webcast.