Daily News
From Home Furnishing Business
RH Reports Second Quarter Results
September 15,
2024 by Karen Parrish in Business Strategy, Industry 
Demand was up 7% in the second quarter and has continued to inflect positive, gaining momentum each month with July finishing up 10%. Demand accelerated into the third quarter with August up 12% and product margins inflecting positive despite operating in the most challenging housing market in three decades.
Investments in the most prolific product transformation and platform expansion in our history are now resulting in RH gaining significant market share in North America while building the foundation for our long-term global expansion across Europe, Australia and the Middle East over the next decade.
While inflection developed a couple of quarters later than expected, the important measure is not the timing, but rather the size of the vector created in comparison to the industry. Vectors are measured in magnitude and direction and can be effective in forecasting strategic separation and future market share gains. It is now clear that our vector is increasing by both measures as the Company is outperforming the industry by 15 to 25 points.
RH's performance will continue to gain momentum in the second half of 2024 fueled by the multi-year effort to elevate the product, and a multi-decade effort to elevate and expand the platform of the Company.
Results for the second quarter reflect Company guidance with revenues of $830 million, up 3.6% versus a year ago, adjusted operating margin of 11.7%, and adjusted EBITDA margin of 17.2%.
While aggressively investing into a downturn has put pressure on short-term results, it has also positioned RH to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation.
Demand performance demonstrates RH is the best positioned brand in the industry to benefit from the anticipated rebound of the housing market once interest rates decline and home prices reset lower, closing the affordability gap that has suppressed the market for the past several years.
GAAP Net Revenues of $830M up 3.6%
GAAP Operating Margin of 11.6%
Adjusted Operating Margin of 11.7%
GAAP Net Income of $29M
Adjusted Net Income of $33M
Adjusted EBITDA Margin of 17.2%
OUTLOOK
Despite expectations for industry conditions to remain challenging until interest rates ease and the housing market begins to rebound, demand trends are expected to accelerate throughout fiscal 2024 and into 2025.
Due to the extensive transformation of the assortment, revenue is expected to lag demand during the year by approximately 4 to 8 points until the new collections are read and reacted to, backorders reduced, and special order lead times shortened. Therefore, both demand and revenue growth will be guided and reported each quarter during fiscal 2024 so shareholders and investors can accurately analyze the business.
It is also important to note that forecasting to end the year with an increased backlog of approximately $80 to $100 million due to revenue lagging demand throughout 2024, which will negatively impact adjusted operating and EBITDA margins by approximately 100 basis points for the year. Additionally, investments and startup costs to support international expansion are now estimated to be an approximate 230 basis point drag for 2024.
Due to our inflection ramping later than expected we are adjusting our full year forecast for fiscal 2024 as follows
(52- versus 52-week basis):
Demand in the range of 8% to 10%
Revenue growth in the range of 5% to 7%
Adjusted Operating Margin in the range of 11% to 12%
Adjusted EBITDA Margin in the range of 17% to 18%
For the third quarter of fiscal 2024 we are forecasting:
Demand growth in the range of 12% to 14%
Revenue growth in the range of 7% to 9%
Adjusted Operating Margin in the range of 15% to 16%
Adjusted EBITDA Margin in the range of 21% to 22%
Note: The above outlook is provided on a 52 versus 52 week basis. The 53rd week of fiscal 2023 contributed approximately $50 million in revenues.