Restoration Hardware Looking To Rebuild After Rough Q1

Add another retailer to the bonfire of the earnings reports.

Restoration Hardware, a speciality home goods and decoration retailer famed for its clean lines, has gotten off the year to a less than clean start.

RH reported losses in the $13.5 million range in Q1 2016, a pretty sharp turnaround in the wrong direction from the $7.2 million in gains the year before. The results were obviously below street expectations. Revenue did pick up — 8 percent to $455.5 million from $422.4 million — which was better news than losses, but still missed analyst forecasts.

So how did RH end up in the red, despite a sales picture that was actually improving? Increases in costs mostly — for goods, for doing business, for administration — the list was extensive.

And the results for the entire fiscal year will likely continue to drag care of operation items including costs associated with RH Modern production delays and investments to elevate the customer experience. These are short duration costs, as will be the costs of transitioning Restoration Hardware’s business model from purely promotional to membership. RH is also currently undertaking a major inventory rationalization and optimization, which will further add to financial headwinds RH will be pushing through this year.

Predictions for Q2 include revenue in the $505 million to $520 million range, with an adjusted net income between $11.5 million and $13.5 million. The full-year outlook has taken a hit — net revenue growth is expected to be in the 1 percent to 3 percent range, with cap expenditures in the $180 million to $210 million range.

But there is an upside here, or at least a light at the end of the tunnel. RH is predicting that performance will pick up the pace in Q4 and springboard the company into 2017. With the streamlining effects in, the firm forecasts cost savings of approximately $20 million on an annual basis.

“While there is uncertainty regarding the headwinds impacting revenues, we expect many of the cost and margin related issues to be short term in nature,” said Gary Friedman, chairman and CEO. “This fall, we plan to expand the mailing of our source books, introduce new collections across RH Interiors and RH Modern, launch RH Modern across our entire retail fleet, and remodel our existing legacy galleries – including the installation of Design Ateliers, and the most significant product refresh in the company’s history.”