Restoration Hardware Promises To Get Growth On Track

Restoration Hardware (RH) managed to eek out some better-than-expected results when it reported its earnings earlier this week. RH logged revenues of $586.7 million. That is a 9 percent drop-off from the same time last year — when RH reported $647.2 million — but it did come out ahead of analysts’ estimates of $584.2 million.

Market watchers apparently liked those upward results as share in the home furnishings and design retailer picked up 8 percent in after-hours trading.

RH’s problems have been recurring of late. The latest round of woes were topped off by issues with inventory and in-firm uncertainty about shifts to its markdown strategy — both of which depressed Q4 results and were capable of turning RH’s successful turnaround story into a new tailspin.

Still, CEO Gary Friedman remained optimistic as he spoke about his firm’s way forward with investors.

“While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture and cash flow at RH,” Friedman said in a statement. “Our focus will be on executing our new business model, architecting a new back-end operating platform and maximizing cash flow.”

That new business model includes moves to upscale restaurant experiences in some of its key urban stores. It also entails a focus on the retailer’s new — and presently much maligned — membership model.

For a $100 a year, customers enjoy 25 percent off in all departments, 10 percent off clearance items, complimentary interior design services, early access to clearance events and lower interest rates on the RH credit card.

The membership does not, surprisingly, include access to free shipping.

Restoration Hardware is also planning to cap new gallery openings to between three and five per year, reducing capital requirements and execution risk.

“We expect first-quarter fiscal 2017 net revenues to increase 16% to 20%, of which approximately 5 points of growth is due to the acquisition of Waterworks and 5 points is related to higher outlet and warehouse sales stemming from accelerated inventory optimization efforts during the quarter,” Friedman said. “Excluding these factors, we are expecting growth in the range of 6 to 10 percent, as we anniversary the launch of the RH Members Program and benefit from the mailing of our Fall 2016 RH Interiors Source Book and the recent mailing of RH Outdoor.”

So far, the retailer is projecting optimistically about the year despite the soft holiday sale season numbers. RH is pushing toward a total net revenue increase of 8 to 12 percent.

“We plan to generate meaningful free cash flow driven by increased earnings, reduced capital spending and lower inventories,” Friedman added.