DENVER, CO – OCTOBER 12: CEO and chairman Gary Friedman was visiting the new Restoration Hardware … [+]
RH, the company formerly known as Restoration Hardware
That brings year-to-date revenues to $2.86 billion, just ahead of $2.85 billion generated in all of 2020. This was accomplished despite the year’s supply-chain challenges, as it bettered pre-pandemic 2019 third-quarter revenues by nearly 50%.
Adjusted net income reached $209 million in the quarter, up 25% over same period last year. And year-to-date, it exceeded full-year 2020 by 30%, $602.5 million compared with $462.9 million. Adjusted operating margin stands at 27.7% in the quarter, way ahead of full-year 2020 at 21.8%.
These results gave RH confidence to raise fiscal 2021 revenue guidance to 32% to 33% and adjusted operating margin in the range of 25.3% to 25.5%.
Calling fiscal 2021 guidance “conservative” due to uncertainties around the emergence of the new Omicron variant, postponing the opening of its San Francisco Gallery until next Spring and continued delays in the supply chain, CEO Gary Friedman is anything but conservative when it comes to next year.
Recounting the challenges of operating under the Covid cloud in 2020 and 2021, Friedman said in a statement, “Let this be remembered as the time RH unleashed the greatest display of innovation our industry has ever seen. That’s why we refer to 2022, as ‘The Year of the New.’”
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As per usual, Friedman didn’t waste a lot of time in the earnings call talking about where RH has been. Instead, his remarks were about where RH is going.
“Vision leads the leader and leaders have to be comfortable making others uncomfortable,” he said in the earnings call. “You’re taking people somewhere that you’ve never been, doing things you’ve never done. We spend a lot of time thinking until we can see what others can’t see, so we can do what others can’t do.”
Based upon what Friedman sees ahead for next year, it is sure to make RH’s competitors uncomfortable.
Now contemporary and modern
Top on Friedman’s “Year of the New” list is the launch of the RH Contemporary product line, including a free-standing RH Contemporary Gallery. The product line’s introduction was delayed due to Covid, which gave the company more time to expand and “dimensionalize” it. As such, it will break with a 500+ page catalog, a dedicated website and a national advertising campaign.
“RH Contemporary is going to feel massively new with lots of new product. I would expect 50% to 60% incremental from Contemporary as it is so new and differentiated,” Friedman said. “It’s a complete game changer.”
Next year RH will also introduce new collections to the RH Interiors and RH Modern ranges, the first in two years. “The most amount of newness that they’ve had in years,” he said. For the uninitiated, modern design typically refers to styles inspired by mid-century modern looks, while contemporary design is all about what is happening now and looking to the future.
Eri Chaya, chief creative and merchandising officer, speculated, “It [Contemporary] will rival Modern when we launch and it could eventually eclipse that concept.” Friedman added that Modern was “huge,” but confidently said Contemporary “is our best work.”
“Contemporary changes everything. When people see the taste level, the sense of style, the quality and sophistication, it opens up another entirely new market,” he continued.
Beyond borders
Also coming in early 2022 is the opening of RH England at the Historic Aynhoe Park estate. The date has not been set yet, though it is aimed for late May, early June. “It could be a weather call,” he explained, as they will watch the weather report to open on a sunny day when “everybody’s smiling and happy, including our people.”
Coming next will be galleries in London, Paris, Munich and Dusseldorf with negotiations on-going for Milan, Madrid, Brussels and France. Friedman explained that opening these foreign galleries is nothing like opening a new market in the U.S.
“We’re not opening markets, we’re opening countries,” he said. “[Each of ] these are big economies and we’re going to learn how many Galleries we need in these markets and how we penetrate them correctly.”
Noting that each international Gallery takes more time, more money and requires RH staff to do more demanding things, he projects more international Gallery openings to extend from 2023 through 2026.
With the Galleries as the showcase for the new Contemporary, expanded Modern and Interiors lines, along with planned introductions of RH Bespoke, Color, Antiquities and Artifacts and Atelier, Friedman sees a runway to generate “$5 to $6 billion in North America and $20 to $25 billion globally.”
Bringing it home
During the earnings call, Friedman enthused over the RH In-Your-Home concept. It takes the company’s White Glove delivery service to the next level to create a “unique and memorable delivery experience with Furniture Ambassadors guiding every detail of your delivery and extending the selling experience into the home.”
RH In-Your-Home is the brainchild of Fernando Garcia, the company’s chief supply chain officer and president of home delivery. He emigrated from Colombia with “$5 in his pocket,” Friedman explained, then worked his way up from delivering furniture out of his truck into building a company, FGO Logistics, with a 550 truck fleet operating in 26 states.
Starting first as a business partner for RH, Garcia sold the company and joined RH in early 2020. “He is the most resourceful person I have met,” Friedman said.
On the road, in the air and on the seas
In other news, RH announced the late spring 2022 opening of its RH Guesthouse in New York City to be followed by one in Aspen. These Guesthouses will set a new standard of luxury in the $200 billion North American hospitality market he promised.
“We think the Guesthouse could be the next new market, like when Ian Schrager invented boutique hotels,” Friedman shared.
Also set to launch in 2022 are the new World of RH digital portal, its private RH1 and RH2 Gulfstream jets for charter and the christening of the RH3 yacht for charter in the Mediterranean and Caribbean.
However, Friedman probably won’t be on the yacht’s first cruise. “I’m not a boat guy. I get seasick,” he shared.
Believing in the ecosystem
In closing his prepared remarks in the earnings call, Friedman said:
“Our ecosystem of Products, Places, Services and Spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 to $10 trillion, one of the largest and most valuable addressed by any brand in the world today. A one percent share of the global market represents a $70 to $100 billion opportunity.”
Wall Street is rewarding Friedman’s vision with stocks rising this week from $540 at Monday’s opening and spiking to $644 on mid-day Thursday, though it is trading just under $600 per share at posting.
Cowen’s Max Rakhlenko, for one, is bullish on RH’s prospects. “We model FY22 revenue growth +9.2% year-over-year, with potential upside on strong execution, on new product and gallery launches, along with pricing,” he wrote in a report, while admitting that RH beat both its earlier top and bottom line expectations this quarter.
“We reiterate our Outperform rating as RH is our top idea for next year given our bullish outlook for above expectations revenues and EBIT margin,” he concluded.
