RH (NYSE: $RH), formerly Restoration Hardware, operates a luxury home furnishings retail chain with an emphasis on artisan craftsmanship and lavish presentation. It offers furniture, lighting, textiles, bath ware, décor, and outdoor products across its galleries and websites. Headquartered in Corte Madera, California, the company aims to curate an immersive lifestyle brand and shopping experience.
On March 27, 2024, RH reported its financial performance for the fourth quarter and fiscal year 2023, with Q4 revenue and earnings falling below estimates.
RH Q4 Financial Highlights
RH reported fourth-quarter revenues of $738.3 million, missing analyst expectations of $777.8 million by 5.1%. The shortfall was attributed to adverse weather conditions in January and shipping disruptions caused by the ongoing conflict in the Red Sea region. This represented a 4.43% decrease from a revenue of $772.5 million in Q422.
The non-GAAP EPS stood at $0.72, missing analyst estimates of $1.71 by 57.9%. Gross profit amounted to $321 million, for a gross profit margin of 43.5%, down from $396 million in Q4 2022.
Adjusted operating income for the quarter was $66.9 million, a decrease from $128.2 million in the same quarter of the prior year. GAAP Net Income was reported at $11 million, significantly lower than $106.9 million in Q4 2022, down by 89.71%. The GAAP Operating Margin stood at 8.7%, while the Adjusted Operating Margin was 9.1%.
Adjusted net income totaled $14 million, with an adjusted EBITDA margin of 15.3%, driven by increased markdowns to facilitate product transformation and investments in international growth. Capital expenditures in Q4 reached $137.5 million, compared to $64 million, showing a notable increase of 115%.
2023 Financial Performance
During the fiscal year, the company generated $3.0 billion in revenue, marking a 16.67% decrease from the previous year’s $3.6 billion. Gross profit stood at $1.39 billion, representing 45.9% of the revenue, down 23.2% from the $1.81 billion recorded in 2022.
The non-GAAP EPS dropped to $0.72, down from $20.06 in 2022. Adjusted operating income also declined, with GAAP operating margin falling to 12.1% from 20.1% and Adjusted Operating Margin decreasing from 45.45% to 13.0% year-on-year.
GAAP Net Income plummeted to $127.6 million, a significant drop from $528.6 million in 2022, marking a 75.86% decrease. In 2023, the company reported an Adjusted Operating Income of $393.8 million, down 50.14% from $789.8 million in the same quarter of the previous year.
As of February 3, 2024, the company’s cash and cash equivalents were negative, with a balance of -$123,688.
RH’s Upbeat 2024 Outlook Amidst Market Challenges
RH anticipates that business conditions will remain challenging until interest rates decrease and the housing market recovers. However, the company anticipates its demand trends will accelerate throughout fiscal year 2024.
For the first quarter of fiscal 2024, RH forecasts demand growth in the positive mid-single digits and revenue growth in the negative low-single digits. The company anticipates an adjusted operating margin of 6% to 7% and an adjusted EBITDA margin of 12% to 13%.
For fiscal 2024, RH forecasts 12% to 14% demand growth and 8% to 10% revenue growth. The company also expects an adjusted operating margin of 13% to 14% and an adjusted EBITDA margin of 18% to 19%.
The company foresees a substantial increase in its backlog by the end of the year, estimated to be between $110 to $130 million. This surge is attributed to demand surpassing revenue generation in 2024. Despite this increase in demand, the company expects declines of around 140 basis points in both operating margin and adjusted EBITDA margin for the year.
Additionally, investments in international expansion are anticipated to negatively impact margins by approximately 200 basis points.
RH’s Global Expansion: Transforming Luxury Retail
In 2024, RH, a luxury home furnishings retailer, is executing a comprehensive product transformation plan to drive revenue growth and expand its market presence. This plan includes launching new collections, enhancing marketing efforts, and venturing into new markets. Leveraging its acquisition of Waterworks, RH aims to scale the brand within its ecosystem and pursue global expansion opportunities.
Domestically, RH is establishing Design Galleries and Interior Design Studios in key cities, while internationally, it has opened galleries in Brussels and plans for Madrid. Construction delays have pushed back the opening of RH Paris until 2025. In Australia, RH Sydney, The Gallery, is set to open in Double Bay, strategically positioning RH in a vibrant location. Overall, RH’s expansion strategy focuses on diverse retail formats and strategic partnerships to cater to affluent customers worldwide.
RH Stock Performance
On Thursday, March 28, as of 02:15 PM EDT, RH was trading at $349.28, marking a notable increase of 17.61% from the previous close price of $296.99. This upward movement was driven by the upbeat guidance amidst macroeconomic headwinds.
Over the past 52 weeks, RH shares have appreciated by 24.98%, just short of the 29.57% rise of the S&P 500 during the same period. RH’s 52-week high is $406.38, with a low of $207.26. The stock’s 50-day moving average is $271.42, while its market capitalization is $6.331 billion.
Analysts Bullish Outlook, Promising Investment
RH’s recent financial performance for Q4 FY2023 fell short of expectations, attributed to adverse weather conditions and shipping disruptions. Despite this, analysts remain optimistic, with an average price target of $346.25, suggesting a buying opportunity. RH anticipates challenging conditions but expects demand trends to improve in FY2024.
With strategic expansions and product transformations underway, RH aims to drive revenue growth. Although stock performance has fluctuated, recent gains indicate investor confidence in the company’s long-term prospects amid evolving market conditions.
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