Restoration Hardware (RH) Furnishing Solid Gains After Posting Impressive Beat-And-Raise Report
2:52 pm Thursday, September 09th, 2021
Luxury home furnishings company Restoration Hardware Holdings (NYSE:RH) continues to distinguish itself as a premier name within the retail space. After the close yesterday, RH reported blowout 2Q22 results and lifted its FY22 revenue guidance again as it flawlessly executes its brick-and-mortar based strategy within a favorable climate for high-end, at-home products. Heading into the report, the company faced a high bar to hurdle in the wake of Williams-Sonoma’s (WSM) impressive quarterly report on August 25. Bolstered by a 39% yr/yr increase in revenue to $989 mln and a stunning 480 bps improvement in adjusted operating margin, RH surpassed the expectations of even the most bullish of investors.
Although consumer sentiment levels have eroded appreciably in recent weeks, RH’s results demonstrate the resiliency of its customer base and its associated pricing power. Like any other retailer, RH is contending with rising raw material and shipping costs. However, the company’s affluent customer base is willing and able to absorb the price increases. Additionally, RH avoids the promotional activities that are commonly used by online retailers, choosing to compete on quality and in-store experience, rather than on price. The result of these factors is that adjusted gross margin expanded by 180 bps to 49.3%, despite the cost headwinds.
Based on RH’s enhanced outlook, which calls for FY22 revenue growth of 31-33% versus its prior guidance of 25-30%, it’s evidence that the company expects these bullish trends to remain intact. In fact, in the Q2 Shareholder Letter, CEO Gary Friedman stated that FY22 is shaping up to be the “most exciting year on record” for the company.
His exuberance is not only based on positive macro-related factors, but it’s also derived from company-specific catalysts. Most notably, RH is planning its largest new product cycle in its history, starting with the launch of RH Contemporary in the spring. The company also plans to bring back and mail its RH Interiors and RH Modern Source Books, which were suspended during the pandemic.
Overall, the company is in excellent shape with plenty of momentum behind it. There are still risks to consider, particularly with the unpredictable supply chain. On a related note, RH disclosed that the Vietnamese government recently ordered a shutdown of manufacturing facilities due to COVID. By late July, this factory was fully closed, but RH expects manufacturing to restart there beginning in October. These potential issues notwithstanding, the outlook for RH continues to look bright.
