business

RH Leaps After Profitability Increases on Membership Model Progress

  • Former Restoration Hardware had surprise comparable sales gain
  • Company boosts fiscal 2018 outlook for a second time this year

Home furnishings are displayed in an RH store in New York, U.S., on Monday, Sept. 7, 2015. 

Photographer: Michael Nagle

RH, the home furnishings retailer, surged to its highest price in 5 1/2 years after it posted a record first-quarter profit margin and a surprise gain in same-store sales, adding heft to its transformation into a membership business.

The company, previously known as Restoration Hardware, said it sold more goods at full price last quarter and streamlined distribution, helping boost its adjusted operating margin -- a key measure of profitability -- to 38 percent, a gain of 7.5 percentage points. It also raised its outlook for the fiscal year.

Wild Thing

RH's stock is known to bounce around after earnings

Source: Bloomberg

Under Chief Executive Officer Gary Friedman, RH’s stores have morphed into upscale clubs. Members pay an annual fee for savings on all items, concierge service and interior design consultation. Its furniture emporiums serve as glitzy galleries of $6,000 leather sofas and $4,000 crystal chandeliers. Shoppers can sip coffee at cafes, check out a wine vault or grab a bite at a rooftop restaurant while perusing the inventory.

Friedman has said he seeks to “revolutionize” retail with such stores, rather than abandon physical selling space to chase online sales. RH will open four new locations this year.

RH shares soared as much as 39 percent in New York to $164. 49 on Tuesday, the biggest intraday gain since September. They had already advanced 38 percent this year through Monday’s close.

Comparable sales grew 1 percent in the first quarter that ended May 5. Analysts had projected they would drop by 0.9 percent, according to Consensus Metrix. Profit excluding some items also topped estimates.

RH forecast second-quarter profit and revenue that exceeded projections and boosted its fiscal 2018 outlook for a second time this year. It now expects earnings per share, excluding some items, of $6.34 to $6.83, up from a previous forecast of $5.45 to $6.20

Friedman stepped down as CEO in 2012 after the board investigated a personal relationship between the executive and a subordinate. He returned as top executive and chairman 11 months later.

— With assistance by Brandon Kochkodin

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