Restoration Hardware picked up the pace in the second quarter, with the retailer seeing sales growth as it continues to transform its retail stores into design galleries.
For the second quarter ended July 29, comparable revenue increased 7% versus the year-earlier quarter. Net revenues were $615.3 million versus $543.4 million in the quarter a year before. Operating income was $12.1 million versus $22 million in the prior-year period, but adjusted operating income was $39.9 million compared with the $33.2 million in the 2016 quarter.
Stores generated 57% of revenue in the quarter while direct generated 43%, which matched the results of last year’s second quarter, the company said.
In the quarter, Restoration Hardware posted a net loss of $7.9 million, or 28 cents per diluted share, versus net income of $6.9 million, or 17 cents per diluted share, in the year-prior quarter. Adjusted net income, with one-time charges excluded, was $19.7 million, or 65 cents per diluted share, versus $17.9 million, or 44 cents per diluted share, in last year’s quarter. Adjusted diluted earnings per share topped a MarketBeat-published analyst average estimate of 47 cents.
“While we are pleased with the performance of our core RH business in the first half of 2017, we believe there remains opportunity to improve our long-term financial performance and gain additional market share,” said Gary Friedman, RH chairman and CEO. “The analysis of our redesigned RH Interiors Source Book mailed last fall indicates we under marketed some of our best sellers and franchise businesses while also moving the brand too far towards a contemporary aesthetic. You will notice in our fall 2017 RH Interiors Source Book, scheduled to be in-home in October, a greater emphasis on the updated classic design that RH has been famous for, while still evolving the brand towards a cleaner, more contemporary style.”
He added, “The early results of RH Modern continue to be very promising, and we expect sustained growth as we broaden the assortment and enlarge the retail footprint. We continue to believe RH Modern has the potential to become a billion dollar plus brand in North America. Our investment in interior design services is beginning to pay dividends. Our design business is growing rapidly, as we evolve the brand from creating and selling products, to conceptualizing and selling spaces. We also provide an invaluable service to independent interior designers, offering an efficient and cost-effective alternative to shopping in multiple showrooms, eliminating the need to manage multiple orders and incur multiple delivery charges. We continue to refine and enhance the strategies of our developing businesses, RH Baby & Child, RH Teen, RH Contract, and Waterworks. All of these businesses are contributing to our growth, and we expect this to continue as they evolve over time.”
In terms of the store base, Friedman said, “The transformation of our real estate has the potential to double our retail sales in every market. The transformation of our real estate continues to be our largest value-driving strategy. Less than 10% of our assortment is displayed in our legacy retail galleries, and the key to unlocking the potential of our brand is to transform our retail stores into new design galleries. We are pleased with the performance of our galleries opened thus far, and continue to expect our retail sales to double in every market where we open a new design gallery, while also generating a lift in our direct business. With only 14 new design galleries currently open, we are at the very early stages of our transformation and believe the current market can support 60 to 70 in the U.S. and Canada.”