Source: Company reports/Coresight Research

4Q17 Results

Restoration Hardware reported 4Q17 adjusted revenues of $669.7 million, up 13.5% year over year but below the $672.4 million consensus estimate. Adjusted EPS was $1.69, above the $1.56 consensus estimate and up from $0.68 in the year-ago quarter. Adjusted figures reflect costs and inventory charges associated with product recalls initiated in the fourth quarter of 2016 and second quarter of 2017, as well as adjustments in 2017 for the accrual related to the recall initiated in 2016. Also, the additional week in the fourth quarter of 2017 (which totaled 14 weeks) added approximately $36 million in net revenues to the quarter and year. Excluding the 14th week, net revenues increased by 7% during the fourth quarter of 2017. Comp sales grew by 2% and were up significantly from the 18% decline reported in the year-ago quarter, but were below the 7% consensus estimate. Retail store revenues were $361.64 million, up 18% year over year. These revenues represented 54% of the company’s total revenues, versus 52% in the year-ago quarter. Online revenues were $308.1 million, up 10% from the year-ago quarter and representing 46% of total revenues. Management commented that, over the past 22 months, it has transformed the business from a promotional model to a membership model that is enhancing the brand, streamlining operations and improving the customer experience. Management noted that 95% of the company’s core business now comes from members, citing the benefits of moving from a promotional to a membership model. The company will continue to execute its strategy of optimizing operations, redesigning its supply chain network and rationalizing its product offering. Over 2017, Restoration Hardware closed two distribution centers, simplifying the reverse logistics and outlet model and reducing inventory. The retailer ended the year with a total of 83 retail Galleries, consisting of 16 Design Galleries, 47 Legacy Galleries, 1 RH Modern Gallery and 4 RH Baby & Child Galleries throughout the US and Canada and 15 Waterworks showrooms throughout the US and the UK.

FY17 Results

Restoration Hardware reported adjusted revenues of $2.44 billion for FY17, up 14% year over year. Adjusted EPS was $3.05, versus $1.27 in the previous year. At the end of the fourth quarter, merchandise inventories were $527 million, a decrease of 30% from $752.3 million at the end of the previous year.

Outlook

Management provided the following guidance:

• FY18 adjusted EPS of $45–$6.20, versus the consensus estimate of $5.56. The company expects full-year revenues of $2.53–$2.57 billion, representing growth of 5%–7% and below the $2.59 billion consensus estimate.
• 1Q18 adjusted EPS of $0.95–$1.05. The company expects first-quarter revenues of $555–$565 million, versus the $589.4 million consensus estimate.

The retailer said it has new brands in its pipeline that it will reveal next year. The company added that it has developed a new prototype Design Gallery with reduced square footage and efficient design that will enable it to deploy capital more efficiently with less time and cost risk.