RH reported preliminary 4Q EPS of $0.99 versus expectations of $1.39 and provided a business update. Total 4Q revenue is expected to be $647.2 million versus consensus of $711.1 million. Comps were up +9% in the quarter. Demand sales/written orders, which is the value of orders booked by customers during the period were up 21% during 4Q. Management cited three factors that had a negative effect on 4Q results:

1. Revenue was up 11% in the quarter representing a shortfall to internal plans. While the initial response to RH Modern has been strong, the company is experiencing shipping delays as some vendors struggle to ramp up production. Restoration Hardware expects the majority of the demand/written orders to turn into revenues in the first and second quarter, and anticipates vendors will be caught up by the end of the first half of the year, for the most part. In addition, the company’s low in-stock position also impacted orders.
2. The company continues to experience underperformance in markets affected by energy, oil, and/or currency fluctuations particularly Canada, Texas, and Miami. These markets have underperformed the chain by 20 points.
3. While management increased promotional activity during the fourth quarter, the results were less successful than in the past, suggesting a further pullback by the high-end consumer. The increased volatility in the US stock market, especially in January, which is the biggest month of the quarter for furniture sales, contributed to the slowdown, according to the company.

Despite the challenges with the RH Modern collection in the period, the company plans to expand the assortment in the fall and add the products to its retail stores. The L.A. store, the first standalone RH Modern gallery, is on pace to do $25 million in demand in its first year. Management also noted that RH Teen is off to a strong start. The company remains focused on: 1) optimizing its core business, 2) being opportunistic with real estate, 3) elevating the customer experience and 4) changing the promotional cadence and elevating its brand.  The company expects to provide additional details when it reports quarterly earnings on March 23rd.