CORTE MADERA, Calif. — In the third quarter earnings report framed in a letter to shareholders, RH CEO Gary Friedman said the retailer is “enjoying a tailwind that is driving increased demand for all things home, enabling us to thrive.”
Net revenues for the quarter were $844 million, up 24.6% from the same period last year. Income from operations also increased 24.6% year over year, to $111.2 million from $89.2 million the previous third quarter.
Friedman noted that it would be easy to lose sight of long-term strategies in the midst of short-term distractions. “While the focus of this earnings release is our third quarter results, the focus of our leadership team has been our third decade of growth.”
He said “the emergence of RH as a luxury brand generating luxury margins” came years earlier than expected, and he noted that the company could see operating margin of 21% in fiscal 2020 and “a clear path” to 25% in the future.
For the third quarter ended Oct. 31, RH achieved an adjusted operating margin of 26.7%, more than double last year’s record of 13%.
In its earnings report, RH said its RH Core demand remains strong despite not mailing its fall sourcebooks and delaying new product introductions until 2021.
Net income for the period was down 11.5%, however, to $46.4 million from $52.5 million in the 2019 period. Earnings per diluted share came in at $1.64, compared with $2.17 last year.
Free cash flow for the third quarter increased 94% to $186 million, up from $96 million last year. The company noted that while current on-hand inventory is flat to last year, total inventory (including in-transit) is up 16% YOY.
As of the end of the third quarter, RH operated a total of 68 galleries, 38 outlets and 14 waterworks Showrooms.
Looking ahead to 2021, Friedman said the company’s plan is for significant growth in the first half of the year, although he noted that the accelerated demand in the second half of 2020 presents tough comparisons in 2021.
“Regarding our outlook for next year, we believe it’s safe to assume that some level of elevated spending on the home will remain through 2021 and possibly beyond,” said Friedman.
He added, “Our plan is for significant growth in the first half of 2021 as we anniversary closed galleries and restaurants, the abrupt pullback in our Contract business, and Outlet revenues going to zero for a period of time without an online channel.”