CORTE MADERA, Calif. — A sluggish new home market, a promotional home furnishings landscape and other macroeconomic considerations made for a more challenging third quarter for Top 100 retailer RH.
The Corte Madera, Calif.-based retailer reported net revenues at the mid-point of its third quarter 2023 guidance, while its operating margin was pinched and it posted a loss for the three months ended Oct. 28.
“With 82% of homeowners having mortgages below 5% and 62% below 4%, we continue to expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully,” Gary Friedman, chairman and CEO, wrote in a shareholder letter accompanying the earnings. “Additionally, the home furnishings market has become increasingly promotional, and we believe that will create a mix shift towards clearance products, pressuring gross margins.”
For the quarter, RH tallied net revenues of $751.225 million, down 13.55% from $869.066 million during the same span in 2022. It posted a net loss of $2.187 million, or 12 cents per diluted share, compared with income of $98.76 million, or $3.78 per share. Its adjusted operating margin fell to 7.3% compared with 20.8% in 2022.
Friedman chalked the difference in margin to higher than anticipated expenses, including international openings as well as costs related to its pending acquisition of the New York Guesthouse property and unsuccessful efforts to secure the One Ocean Drive, Miami Beach, location.
During the quarter, RH’s EBITDA stood at $71.692 million, giving it an EBITDA margin of 9.54%.
Year-to-date RH recorded net revenues of $2.291 billion, down 18.71%, vs. $2.818 billion through the first three quarters of 2022. It tallied $116.18 million in net income, or $5.23 per diluted share, off 72.45% against 2022’s $421.746 million, or $15.65 per diluted share. With $374.033 in EBITDA three quarters into the fiscal year, RH’s EBITDA margin was 16.33%.
RH is narrowing its revenue guidance range for the year to $3.06 billion to $3.08 billion and now expects adjusted operating margin to be in the range of 13.6% to 14%.
Friedman said he sees opportunities in the year to come, including more Galleries as well as Design Studios, and demand should pick back up.
“We expect our demand trends to accelerate though the first half of 2024 as our product transformation unfolds, in-stocks improve, we complete the reset of our Galleries, and introduce our new RH Modern and RH Outdoor Sourcebooks in the first quarter of next year,” he said. “We anticipate our inflection point will peak in the second quarter of 2024 as our new collections fully ramp and we begin another cycle of Sourcebook mailings, completely transforming and refreshing the entire brand over a 12-month period.”