RH Projects Strong Demand Growth Amidst Aggressive Investment and Product Transformation

RH RH, formerly known as Restoration Hardware, held its Q4 2023 earnings call with a tone of cautious optimism, as the company navigates what CEO Gary Friedman described as the most challenging housing market in three decades. Despite the headwinds, RH is positioning itself for significant market share gains in 2024 and beyond, with a focus on product transformation and international expansion.

During the call, Friedman highlighted the company's confidence in its strategy, as evidenced by the repurchase of 7.6 million shares in fiscal 2022 and 2023, amounting to approximately 35% of the shares outstanding. RH anticipates that this investment will create meaningful long-term value for shareholders.

The fourth quarter and full-year results were impacted by severe January weather and shipping delays related to the ongoing conflict in the Red Sea, resulting in a $40 million revenue shortfall. However, RH expects to realize the majority of this deferred revenue in 2024 when transit times normalize.

Adjusted operating margins for the fourth quarter and full year were reported at 9.1% and 13%, respectively, with adjusted EBITDA margins at 15.3% and 18.2%. The company attributed the margin pressure to lower revenues, increased markdowns for product transformation, and investments in international expansion.

RH's aggressive marketing strategy for 2024 includes increased print and digital advertising across major home design publications, signaling a ramp-up in investment based on the company's confidence in its new product lines.

The company also announced the approval of RH Sydney, The Gallery in Double Bay, a 5-story development with a rooftop restaurant and wine bar, set to open in fall 2026. This marks a significant step in RH's global expansion plans.

For fiscal 2024, RH forecasts demand growth of 12% to 14% and revenue growth of 8% to 10%. The company expects to end the year with an increased backlog of approximately $110 million to $130 million due to revenue lagging demand, which will impact operating margin and adjusted EBITDA margin by approximately 140 basis points. Additionally, investments and start-up costs for international expansion are estimated to be a 200 basis point drag for 2024.

Friedman emphasized RH's unique position in the market, with the goal of scaling taste and positioning RH as the arbiter of taste for the home. He expressed confidence in the company's strategy and the team's ability to execute, despite the current market challenges.

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