Q1 2025 Earnings Summary
- RH is undergoing the most significant product transformation in its history, introducing numerous new collections across product lines such as RH Modern with 30 new collections ( ), RH Outdoor with 14 new collections ( , ), and upcoming mailings of RH Interiors and RH Contemporary Sourcebooks. This transformation is expected to drive significant demand growth in the second half of fiscal 2024 and beyond. ( , , )
- RH is expanding its physical footprint both domestically and internationally, opening five North American Design Galleries, including Cleveland, Palo Alto, Raleigh, Newport Beach, and Montecito, and two international galleries in Brussels and Madrid. The RH Madrid gallery has been described as "the best work we've ever done from a presentation point of view" by the CEO. Upcoming openings in Paris and London are expected to significantly raise brand awareness and drive growth. ( , , )
- RH is confident in its ability to gain market share despite a challenging macroeconomic environment, supported by seven significant lift factors such as more than doubling circulation and customer contacts, an increase in new store months from 12 to 48 in the second half, and substantial new product introductions. These factors are expected to accelerate business trends and drive demand growth throughout fiscal 2024. ( , )
- RH is experiencing margin pressure due to increased promotional activity and sales of discounted goods in a down housing market, which could impact profitability. In challenging markets, there's a higher promotional mix, and clearance activities from their product transformation could continue to weigh on margins.
- Delays and challenges in key initiatives like the Aspen ecosystem project due to development difficulties, high interest rates, and market uncertainties may hinder growth. The project is progressing slower than anticipated, and some developments have been delayed or slowed down.
- Slow progress in the European expansion due to low consumer awareness and the complexities of entering new markets may delay RH's international growth plans. The company acknowledges that building brand awareness is taking time, and performance in new markets is currently at where they expected, which may not meet aggressive growth expectations.
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Demand Outlook
Q: How confident are you in demand scaling into the back half?
A: Gary Friedman expressed strong confidence in demand scaling into the back half, citing seven significant lift factors. These include a more than doubling of circulation and contacts year-over-year, multiple Sourcebook mailings like the Modern, Interiors, and Contemporary books, and a 4x increase in new store months in the second half versus last year (from 12 to 48 store months). He believes these factors could lead to a 20-point increase in demand builds, potentially even higher depending on execution. -
Pricing Strategy
Q: Are pricing challenges behind you, and how is customer adoption of new products?
A: Gary Friedman stated they've worked extensively on value and feel their pricing is now in a good place, offering significant value for their design and quality. He mentioned they are sometimes at disruptive values and have learned from past mistakes where pricing was too high, adjusting to better meet customer expectations and expand market appeal. -
Macro Environment Impact
Q: What are your key macro concerns impacting the business?
A: Gary Friedman is cautious about the macro environment, noting he doesn't see a meaningful or sustained inflection in luxury home sales due to high home prices and interest rates. He believes that until there is a meaningful move in interest rates, the housing market will likely remain challenging, impacting their business. -
Success of New Collections
Q: How are the new collections performing and what are early learnings?
A: Gary Friedman reported that several new collections are showing strong signs of resonating with consumers, including a few that have become new #1 collections—an occurrence that typically happens once every 7 to 12 years. Introducing newness in the top third of their assortment has lifted the entire company, and they are focused on optimizing and dimensionalizing these successful collections to drive permanent business growth.