RH (RH, Financial) has reported a strong performance for the second quarter of fiscal 2023, exceeding its guidance due to faster-than-expected deliveries and a shift in advertising costs. The company has raised the lower end of its revenue guidance for the year and is maintaining its outlook for adjusted operating margin. Despite the challenging luxury housing market and broader economy, RH continues to make strategic moves to expand its brand globally and locally, while also transforming its North American galleries. The company's vision is to position RH as the arbiter of taste for the home, disrupting and redefining multiple industries.
Financial Highlights
For the second quarter, RH reported revenues of $800 million and an adjusted operating margin of 22.2%, exceeding its guidance. This was due to a $25 million revenue benefit from faster-than-expected deliveries and a shift of approximately $40 million of advertising costs from Q2 to Q3. The company has raised the lower end of its revenue guidance for the year to a range of $3.04 billion to $3.1 billion, up from the previous outlook of $3 billion to $3.1 billion. The outlook for adjusted operating margin remains at 14.5% to 15.5%.
Product Elevation and Platform Expansion
RH recently mailed its new 604-page RH Interiors Sourcebook, and early indications look promising. The company expects business trends to inflect in the second half of this year with the mailing of its RH Contemporary Sourcebook in late October and its RH Modern Sourcebook in early January. The company also plans to expand the RH brand globally and locally, representing a multibillion-dollar opportunity. This includes the opening of RH England, The Gallery at the Historic Aynho Park, and future openings in Dusseldorf, Munich, Paris, Brussels, Madrid, London, Milan, and Sydney.
North American Transformation and Local Market Strategy
RH continues to transform its North American galleries, with plans to open RH Indianapolis and RH Cleveland in the second half of this year, and RH Palo Alto and RH Monaco in early 2024. The company also sees an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live, visit, and vacation. The first new location for Design Studio will open in Palm Desert in the first half of 2024.
Outlook
RH is maintaining its outlook for adjusted operating margin in the range of 14.5% to 15.5% for the year. For the third quarter of fiscal 2023, the company is forecasting revenues of $740 million to $760 million and adjusted operating margin in the range of 8% to 10%. For the fourth quarter, the company is forecasting revenues of $760 million to $800 million and adjusted operating margin in the range of 14.4% to 16.6%.
Long-Term Vision
RH's long-term vision is to position itself as the arbiter of taste for the home, disrupting and redefining multiple industries. The company plans to open immersive design galleries in every major market, generating revenues of $5 billion to $6 billion in North America and $20 billion to $25 billion globally. The company also plans to move beyond curating and selling products to conceptualizing and selling spaces, creating an ecosystem of products, places, services, and spaces that establishes the RH brand as a global thought leader, taste, and place maker.
