06182015 Restoration Hardware has Big Plans for New RH Modern Brand

CORTE MADERA, CA - Gary Friedman, chairman and CEO of RH (Restoration Hardware), has announced the new RH Modern brand of furniture and lighting. The brand will formally launch this fall with a 300-page source book, a dedicated website and what Friedman termed "a significant retail presence." A freestanding RH Modern store will debut this fall in Los Angeles. The entire ground floor of the RH Flatiron gallery in New York City will be dedicated to RH Modern, and a floor in the company's next-generation Design Gallery RH Atlanta will be devoted to the new modern brand.

RH Modern will also have dedicated selling floors in new flagship RH Design Galleries set to open later in 2015 in Chicago, Tampa, Denver and Austin. By its first year of operation, RH Modern will have more than 120,000 square feet of selling space. On tap for 2016 will be at least 10 next-generation design galleries and the company is in negotiations or has identified sites for at least 25 additional locations.

Calling it a new concept in the world of home design, Friedman said RH Modern will be a "disruptive force" in the home furnishing market sector. In a video prepared for the corporation's first quarter fiscal 2015 earnings report, Friedman said the new furniture and lighting is designed with clean lines and a minimalist aesthetic of modernism combined with the comfort and quality that defines the RH brand. 

"RH Modern represents a fresh and compelling aesthetic that we believe will define a new way to live and redefine how to shop for modern furnishings. We will inspire our customers to invest in their homes. RH Modern will have lots of natural light, fresh air, rooftop parks, foundations and interior installations designed to inspire and make you say you want to live there. We want to blur the lines between retail and residential," Friedman explained.

INTERNET IS NOT THE FOCUS

Despite the overall industry trend toward an increased online retail presence and reducing brick and mortar footprints, Friedman is going in the opposite direction. "The key to unlocking our value is to transform our retail platform. About 10 percent of retail sales are done online. Malls and anchor stores have no essence of humanity and lack imagination. We don't want to shrink to greatness. It's not about the Internet," he said.

Instead, Restoration Hardware is increasing its retail presence - in a big way.  HR Modern in L.A. will be six to eight times larger than current RH locations and is expected to produce two to four times the revenue. Currently stores offer about 7,000 square feet of retail space that yield around $10 million each in revenue. The new retail presence will be about 45,000 square feet with an estimated $30 million in revenue. The luxury retailer intends to expand overall revenue from around $1.9 billion to $4 to $5 billion.

Describing the former footprint, Friedman said, "Our products are trapped in 7,000 square foot legacy stores." He added that with RH Modern, RH "will be the largest collection of luxury home furnishings under one brand in the world."

WHY MODERN NOW

Friedman pointed to several trends that are spurring the modern aesthetic, among them exciting new modern architecture across the globe, the return to urban living, and innovative consumer product design (driven by Apple). He explained that Millennials, who are comfortable with technology and modern workspaces, are entering their home-buying years, and Baby Boomers are looking to retire "but don't want to grow old in order to get there." RH believes Baby Boomers will buy modern furniture to help them feel current and relevant. 

The company firmly believes that there is an untapped and significant market for upscale modern furniture, rugs and accessories. The Design Gallery RH Atlanta - The Gallery at the Estate in Buckhead (the company's first next generation store continues) to "accelerate and gain momentum," and Friedman expects the gallery to exceed original expectations.

SALES PROJECTIONS

The introduction of RH Modern wasn't the only news as the company released its first quarter FYI 2015 results. Net revenues increased 15 percent and overall net revenues were in the $495 to $505 million range. 

Looking forward, RH says that it is close to being cash flow positive and expects to cross that line within the next six to 18 months. RH also positively altered its year-end predictions. For FYI 15, which ends Jan. 30, 2016, the company increased its net income predictions to be in the 30 to 36 percent range and net revenues in the 15 to 17 percent range. The company anticipates net revenues will increase between $2.146 billion to $2.176 billion with adjusted operating margins increasing from 10.4% to 10.7% by year's end.

Overall, RH said it is on track toward its long-term goal of $4 billion to $5 billion in North American sales, mid-teens operating margins, significant free cash flow and "industry-leading" return on invested capital.

The RH first quarter fiscal 2015 earnings video can be viewed at the Company's Investor Relations website, ir.restorationhardware.com.