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RH Reports Record First Quarter Results, Raises Fiscal 2021 Outlook

The luxury home decor retailer attributes the growth to its exclusive branded collection of luxury home furnishings and it also announces phase one of a new digital portal launching in fall.

exterior of luxury home store
RH Dallas recently opened and its rooftop restaurant is booked through August.
CORTE MADERA, Calif. -- RH (NYSE: RH) has released its financial results for the first quarter ended May 1, 2021, in a shareholder letter from Chairman and Chief Executive Officer Gary Friedman.


-- Q1 total company demand +101% vs. Q1 LY

-- Q1 RH core demand +109% vs. Q1 LY

-- Q1 total company net revenues increased 78% to $860.8M vs. $482.9M LY

-- Q1 GAAP gross margin increased 600 basis points to 47.3% vs. 41.3% LY Q1

-- Adjusted gross margin increased 550 basis points to 47.3% vs. 41.8%

-- Q1 GAAP operating margin increased 1,450 basis points to 21.8% vs. 7.3% LY

-- Q1 adjusted operating margin increased 1,260 basis points to 22.6% vs. 10.0% LY

-- Q1 GAAP net income of $130.7M vs. net loss of $(3.2)M LY

-- Q1 adjusted net income increased 375% to $142.3M vs. $29.9M LY

-- Q1 GAAP diluted EPS of $4.19 vs. diluted loss of $(0.17) LY Q1 adjusted diluted EPS increased 285% to $4.89 vs. $1.27 LY

-- Q1 free cash flow of $136M vs. $(36)M LY

Below is Friedman's statement regarding the results:


Fiscal 2021 is off to a strong start, with revenues up 78% in the first quarter versus down 19% a year ago. Total Company demand increased 101% in Q1 and RH Core demand increased 109%, the strongest demand trends in our industry.

We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin increasing 1,260 basis points in the first quarter to 22.6% versus 10.0% a year ago. Adjusted net income increased 375% and adjusted diluted EPS increased 285% to $4.89 per share versus $1.27 last year.

We generated $228 million of adjusted EBITDA in the quarter and $136 million of free cash flow. Q1 ended with total net debt of $382 million and trailing twelve months adjusted EBITDA of $896 million. Our expectation is to be net debt free by the end of this fiscal year.


Based on current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%. We now expect adjusted operating margin in the range of 23.5% to 24.3%, an increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points, with ROIC in excess of 60%.

As it relates to the second quarter, we expect revenue growth in the range of 35% to 37% and adjusted operating margin in the range of 25.9% to 26.1%.

While fiscal 2021 will surely be a tale of two halves, there are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021 with growth reaccelerating in fiscal 2022 and beyond. These include a strong housing and renovation market, both with pent up demand and a long tail, a record stock market, low interest rates and the reopening of several large parts of our economy. Additionally, the un-masking of the general public could lead to a Roaring Twenties type of consumer exuberance. Town & Country captured that feeling perfectly on the recent cover of their magazine, titled, “Remember Fun? Get Ready for the Comeback!”.


Combine that with the largest new product introduction cycle in our history beginning this fall, and the launch of RH International next year, and fun it could be.

You should also rest assured that we have pressure tested our business assumptions and risks, and are confident in our ability to maintain an adjusted operating margin in excess of twenty percent in just about any economic downside scenario we can envision.


We have spent decades building a brand and business model that generates industry leading profitability and return on invested capital, and believe, like Bernard Arnault, “Luxury goods are the only area it is possible to make luxury margins.”

With 21.8% adjusted operating margin in fiscal 2020, RH has eclipsed the operating margin of LVMH, and we now have a clear line of sight to 25%-plus adjusted operating margin over the next several years.

As it relates to our business model, what is often overlooked is the simplicity and low risk nature of what we have built. I thought it would be helpful to highlight some of the key attributes:

No Seasonal Inventory: We don’t offer seasonal categories like Valentine’s Day, Easter, Halloween, Thanksgiving or Christmas. Nor do we carry collections or color palettes tied to Spring, Summer, Fall or Winter like many home furnishings or home improvement retailers. We spent years eliminating those categories to avoid seasonal markdowns, enabling us to have a significantly higher margin business.

Limited Fashion Risk: Our business is not driven by the fashion cycles found in retail models that require frequent discounting. The major trends that drive our business are tied to architecture and the dead. Architectural trends tend to change over decades not years. As an example, many point to the 1997 opening of the Guggenheim Museum in Bilbao, Spain by the legendary architect Frank Gehry, as the beginning of the recent modern movement. We launched RH Modern almost two decades later in the Fall of 2015, when a critical mass of modern homes and condominiums was reached, establishing a sizable new market.

As it relates to the dead, generations pass away and their belongings move through estate sales, which feed the antique markets, which drive the high-end interior design market, which influences the high-end reproduction market, and the trends continue to flow downstream. If you want to know where the Mid-Century Modern trend came from, do the math or visit a cemetery.

Membership: Moving from a promotional to a membership model, as we did in 2016, simplified and streamlined our business, eliminating the chaos and costs associated with a constantly changing customer proposition. Membership also deepened our relationship with our customers as the majority use our interior designers to furnish their homes. This evolved our business from selling products to selling spaces, driving higher average orders and lower customer acquisition costs as RH has become their top of mind choice for luxury home furnishings.
Luxury Positioning: Luxury brands have proven to be less susceptible to economic downturns as their customers may temporarily pause their spending but do not lose the ability to spend. Additionally, investing in the home grows exponentially as customers accumulate wealth, acquiring more homes, which drives higher sales, resulting in lower advertising costs, and a more profitable operating model.


We enter this new decade with a compelling vision for the future, a team passionate about bringing that vision to life, and the strongest brand and business model in our industry. We plan to launch an unimaginable amount of innovative new strategies designed to further elevate and expand the RH brand. As I did in my recent annual shareholder letter, I will outline the strategic separation we’ve created and the strategies we are pursuing as we continue our quest to become one of the most admired brands in the world.


We have built the most comprehensive and compelling collection of luxury home furnishings under one brand in the world. Our products are presented across multiple collections, categories, and channels that we control, and their desirability and exclusivity has enabled us to achieve industry leading revenues and margins. Our customers know them as RH Interiors, RH Modern, RH Beach House, RH Ski House, RH Outdoor, RH Rugs, RH Lighting, RH Linens, RH Baby & Child, RH Teen and Waterworks. Our strategy to elevate the design and quality of our product will continue as we introduce RH Contemporary in 2021 with a 400 page Source Book, dedicated website, national ad campaign, and a freestanding RH Contemporary Gallery in the San Francisco Design District. We also have plans to introduce RH Couture Upholstery, RH Bespoke Furniture and RH Color over the next several years.



Our ability to transform our legacy stores into multi-dimensional Design Galleries that double our retail revenue and profitability in every market will enable the RH brand to reach $5 to $6 billion of revenues with a mid-twenties adjusted operating margin in North America. These inspiring and disruptive physical experiences render our products more valuable while creating strategic separation and unmatched brand awareness, enabling us to gain significant market share at lower advertising costs. This presents a conundrum for our competition who are closing or downsizing their stores while we build the largest specialty stores in the history of our industry. We believe our Galleries are proving to be a huge competitive advantage enabling RH to acquire customers at lower fixed costs versus variable digital advertising costs that can change daily for store-less or store-closing brands.

All you need to do is walk a mall to notice most retail stores are archaic windowless boxes that lack any sense of humanity. There’s generally no fresh air or natural light, plants die in most retail stores and they can’t be a good environment for humans either. That’s why we don’t build retail stores, we create inspiring spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces that are filled with fresh air and natural light, with garden courtyards, rooftop parks, restaurants and wine bars. Spaces that activate all of the senses, and spaces that cannot be replicated online.

RH Dallas, which opened in May of this year is off to a tremendous start with our rooftop restaurant booked until August. Our plan is to open three additional Design Galleries in 2021 including RH San Francisco, RH Oak Brook, RH Jacksonville, a freestanding RH Contemporary Gallery opening in San Francisco, plus our first RH Guesthouse, opening in New York this Fall.


We are beginning to evolve the brand beyond curating and selling product, towards conceptualizing and selling spaces, by building an ecosystem of products, services, places and spaces designed to elevate and render our product more valuable while establishing the RH brand as a thought leader, taste and place maker.

Our Products are the core of our ecosystem and include RH Interiors, RH Contemporary, RH Modern, RH Beach House, RH Ski House, RH Outdoor, RH Rugs, RH Lighting, RH Linens, RH Baby & Child, RH Teen and Waterworks.

Our Services, RH Interior Design, RH Contract, RH Trade and RH In-Your-Home render our product more valuable while extending the brand into adjacent businesses that amplify the core. As an example, we believe that RH Interior Design has become the largest residential design firm in North America and has facilitated our transition from selling products to selling spaces. RH Trade serves external interior designers and design firms, partnering on projects and acting as a support organization managing the logistics of large, complex designs. RH Contract serves the Hospitality and Commercial markets with design and logistics support for large scale, volume projects. RH In-Your-Home, elevates the customer experience with Furniture Ambassadors managing every detail of your delivery, extending the selling experience into the home while creating a memorable and lasting impression. We are also exploring the opportunity to expand our services to include RH Architecture and RH Landscape Architecture as we receive constant inquiries regarding the design of our Galleries, Garden Courtyards and Rooftop Parks.

Our Places include RH Galleries, designed to elevate and render our product and brand more valuable, RH Restaurants, which further elevate the customer experience while driving high quality, incremental traffic to our Galleries, RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion hotel industry, and RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services that will deliver taste and time value to wealthy and affluent, time-starved customers.

Our Spaces, conceptualized to inspire and elevate the brand, will initially include Plane & Yacht Design and Charter, where customers can access our design experience, view our work online, and charter RH1 & RH2, our private planes, and RH3, our luxury yacht, which is available in the Mediterranean and Caribbean where the wealthy and affluent visit and vacation. We will also be unveiling our first RH Bath House & Spa as part of our Aspen Guesthouse scheduled to open in the second half of 2022, as well as other exciting spaces we will be revealing over the next several years.

We believe our seamlessly integrated ecosystem of immersive experiences inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an impression and connection unlike any other brand in the world.


Our strategy is to digitally reimagine the RH brand and business model both internally and externally. Internally regarding how we innovate, curate, and integrate all the dynamic aspects of our brand, and externally as we introduce our customers to The World of RH, a new digital portal presenting our Products, Services, Places and Spaces. This multi-year effort began internally last year with the reimagination of our Center of Innovation & Product Leadership, which will incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.


Our external efforts will begin this fall with the launch of phase one of our new digital portal, The World of RH, which will include rich, immersive content with simplified navigation and search functionality, all designed to enhance the shopping experience and render our product and brand more valuable. We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be


We believe that RH has the potential to become a $20 to $25 billion global brand in its current form, and possibly larger if aspects of our ecosystem become meaningful revenue streams. Our view is the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform, and brand of RH.

Our global expansion begins in the Spring of 2022 with the opening of RH England, The Gallery at Aynhoe Park, a 73 acre historic estate designed in 1615 by Sir John Soane, arguably one of the most respected and celebrated architects of his time. RH England will feature The Aynhoe Architectural Library, The Aynhoe Organic Gardens, The RH Restaurant & Orangery, and The RH Champagne & Caviar Cellar among other unique experiences.

Pending reopening plans for France, our goal is to open RH Paris, The Gallery on the Champs-Élysées in the Fall of 2022. Customers will arrive through magnificent 18 foot gates and walk down a decomposed granite path lined with majestic hedges that lead to a garden courtyard where you encounter 18 foot brass doors that open to a six floor atrium connected by traversing brass staircases and a glass elevator. RH Paris will include a restaurant overlooking the gardens inspired by the Grand Palais, a sparkling Champagne and Caviar Bar on the top floor, and a romantic rooftop garden where you can sip an RH Bellini while enjoying views of the Eiffel Tower.

In total we have secured five locations in Europe including London, Munich and Dusseldorf, and are in final lease negotiations for an additional five locations which will open over the next two to three years.


Hermès, Chanel, Louis Vuitton, Gucci, Cartier, Tiffany and the rest of the finest luxury brands in the world were all born on the top of the luxury mountain. Never has a brand started at the base, as we have, and made the climb to the peak. We believe RH can be the first to make the climb, knowing very well those at the top don’t necessarily want us to. The truth is, we’re not from their neighborhood, nor invited to their parties. To make the climb, we understand that our work has to be so extraordinary that it creates a forced reconsideration of our brand, requiring those at the top of the mountain to tip their hat in respect.

It is not a climb for the faint of heart, requiring imagination, innovation, and a great deal of persistence and perspiration. We have to be willing to endure short-term pain to drive long-term gain, as we did moving from a promotional to a membership model, elevating our product, transforming our stores, redesigning our operating platform, or managing the business with a bias for earnings versus revenues as we built a financial model to support long-term high-quality growth.

We also understand the strategies we are pursuing – opening the largest specialty retail experiences in our industry, while most are shrinking the size of their retail footprint or closing stores; moving from a promotional to a membership model, while others are positioning their brands around price versus product; continuing to mail inspiring Source Books, while many are eliminating catalogs, and, refusing to follow the herd in self-promotion on social media, instead allowing our brand to be defined by the design and quality of the products and experiences we are creating – are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry.

We believe when you step back and consider: one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape and we would argue, will also prove to be equally valuable.

I want to thank the people of Team RH who live our values and fight for our cause. A team that is building a culture of leadership versus followship, that strives to innovate versus duplicate. A team of people with the courage to continue the climb even as the air gets thin and the odds get slim. A team of people willing to get knocked down ten times and get back up eleven as they strive to plant the RH flag at the very peak of the luxury mountain.
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