CORTE MADERA, Calif.-- RH (NYSE: RH) has released its financial results for the second quarter ended July 30, 2022, in a shareholder letter from Chairman and Chief Executive Officer Gary Friedman.
According to the release, second quarter highlights include:
-- Q2 GAAP net revenues of $992M vs.$989M LY
-- Q2 adjusted net revenues of $992M vs. $989M LY
-- Q2 GAAP gross margin increased 350 basis points to 52.8% vs. 49.3% LY
-- Q2 adjusted gross margin increased 350 basis points to 52.8% vs. 49.3% LY
-- Q2 GAAP operating margin of 23.6% vs. 25.2% LY
-- Q2 adjusted operating margin of 24.7% vs. 26.6% LY
-- Q2 GAAP net income of $122M vs. $227M LY
-- Q2 adjusted net income of $217M vs. $252M LY
In a letter to shareholders, Friedman stated:
"We are pleased to report better-than-expected results as revenue increased to $992 million versus $989 million a year ago and was up 40% on a two-year basis from revenues of $709 million. Results exceeded our revised guidance due to faster backlog relief despite a deteriorating macro environment.
"Gross margin expanded 350 basis points in the second quarter primarily due to an increase in product margins as we continue to resist promoting the business as demand trends continue to slow.
"As we’ve mentioned, there continues to be widespread discounting across our industry, and while there may be short-term risk of market share loss as a result of our choice not to promote, we believe there is certain long-term risk of brand erosion and model destruction once you begin down that path.
"It’s that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry and our results continue to reflect those of the leading luxury brands, as we delivered a 24.7% adjusted operating margin in the second quarter, also exceeding our outlook.
"Our results are inclusive of investments related to the launch of RH Contemporary, the openings of RH San Francisco and RH Guesthouse, the development of RH International, and the rollout of RH In-Your-Home which led to approximately 400 of the 530 basis points of SG&A deleverage in the quarter.
"Our business generated $23 million of free cash flow in Q2, ending the quarter with $2.1 billion of cash on our balance sheet, total net debt of $446 million, and trailing twelve months adjusted EBITDA of $1.1 billion.
"We repurchased one million shares of our common stock in the second quarter at an average price per share of approximately $255. We also spent $82 million in cash to repurchase $18 million and $39 million of the 2023 and 2024 outstanding convertible notes in privately negotiated transactions. Following these transactions, there remains $44 million of convertible notes outstanding as of July 30, 2022.
FISCAL 2022 OUTLOOK
"As noted in our updated Outlook provided on June 29, 2022, our expectation is for continued softening in our business trends during the remainder of fiscal 2022 as a result of ongoing weakness in the housing market over the next several quarters and possibly longer due to the Federal Reserve’s anticipated interest rate increases and the cycling of record COVID-driven sales levels in 2021.
"Additionally, due to construction and approval delays, we are pushing the opening of RH England to the Spring of 2023. While disappointed to miss the peak Summer/Fall season in the English countryside, we believe waiting until we can open with a full expression of our brand is the right long-term decision. Additionally, RH Palo Alto, which we planned to open in the fourth quarter of 2022 is shifting to the first quarter of 2023.
"Based on our current trends, the uncertain macro environment and the shift of RH England to the Spring of 2023, we are providing the following outlook for the third quarter and fiscal 2022.
"Third quarter net revenue in the range of (15%) to (18%) with adjusted operating margin in the range of 18.5% to 19.0%.
"Fiscal 2022 net revenue growth in the range of (3.5%) to (5.5%) with adjusted operating margin in the range of 21.0% to 21.5%.
"While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID- driven spending shift and shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving long term industry-leading performance.
2022: THE YEAR OF THE NEW
"As we’ve mentioned, while many of our plans have been delayed by the virus, they were not disrupted by it. We continue to believe the important investments and introductions we are making in 2022 will mark the beginning of the next chapter of long term growth and innovation for the RH brand. 2022, The Year of The New includes:
-- The May opening of RH San Francisco, The Gallery at the Historic Bethlehem Steel Building, our most extraordinary new Bespoke Gallery to date.
-- The launch of RH Contemporary, the most compelling and potentially disruptive product introduction in our history. RH Contemporary has been recently expanded to RH New York, and the initial results look promising. We plan to expand RH Contemporary into more Galleries as our inventory levels improve in the first half of 2023.
-- The elevation of RH Interiors and RH Modern, inclusive of new collections and enhanced quality.
-- The September unveiling of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market. We began accepting inquiries for a stay at the RH Guesthouse yesterday as our website RHGuesthouse.com went live, and The Dining Room at RH Guesthouse New York, our new live-fire restaurant is now open for breakfast, lunch and dinner. We plan to unveil The Champagne & Caviar Bar at RH Guesthouse New York next week.
-- The introduction of an elevated new live-fire restaurant at RH San Francisco and the RH Guesthouse in New York. Since opening, our new live - fire concept is significantly outperforming our original Gallery restaurants and we are now planning to expand the concept to our new Bespoke Galleries in North America and Europe.
-- With the September debut of our first Champagne and Caviar concept in RH Guesthouse New York, we now plan to expand this offering to future Galleries in Paris, London, Milan and Aspen. We will have more to report on this exciting new concept by next quarter.
The premiere of The World of RH, our new digital portal highlighting the connective power of our evolving ecosystem which we believe will begin to properly shape and position the brand in the minds of our website visitors, especially as we launch the brand globally.
The lift-off of RH1 and RH2, our customized Gulfstream G650 and G550 jets that will be available for charter later this year.
"The christening of RH3, our luxury yacht that is available for charter in the Mediterranean and Caribbean where the wealthy and affluent visit and vacation."
"The rollout of RH In-Your-Home, a unique and memorable experience with Brand Ambassadors guiding every detail of the delivery and extending the selling experienc into the home."
To view the full letter and financial report, click here.