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Financial, Retail

RH Reports Second Quarter 2023 Results

Company reports that its operating margins increased and that it will continue to expand the RH brand globally, address new markets locally, and transform our North American Galleries.

CORTE MADERA, Calif.-- RH (NYSE: RH) has released its financial results for the second quarter ended July 29, 2023, in a shareholder letter from Chairman and Chief Executive Officer Gary Friedman.

An excerpt from the letter, follows:

Revenues of $800 million and adjusted operating margin of 20.2% exceeded our guidance for the second quarter 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 reflecting the later mailing of our RH Interiors Sourcebook.

We are raising the low end of our revenue guidance for the year, and now expect revenue in the range of $3.04 billion to $3.1 billion versus our prior outlook of $3.0 to $3.1 billion, and are maintaining our outlook for adjusted operating margin of 14.5% to 15.5%.

We continue to expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20-year highs and the current outlook is for rates to remain unchanged until the second quarter of 2024.

The Company repurchased 3.7 million shares in the second quarter at an average price of $325.65, representing approximately 17% of the total shares outstanding at the beginning of the second quarter.


We recently mailed our new 604-page RH Interiors Sourcebook, and while it’s too early to read the response with only 40% of the mailing in-home this week, the early indications do look promising. We continue to expect our business trends to inflect in the second half of this year with the mailing of our RH Contemporary Sourcebook in late October and our RH Modern Sourcebook in early January, as well as the refresh of our Galleries over the next several quarters. We believe our inflection point will peak in the first half of 2024 as our new collections fully ramp and we begin another cycle of Sourcebook mailings, completely transforming and refreshing the assortment across the entire brand over a 12-month period.


We believe the new collections reflect a level of design and quality inaccessible in our current market and a value proposition that will be disruptive across multiple markets, positioning RH to gain market share throughout fiscal 2024. While a product transformation of this magnitude will be margin dilutive in the short term as we cycle out of waning collections, we believe it will once again become margin accretive as selling rates stabilize and allow for supply chain and sourcing efficiencies.


Our plan to expand the RH brand globally, address new markets locally, and transform our North American Galleries represents a multi-billion dollar opportunity.

This summer we introduced RH to the United Kingdom in a dramatic and unforgettable fashion with the opening of RH England, The Gallery at the Historic Aynho Park, a 17th-century, 73-acre estate that is a celebration of History, Design, Food and Wine. We had a spectacular turnout for our opening event in early June and the national and global press coverage the brand received was multiple times greater than any Gallery we’ve ever opened. Due to RH England’s countryside location, we expect the majority of the revenues to be driven by our Interior Design and Trade businesses, which are dependent on building books of business with high value repeat clients like Interior Design Firms and Hospitality projects. The quote books are building and we will soon mail our first Sourcebook in the United Kingdom. While pleased with the early response, there is still much to learn about the seasonality of the business in the English countryside, especially in the winter season. We will know more once we start mailing Sourcebooks and experience a couple of seasons.

Our global expansion also includes openings in Düsseldorf and Munich later this year, with Paris, Brussels and Madrid for 2024, and London, Milan and Sydney for 2025.

Regarding our North American transformation, we continue to plan opening RH Indianapolis and RH Cleveland in the second half of this year, while RH Palo Alto and RH Montecito will now open in early 2024. Additionally, we have 12 North American Galleries in the development pipeline scheduled to open over the next several years.

We also believe there is 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. We have several existing locations that have validated this strategy in East Hampton, Yountville, Los Gatos, Pasadena and our former San Francisco Gallery in the Design District, where we have generated annual revenues in the range of $5 to $20 million in 2,000 to 5,000 square feet. We have just secured our first new location for a Design Studio in Palm Desert, which should open in the first half of 2024.

We have identified over 40 locations that are incremental to our previous plans in North America and believe the results of these Design Studios will provide data that could lead to opening larger Galleries in those markets.


As mentioned, we are raising the low end of our revenue guidance for the year to a range of $3.04 billion to $3.1 billion and maintaining our outlook for adjusted operating margin in the range of 14.5% to 15.5%. We estimate the 53rd week will result in revenues of approximately $60 million.

For the third quarter of fiscal 2023, we are forecasting revenues of $740 to $760 million, and adjusted operating margin in the range of 8.0% to 10.0%.

We expect to have increased advertising costs of approximately $50 million versus Q2 2023, reflecting the shifting of the RH Interiors Sourcebook from Q2 to Q3, the mailing of our RH Contemporary Sourcebook and the mailing of our first Sourcebook into the United Kingdom.

For the fourth quarter of fiscal 2023, we are forecasting revenues of $760 to $800 million, and adjusted operating margin in the range of 14.4% to 16.6% with incremental advertising costs of $5 million versus the fourth quarter of last year.

Full details are available on the Investor Relations section of its website at ir.rh.com.

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