In his letter to stakeholders accompanying the company’s first quarter results, HR Managing Director Gary Friedman explained some of the attributes of the company’s business model.
Friedman says RH has become a “luxury brand generating luxury margins” for several reasons, including its shift in 2016 to a membership model, its positioning in luxury, which makes it less vulnerable to economic downturns, and its calendar independent inventory.
“We don’t offer seasonal categories like Valentine’s Day, Easter, Halloween, Thanksgiving or Christmas,” the letter reads.
“We also don’t offer spring, summer, fall or winter related collections or color palettes like many home furnishings or home improvement retailers. We have spent years eliminating these categories to avoid seasonal markdowns, which has allowed us to have a significantly higher margin business. “
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Where the company draws inspiration from architecture and the dead, Friedman said.
“Our business is not driven by the fashion cycles that are found in retail models that require frequent discounts,” he said.
“Architectural trends tend to change over decades and not years… When it comes to the dead, generations pass and their goods pass through real estate sales, which fuel the antique markets, which drive the decoration market high-end interior, which influences the high-end. final breeding market, and trends continue to flow downstream. If you want to know where the Mid-Century Modern trend is coming from, do the math or visit a cemetery.
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In addition to its furniture and design business, RH also plans private planes, a yacht, luxury homes and guesthouses, a spa and more. The company already has restaurants and cafes, the rooftop restaurant at RH Dallas, which opened in May, is booked until August.
New “galleries” are coming to San Francisco, Oak Brook, Ill., And Jacksonville this year.
“We believe our seamlessly integrated ecosystem of immersive experiences inspires customers to dream, design, dine, travel and live in a world carefully curated by HR, creating an impression and connection unlike any other brand in the world,” indicates the letter.
RH is also gaining attention online, with the launch of a digital portal in the fall, and overseas, with RH England in spring 2022. The company has five secure European locations and five more are underway.
RH reported better than expected earnings and sales on Wednesday night and raised its guidance for the year. HR HR,
also forecasts an adjusted operating margin of over 25% over the next few years, up from 21.8% in fiscal 2020, and revenue of $ 5-6 billion in North America.
The company ultimately aims to become a global brand of $ 20- $ 25 billion.
RH stock rose 14.8% in Thursday’s trading.
See: HR stock emerges as retailer raises sales forecast after another profit beat
Analyst groups raised their price targets after the results were announced.
“More generally, RH continues to redefine luxury in furniture, by offering it persistent pricing power, and has strong potential to amplify and extend its brand in several directions in order to generate continued long-term growth”, have writes Wedbush analysts.
Wedbush rates RH outperforming with a price target of $ 720, down from $ 700.
“We rate HR overweight because we believe the ongoing real estate transformation (in the US and internationally) and the overhaul of its operating platform provides visibility into sustainable sales growth and expansion. of operating margin over several years, ”JPMorgan wrote in a note.
JPMorgan raised its price target to $ 770 from $ 750.
“We are constructive on HR forecasts and see room for improvement throughout the year on sales and margins as the macroeconomic environment remains favorable, RH fills the high margin backlog which reached 23 % (estimated at around $ 110 million), and restaurants and other businesses continue to normalize, ”Cowen wrote in a note.
“In addition, RH is about to start introducing important new features in the third quarter, although if demand and backlog remain high, the launch may be delayed. “
Cowen believes the HR stock is outperforming with a price target of $ 750, down from $ 680.
RH Contemporary is targeting a launch in 2021 with a 400-page catalog, or “Source Book”, an advertising campaign and a gallery in San Francisco.
The HR stock is up 56.4% year-to-date while the S&P 500 SPX index,
gained 12.8% over the period.