Restoration Hardware beats expectations, but same-store sales dip

Dive Brief:

Upscale furniture retailer Restoration Hardware on Thursday reported second quarter earnings of $7 million, or 17 cents per share, down from $30 million/71 cents a share in the year-ago quarter. Adjusted earnings were 44 cents per share, down from 85 cents per share in Q2 2015.
Restoration Hardware's Q2 revenue rose 7% to $543.3 million, up from $507 million a year earlier and handily beating expectations from FactSet analysts for adjusted earnings of 29 cents per share on revenue of $512 million. Same-store sales fell 3%, however, compared to a rise of 16% last year.
Restoration Hardware shares rose more than 5% in late trading Thursday.

Dive Insight:

Restoration Hardware has enjoyed something of a comeback story in recent years, despite ignoring much of the conventional wisdom of today’s retail world. After struggling, going private to regroup and then going public again, the home furnishings retailer has dedicated its efforts to expanding its brick-and-mortar strategy and its huge paper catalog, leaving its social media strategy to customers and fans.

But Restoration Hardware has slipped of late, and is revamping its business strategy to include a pay-to-play model for its RH Grey Card loyalty program in lieu of holding sales. For a $100 a year, customers enjoy 25% off in all departments, 10% off clearance items, complimentary interior design services, early access to clearance events and lower interest rates on the RH credit card. Perks don’t include free shipping, however.

The strategy is new and untested. Some Restoration Hardware customers may pony up the fee in a year when they do a lot of decorating, just to avoid additional costs in other years. Other members may be frustrated if the savings don't add up. And it remains to be seen how many retail memberships even a wealthy household is willing to pay for in any given year. Keith Anderson, vice president of strategy and insights at pricing intelligence firm Profitero, has told Retail Dive that the membership model is saturated, with Costco and Amazon among the retailers finding success with it, one reason that recent Wal-Mart acquisition Jet abandoned its own membership policy shortly after launch.

Restoration Hardware Chairman and CEO Gary Friedman said in a statement that the costs of introducing the company's new modern furniture line and the newness of its membership offering hit its second quarter results, but vowed that both efforts — plus other new initiatives, including an overhaul of its catalog — will soon begin to pay off.

“While the degree and pace of innovation at RH might seem ambitious comparatively, it is the result of years building a culture engineered to be, as Charles Darwin believed, the one most responsive to change,” Friedman said. “In a world moving exponentially faster, we are building one of the only true sustainable competitive advantages — a culture of imagination and innovation. A culture that is proving itself capable of imagining the future, and an organization that is demonstrating it can build it.”