Firm formerly called Restoration Hardware defends expansion as path to ‘very top of the luxury mountain,’ despite tough economy

The Marin County-based company formerly known as Restoration Hardware has made moves further into the luxury lifestyle space with acquisitions for new custom-furniture divisions and a key hire for the launch of a media platform focused on high-end design.

Those actions were announced as RH (NYSE: RH) reported lower fiscal third-quarter revenues and earnings than a year ago — but higher than at the same point in 2019, pre-pandemic. And the Corte Madera-based company pushed back on skepticism about its expansion in uncertain economic times.

RH announced the acquisition of Dmitriy & Co., a New York business-to-business custom upholstery firm and hired its founders, Donna and David Feldman, to run the new HR Couture Upholstery unit.

RH also picked up Michigan-based Jeup Inc., a B2B maker of custom furniture, hiring founder Joseph Jeup to set up the RH Bespoke Furniture business.

RH then hired Margaret Russell, former editor-in-chief of Architectural Digest and Elle Decor, to launch RH Media, which will create content focused on “the most innovative and influential people and ideas that are shaping the world of architecture and design.”

CEO Gary Friedman wrote in a letter to shareholders Dec. 8 that the latest acquisitions and hires, along with the company’s previous pick-up of Waterworks, “firmly plant four RH flags at the very top of the luxury mountain, and clearly state our intention of establishing RH as an arbiter of taste and design.“

In the past 12 months, the company launched RH Contemporary, new galleries (stores) such as RH San Francisco, fine-dining restaurants in multiple galleries, the first RH Guesthouse hotel venture, charter jet and yacht services, according to RH. The company also purchased 857 acres of Napa Valley land to build a resort and winery.

In 2023, RH plans to redesign all its U.S. stores and open its first gallery in Europe, RH England, a 73-acre estate that is set to have three restaurants, Friedman wrote in the letter. For 2024–2025, galleries under construction are RH Paris and RH London. Locations have been secured for stores in Milan, Madrid, Munich, Germany’s Dusseldorf and Brussels, some also opening by 2025.

But the company also wants to get in on creating where its customers live. In the works is RH Residences, which would build fully furnished luxury homes, condominiums and apartments with “integrated services” for “time-starved consumers,” Friedman wrote.

The company on Dec. 8 reported net revenues of $869 million for the quarter ended Oct. 29, down 13.6% from a year before, and of $2.82 billion for the first nine months of the fiscal year, down 1.3%. But compared with pre-pandemic results, net sales were up 28.2% from $677 million in the third quarter of 2019 and up 42.1% from $1.98 billion for the beginning nine months of that year.

The company is revised down by 1 percentage point the top end of its fiscal-year revenue decline projection, now around $3.6 billion, or down 3.5%–4.5%, from fiscal 2021.

Net income last quarter was $98.8 million, down 46.3% from a year before, and nine-month earnings were $421.7 million, off by 22.1%. Diluted earnings per share were $3.78, down 35.7%.

During a Dec. 8 conference call, company officials revealed expansion milestones in 2022 and plans for the next few years. That received from pushback from investment analysts on the call.

Simeon Gutman, a retail analyst for Morgan Stanley, asked whether the company would “continue to invest for the future and still be somewhat responsible here for the near-term,” cutting back or pausing any plans because of the economy.

“We're not putting any longer-term investments on pause,” Friedman responded, according to the Seeking Alpha transcript. “I mean, we're playing for the long-term. So we're not doing irresponsible things that other people are doing like promoting their business and selling.”

He pointed to repeated promotional emails some competitors are sending to customers weekly, while RH hasn’t sent out an email to customers with discounts for two years. Friedman also noted that he has undertaken previous significant moves to “reinvent the business,” including the move upscale during the 2001 recession and further during the Great Recession of 2007-2009.