Restoration Hardware 4Q14 Earnings Call Notes

2015 is a bridge year

The way we think about our 2015 revenues and why they should accelerate in 2016 is twofold. One, all of the new real estate opened in the back half of this year. So while 2015 will only receive a partial benefit from those new galleries, 2016 will have a much greater benefit as they roll into the next year. And then two, our development accelerates, our store development pipeline accelerates in 2016 with current plans to open 7 new next-generation galleries in the following year.

So really 2016 gets the benefit from the new stores. And if you think about the stores that opened this year that roll into 2015, we really only had one of these big stores, Atlanta, that opened this year, right, that rolls into 2016 – rolls into 2015. So that’s why we see this as a bridge year.”

Launching two new businesses this year. One is a game changer

But the two new businesses that we are launching, I think I mentioned on the last call, one of them I believe represents our finest work ever, and might represent one of the biggest market potentials that we’ve addressed with a new category, a new business. So – and the second one I think is also significantly incremental. But one I think is a game changer.”

Constructing something durable and lasting value

“The right way to think about our business is are we constructing something that’s durable and is lasting value that will dominate its marketplace and win ”

Put mitigation measures in place on the ports a year ago already

I mean, back in April of 2014, almost a year ago we put mitigation plans in place. So we were not that heavily, of course being slowed down, but we diverted a lot of our goods through the East Coast ports. We took that reliance from over 80% on the West Coast down below or around 50% and increased our weeks supply to kind of manage through that.”

You’ve got to serve the customer wherever they want to shop

I mean, I think the fallacy you hear today and it kind of surprises me as all these companies want to talk about, well their direct business is growing faster and this is happening and their direct channel is their most profitable channel.

Well, it all depends on how you’re allocating cost. I don’t know how you make more money when sales shift from retail to direct, right, because your occupancy cost doesn’t go down. Your overhead doesn’t go down. So I think there is a lot of companies that are out there.

In fact it goes up in some cases, you’re seeing in certain people that are now just getting into the direct business and everybody is all excited because they are growing their direct business and they are missing their earnings, right, because they are finding out that it’s expensive to handle the goods, to ship the goods and so on and so forth and fulfill the goods.

And so, its – honestly, I think there is a lot of old math and old thinking that’s in the industry. At the end of the day, you’ve got to build a platform that can serve the customer wherever they want to shop that presents your brand better than anybody else and it should matter where the customer transacts at the end of the day.”