Restoration Hardware 4Q15 Earnings Call Notes

Gary Friedman

Still feels like a softening at the higher end of the market

“Yes, we definitely saw disruption in our business within January that was related to the significant disruption in the capital markets. Post that period, I’d say that aspect has seemed to have stabilized, although I’d say it’s stabilized at a somewhat lower level. I think that we still feel that there’s a general softening at the higher end of the market.””

Specifically seeing drag from energy and currency

“And then I think more specifically, as I outlined in the video, the continued pressure from the markets relating to energy and currency continue to be a down drag. I think that’s what we’re most concerned about. If you think about last year, and we’ve been tracking this very specifically, we saw a two point drag. The total company revenues coming out of those markets and that two point drag in the first half accelerated to a four point drag in the second half. And now has accelerated to a five point drag in Q1, and that’s on top of the two point drag of Q1 last year. And even more specifically, it’s accelerated to a six point drag in March at the end of the quarter.”

I think our business is more of a leading indicator

“I think our business is more of a leading indicator than a lagging indicator. Someone asked me recently about, gosh, Home Depot’s business looks strong. Lowe’s business looks strong, why are you feeling the headwinds differently than others. And I’d say again, if you think about our business in the context of businesses like those, home improvement businesses are tied more to hard, physical construction at homes. And so, our business is more discretionary based.”

It’s easy to wait to buy new furniture

“you can finish that home or if you have moved into a new home, say cheese, maybe we ought to use the furniture we have, maybe we don’t need to buy that new couch just yet. And I think that’s why you see our business somewhat more volatile than maybe other data points and things that people might compare to us. ”

More development stage projects are taking longer to complete than expected

“What we are learning, however, is due to the significant development nature of these projects, we have less control of the timing aspects of the approvals and construction schedules than we may have previously had experience with.”

We don’t want to flood customer’s inbox with redundant promotional emails

“And additionally, we don’t believe anyone wants their inbox flooded with redundant promotional emails. If we just think about how many President’s Day sales we hear about, private sales, spring sales, fall sales, holiday sales, winter sales, Mother’s Day, Father’s Day, one day only sales, friends and family sales, so on and so forth, how many can a customer process before you lose all credibility and they become numb to your brand.”

Your plans are always going to be wrong in some way

“if for some reason our assumptions are incorrect, and by the way, any plan in my entire career I’ve ever been associated with or developed is some degree of wrong. So we expect to be some degree of wrong and that’s why we have a lot of what if scenarios and kind of backup plans in place.”

We look at things based on emotional value

“One, we look at everything based on emotional value. Do we – is this going to connect with our customer on an emotional level, or is it something that we connect with emotionally, are we going to be passionate about it? Because we think if you try to do work you’re not passionate about, you’re not going to do very good work. So emotional value.”