Restoration Hardware 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Doing something different

“I am going to spend my time differently today. As opposed to regurgitating our Q1 results, I better would use my time to frame for you not just what we have done but rather who we will become. Why we had been able to outperform our industry by such a significant amount year after year, and why you should expect us to continue doing so for many years to come.”

We are the home goods brand for the luxury consumer

“who is the home brand to the luxury customer? The Nieman, Saks, Barney’s, Bergdorf customer. We believe we are.”

Made big changes to the supply chain

“we have transformed our entire product platform. We have disintermediated the supply chain by eliminating the wholesale markup and inefficiencies that exist in the highly fragmented luxury market, allowing us to offer unmatched value.”

Product of this quality has never been made in these quantities before

“Furniture of this quality has never been made in these qualities before. In many ways, we have been building a new rail route.”

Investing in small partners for exclusive supply

“We have developed an exclusive network of artisan vendors who act as an extension of product development merchandizing teams. These are some of the most unique and talented individuals in their respective industries. Many of these businesses were small $5 million to $30 million companies, where we now buy $50 million $120 million of cost receipts from annually and represent 60% to 100% of their production. Over the years we have invested both human and financial capital to enable these partners to scale their businesses and now are enjoying the benefits of having an exclusive product platform that provides us with the unique and very hard to replicate competitive advantage.”

The internet democratizes retail

“what people overlook is the fact that the web is a very democratic platform. The smallest retailer in the world can look as dominant as the largest retailer due to the fact that we are limited to the same-size store frame.”

The retail store is not dead

“we are in the very beginning stages of what we believe will be one of the most significant retail store transformation in the history of our industry. The retail store is not dead. We believe it is anything but over the past three years we’ve continued to innovate, test and prove that we can build the retail experience that defies the conventional wisdom that everything is moving to the web and retail stores are a dying platform. We have proven just the opposite and continued to develop new larger and even more exciting concepts that will create an even more compelling and experiential environment for our customers.”

Target 4-5 B in revenue and mid teens op margin => 750m in EBIT

“once our real estate transformation is complete North America we believe we will deliver 4 billion to 5 billion in annual revenues achieved mid teens operating margin and generate significant free cash flow.”

We are defined by our values

“we believe it goes beyond what we have done but rather who you become. We will become a team of people who don’t know what can’t be done. Will become a team of people who are defined by our values and beliefs, those things we would fight for and value for and die for. ”

Our values are what drive our results

“What’s the most important is who we are, how we think, and what we believe in. That is why we achieve these results and why we believe we will be able to continue innovating, leading your industry and bringing your future dreams alive”

Taking market share because we’re awesome

“We continue to take market share as a result of a dominant assortments and superior position in home furnishing category.”

A revolutionary real estate strategy

“we think this real estate model that we’re developing is transformative and revolutionary in the industry. I mean, I — if you step back and say, when is the last time someone had a luxury, semi-big box kind of play, the last person I can think of that have meaningful play like this was Nordstrom (ph) and that was back in the 80s and 90s.”

Private equity ownership changed us for the better

“I think we’re as disciplined is any kind of retail company out there I think our five years in the stewardship of private equity ownership that we develop really-really good capital discipline. And I think we all learned a lot here and we’re so much smarter and grateful for that experience. I think about it how it’s changed myself and changed our team. We look at our investments just like probably an investor look to their portfolio”

Restoration Hardware 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Monster growth numbers

“Net revenues increased 33% and comparable brand revenues increased 31% on top of the 28% increase last year, representing our fourth consecutive year of comparable brand growth in excess of 25%. This is even more impressive considering the elimination of our fall source book and the consolidation of our store base. In 2013 we expanded operating margins by 200 basis points and grew adjusted net income by 92%”

A disruptive platform

“the disruptive power of our product platform. Our demonstrated ability to innovate, curate and integrate new products, categories and businesses, and then scale them across a fully integrated multichannel platform is, we believe, unique in the industry and a powerful competitive advantage.”

Defy the conventional wisdom that everyone is moving to the web

“we’ve continued to innovate, test and prove that we can build a retail experience that defies the current conventional wisdom that everyone is moving to the web and retail stores are dead. We have proven just the opposite and continue to develop new and more exciting concepts that will create an even more compelling and highly experiential environment for our customers.”

A next generation anchor tenant

“Last year we learned that we could partner with developers and create a win-win by moving from a tenant who occupies high cost interior mall space or street space to adding value by positioning ourselves as a next-generation anchor tenant who can help transform the mall or a neighborhood.”

A $4 B company trapped in secondary real estate

“we believe we are a $4 billion to $5 billion company trapped in billion-dollar of legacy real estate.”

Strong real estate pipeline

“As we look to 2015 and beyond, our real estate pipeline is strong and includes opportunities to serve as an anchor tenant in some of the best centers and streets in the country, with significantly larger stores and lower occupancy rate. We have signed leases for five next-generation full-line design galleries and are in negotiations for an additional 25 locations.”

No one has ever made furniture of this quality in this quantity

“No one has made furniture of this quality in these quantities before. And we believe our proprietary network of artists and partners creates a long-term competitive advantage.”

Destroy today’s reality

“Real value has always been created by those who have the courage to lead rather than follow, who are willing to destroy today’s reality to create tomorrow’s future. We have created a unique and winning brand, one that you should expect will continue to destroy its own reality to create tomorrow’s future. And we look forward to sharing in the value-creation with all of our stakeholders.”

Weather had some effect

“I think if you’re a retail customer and you want to go to the store and interact with the goods before you, like say, like test-drive a car, you may not make that sale. And if someone’s delaying their visit to the store and that was the day that the husband and wife could have gone, and now they’re kind of snowed out, could it delay sales purchases for a month or two, I think so. Because unless you’ve moved into a new home and you don’t have furniture, the urgency is not as great, right? It is a purchase that you can put off.”

Be better stewards of capital

“be better investors and better stewards of our capital, and getting to every level of detail. And that’s just kind of our DNA by the way, and that’s why everything here always evolves and always changes, right? As new data comes in, as new information comes in, new thoughts and new debates happen inside the company, it brings forth a new and better view.”

have debates, improvise

“And one of the things that I think is one of the strengths of the company is we have those debates and we continue to evolve and we are quick to make a decision. You know, we’re not the kind of company that gets better information in the first quarter, second quarter ago, well, that’s the plan in the year, I’m sorry, you know, that’s what we’re doing. We are constantly iterating. We are constantly improvising, adapting and overcoming and trying to get better every single day.”

This is not cookie cutter

“this is a not cookie cutter, 3,000 square-foot retail rollout that has the same assortment in every market, that you slap up a storefront and just go. This is a much more intricate and complex investment strategy.”

Very complex for a home goods retailer to expand internationally

“ost of the other international moves I’d say are much riskier than domestic growth. And what’s very different about a company like ours than, you know, if we were apparel or anything else, is the backend. You could say like, okay, am I going to build a big DC over there, am I going to put all that inventory over there? Am I going over there with all of the assortment, part of the assortment? Why and how and where? And where do we think the business is going to come from by market?

I mean it’s — international, for our business, very, very complex.”

Restoration Hardware 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

$RH Earnings Call Notes

“we delivered industry leading sales growth with a net revenue increase of 38%…an outstanding 41% comparable store sales increase, which was on top of a 26% comp increase in the year-ago quarter.”

“We are receiving overwhelming support and interest from the landlord community, with offers to become an anchor tenant in several of the most prestigious shopping centers in North America.”

“Our growth has been driven by a combination of new products, new categories, new businesses and the reconceptualization of both our retail and direct platform.”

“producing industry leading sales per square foot in our galleries and with continued innovation and refinement will also result in what we believe will be one of the most compelling and productive multi-channel experiences in retail.”

“Richard Harvey has joined us as Chief Merchandising Officer for RH Kitchen and Tableware. As you know Richard’s had a distinguished career at Williams-Sonoma, most recently as the President of the $1 billion Williams-Sonoma brand”

“We also operated fewer stores overall with 70 galleries open at the end of the first quarter versus the 74 we had open last year.”

“Gross profit in the first quarter increased 35% and reached a 101.9 million. Gross margin decreased to 33.8% from 34.5%”

” the number one room that’s remodeled in homes is the kitchen. And that’s where the significant spending is and we believe we can be a dominant player there in have a real platform.”

“we have not disclosed margins by product categories, what we have said in the past is that we have marked the furniture business does carry a lower margin structure, especially when you consider shipping cost, that are significantly higher than the rest of the business and those trends are ongoing.”

“You should not be surprised to see that we could open anywhere north of 10 to 15 units in any particular year.”