RH(RH) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company guided for a revenue growth of 5% to 6% for Q3, down from over 8% in the first half of the year, attributed to self-inflicted drags from exiting certain revenue items and the closure of a distribution center [12][13][56] - Gross margins are expected to be impacted in Q3 due to the timing of advertising expenses, with 80% of advertising costs hitting in Q3 [22][24] Business Line Data and Key Metrics Changes - The company is seeing a significant reduction in outlet inventory, down 75% compared to 18 months ago, which is expected to improve margins moving forward [58] - The home delivery initiative is projected to yield $15 million to $20 million in additional savings, with a third of the benefit expected this year and two-thirds next year [14] Market Data and Key Metrics Changes - The company is focusing on international expansion, identifying a significant opportunity in Europe due to market fragmentation compared to North America [25][26] - The potential market size in the UK is estimated at $1.1 billion, with a demographic profile similar to California [47][48] Company Strategy and Development Direction - The company is excited about international opportunities, emphasizing the lack of competition for its high-end home goods concept in Europe [25][26] - The strategy includes transforming legacy galleries into new design galleries, which could potentially double retail business in those markets [44][45] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, particularly in international markets, and the ability to create a new first impression without the baggage of past brand perceptions [31][50] - The company believes it can build one of the most admired brands globally, with a focus on creating an integrated ecosystem similar to successful brands like Apple and Disney [92][96] Other Important Information - The company plans to exit the holiday business, which has lower margins, contributing positively to gross margins in Q4 [71] - Management is considering adding hospitality elements to existing galleries to enhance revenue and customer experience [66][67] Q&A Session Summary Question: Comments on the Q3 revenue guide and expected deceleration - Management acknowledged self-inflicted drags from exiting certain revenue items and the impact of closing a distribution center on revenue growth [12][13] Question: Additional savings from the home delivery initiative - Management confirmed the guidance of $15 million to $20 million in savings, with optimism for better benefits in the future [14] Question: Gross margin outlook for Q3 and Q4 - Management explained that advertising expenses are skewed towards Q3, impacting margins, but overall guidance for the second half remains positive [22][24] Question: International expansion opportunities - Management highlighted the significant market void in Europe and the potential for high growth, emphasizing the lack of competition for their product offerings [25][26] Question: Growth profile of new galleries - Management reported strong returns from larger galleries and plans to enhance existing locations with hospitality options to drive further growth [64][66] Question: Inventory management and fulfillment progress - Management discussed the importance of maintaining a balance between breadth and depth in inventory while improving customer satisfaction through better fulfillment processes [75][76]