RH Raises Third Quarter and Fiscal 2017 Adjusted Net Income Guidance
Company Provides Preliminary Fiscal 2018 Outlook
Third Quarter, Fourth Quarter and Fiscal 2017 Updated Guidance
Adjusted net revenues for the third quarter fiscal 2017 are now
expected to be approximately
$592.5 million, an increase of 8% versus $549.3 millionlast year, despite an approximate 1% negative impact from Hurricanes Harvey and Irma. This compares to the Company’s prior guidance of adjusted net revenues in the range of $575 million to $590 million, or an increase of 5% to 7% compared to last year. On a GAAP basis, net revenues are expected to be approximately $592.5 millionfor the third quarter.
Adjusted net income for the third quarter is now expected to be in the
$24.0 million to $24.5 million, compared to $8.0 millionlast year, despite a negative impact of approximately $1.3 millionfrom Hurricanes Harvey and Irma. The outlook also includes a positive impact of approximately $2.5 millionrelated to a lower effective tax rate. This compares to the Company’s prior guidance of adjusted net income in the range of $16 million to $19 million. On a GAAP basis, net income for the third quarter is expected to be in the range of $12.5 million to $13 million.
Adjusted diluted earnings per share for the third quarter is now
expected to be in the range of
$1.02 to $1.04, compared to $0.20last year, despite a negative impact of approximately $0.05per share from Hurricanes Harvey and Irma. The outlook also includes a positive impact of approximately $0.11per share related to a lower effective tax rate. This compares to the Company’s prior guidance of adjusted diluted earnings per share in the range of $0.68 to $0.80. On a GAAP basis, diluted earnings per share for the third quarter is expected to be in the range of $0.54 to $0.56.
The Company is increasing its fourth quarter adjusted net income
guidance to a range of
$37 million to $41 million, from a range of $33 million to $37 million, despite an approximate $1.5 millionnegative impact as a result of the Company’s decision to delay the opening of its New York Design Galleryto Spring-Summer 2018. This outlook reflects the benefits of improved business performance and assumes an approximate $2 milliontax benefit which corresponds to an expected 35% tax rate. Due to the recent increases in the Company’s stock price and its impact on the fully diluted share count, the Company is providing a table below to assist in estimating diluted shares outstanding and adjusted diluted earnings per share.
Adjusted net revenues for the fourth quarter are now expected to be in
the range of
$655 million to $680 milliondue to a $9 millionnegative impact due to the Company’s decision to delay the opening of its New York Design Gallery. This compares to the Company’s prior adjusted net revenue guidance range of $664 million to $689 million.
The Company is increasing its fiscal 2017 adjusted net income guidance
to a range of
$82 million to $87 million, from a range of $70 millionto $77 million, despite the Company’s decision to delay the opening of its New York Design Gallery
The Company now expects fiscal 2017 capital expenditures in the range
$120 million to $130 millioncompared to its prior guidance range of $120 million to $140 million.
The Company now expects to generate free cash flow in the range of
$420 million to $440 millionin fiscal 2017.
Preliminary Fiscal 2018 Outlook
Net revenue in the range of
$2.58 billion to $2.62 billion, representing growth of 6% to 7% on a 52-week vs 53-week basis. On a comparable 52-week vs 52-week basis, net revenue growth is expected to be in the range of 8% to 9%.
- Adjusted operating margin in the range of 9% to 10%.
Adjusted net income in the range of
$125 million to $145 million.
Net capital expenditures in the range of
$65 million to $75 million.
Free cash flow in excess of
To Our People, Partners, and Shareholders,
Our updated third quarter guidance demonstrates the earnings power of
our new membership model, and a dramatically more efficient operating
platform. Adjusted net revenues for the quarter are expected to be up
8%, despite a 1% negative impact from Hurricanes Harvey and Irma.
Adjusted diluted earnings per share is expected to be in the range of
Over the past 18 months, we transformed our business from a promotional to a membership model that is enhancing our brand, streamlining our operations, and improving the customer experience. Simultaneously we began the redesign of our supply chain network, rationalizing our product offer, and transitioning inventory into fewer facilities, creating a more capital efficient model.
We have completed the planned closure of our distribution facility in
The redesign of our reverse logistics and Outlet business is now 90%
complete. Liquidating customer returns in market, and eliminating the
need to transport product back to our distribution centers will drive
cost savings and margin enhancement of
Our new Design Galleries continue to perform, creating a customer
experience that cannot be replicated online, and distinguishing
In the second quarter, we completed the second tranche of our share
buyback program resulting in 20.2 million shares of
Looking forward, we are forecasting margins to rise and costs to fall as
we cycle our efforts to reduce inventory, and benefit from our new
operating model. In fiscal 2018, we believe we have a clear line of
sight toward achieving net revenue growth in the range of 8% to 9% on a
comparable 52-week basis and adjusted operating margins in the range of
9% to 10% while generating free cash flow in excess of
We remain confident in reaching our long term goal of
We plan to share more details of our strategy and outlook during our
Investor Day presentations on
We hope you can join us in
Chairman and Chief Executive Officer
|TABLE ILLUSTRATING THE ANTICIPATED IMPACT OF STOCK PRICE ON DILUTED SHARES OUTSTANDING|
|Average Q4 2017 Stock Price|
Adjusted net income and diluted share counts in millions
|Midpoint of Q4 2017 Adjusted Net Income Guidance||$39.0||$39.0||$39.0||$39.0||$39.0||$39.0||$39.0|
|Q4 2017 Diluted Shares Outstanding||24.6||25.7||26.6||27.2||27.7||30.2||31.3|
|Q4 2017 Adjusted Earnings Per Share||$1.59||$1.52||$1.47||$1.43||$1.41||$1.29||$1.25|
|Implied Average FY 2017 Stock Price|
|Midpoint of FY 2017 Adjusted Net Income Guidance||$84.5||$84.5||$84.5||$84.5||$84.5||$84.5||$84.5|
|FY 2017 Diluted Shares Outstanding||29.1||29.5||29.9||30.2||30.6||30.9||31.2|
|FY 2017 Adjusted Earnings Per Share||$2.90||$2.86||$2.83||$2.80||$2.76||$2.73||$2.71|
The table above is intended to demonstrate the impact of increasing stock prices on our diluted shares outstanding due to 1) additional in-the-money options and 2) the higher cost of acquired shares under the treasury stock method. At stock prices in excess of $172, we will incur dilution related to the convertible notes and our obligation to deliver additional shares in excess of the dilution protection provided by the bond hedges.
The calculation also includes an assumption around the timing and number of options exercises and actual diluted shares outstanding may vary if actual exercises differ from estimates.
The Company has not completed its quarter end closing and review process with respect to preparation of its third quarter fiscal 2017 financial results and the actual results may differ from the guidance provided in this press release. Further commentary on the Company’s third quarter financial results will be provided in connection with its third quarter earnings release.
Note: The Company’s adjusted net revenues, adjusted net income, adjusted diluted earnings per share, free cash flow and adjusted operating margins guidance does not include certain charges and costs. The adjustments to net revenues, net income, diluted earnings per share, net cash provided by (used in) operating activities and operating margins in future periods are generally expected to be similar to the kinds of charges and costs excluded from adjusted net revenues, adjusted net income, adjusted diluted earnings per share, free cash flow and adjusted operating margins in prior periods, such as unusual non-cash and other compensation expense; out of the ordinary income tax expense or benefits; expenses related to legal claims and contingencies; reorganization costs including severance costs and related taxes; non-cash amortization of debt discount; and charges and costs in connection with the acquisition of Waterworks, among others. The exclusion of these charges and costs in future periods will have a significant impact on the Company’s adjusted net revenues, adjusted net income, adjusted diluted earnings per share, free cash flow and adjusted operating margins. The Company is not able to provide a reconciliation of the Company’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.
*Non-GAAP Financial Measures
To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company uses the following non-GAAP financial measures: adjusted net revenue, adjusted net income, adjusted diluted earnings per share, free cash flow and adjusted operating margin (collectively, “non-GAAP financial measures”). We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP financial measures used by the Company in this press release may be different from the non-GAAP financial measures, including similarly titled measures, used by other companies.
This release contains forward-looking statements within the meaning of
the federal securities laws including statements related to our future
financial outlook and guidance for the third and fourth quarter of
fiscal 2017, for fiscal 2017 and for fiscal 2018, including net
revenues, adjusted net revenues, adjusted net income, adjusted diluted
earnings per share, adjusted operating margins, free cash flow, net
revenue growth and net capital expenditures; various estimates of
diluted shares outstanding and adjusted diluted earnings per share based
on assumptions about average stock prices; assumptions regarding the
potential future stock price of our common stock and expectations
concerning stock price appreciation; the impact of stock price and other
factors like option exercise levels on estimated diluted shares
outstanding and on our effective tax rate; the estimated impacts on
adjusted net revenues, adjusted net income and adjusted diluted earnings
per share from Hurricanes Harvey and Irma and from a lower effective tax
rate; the estimated reduction in adjusted net revenues and adjusted net
income as a result of the delayed opening of the
Cammeron McLaughlin, 415-945-4998
SVP, Investor Relations and Strategy