What happened

Shares of RH (NYSE:RH) were up 22.8% as of noon EDT Wednesday, after the home-furnishings retailer announced stronger-than-expected fiscal fourth-quarter 2017 results.

More specifically, the parent company of Restoration Hardware saw adjusted net revenue climb 13% year over year to $669.7 million, which translated to adjusted earnings per diluted share of $1.69, up 149% form the year-ago period.

Analysts, on average, were only expecting adjusted earnings of $1.55 per share on revenue of $672.6 million.

A living room decorated with Restoration Hardware products.


So what

RH's chairman and CEO, Gary Friedman, credited his company's strength to its shift to a "new membership model and a dramatically more efficient operating platform."

Notably, 95% of RH's business is now driven by its members. And in 2017 the company streamlined its operations by closing two distribution centers, simplifying its reverse logistics and outlet model, and reducing its inventory by 30% (or $225 million) from 2016.

Now what

In 2018, RH plans to continue improving its execution and operating structure while maximizing earnings and cash flow. As a result, RH expects 2018 net revenue ranging from $2.53 billion to $2.57 billion, good for growth of 5% to 7% from 2017. That includes a roughly $50 million negative impact relative to its previous expectations, driven by its decisions to delay the openings of its New York Design Gallery until this fall and its first Guesthouse until spring 2019. On the bottom line, that should translate to 2018 adjusted earnings per share of $5.45 to $6.20. 

By comparison, most investors were looking for slightly higher fiscal 2018 revenue of $2.60 billion, and adjusted earnings near the low end of RH's guidance range.

Finally, RH outlined plans to pivot back to a focus on revenue growth in fiscal 2019. It expects this metric to reaccelerate next fiscal year to a range of 8% to 12% year over year.

All told, it seems the market is more than happy with that approach. By focusing first on improving its execution and margin profile, then shifting that focus toward increasing revenue down the road, RH should emerge a stronger business over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.