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Restoration Hardware Is Already Seeing a Strong Rebound

By Howard Smith – Jun 5, 2020 at 9:21AM

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The luxury furnishing retailer managed through first-quarter COVID-19 impacts and is now resuming capital expenditure and investment plans.

Restoration Hardware parent RH (RH -1.77%) reported strong first-quarter results, considering the impacts related to the ongoing COVID-19 pandemic.

Although the company's galleries, restaurants, and outlets were all closed from March 17 through the quarter that ended May 2, 2020, CEO Gary Friedman said he was optimistic in seeing a strong rebound. He said the company is resuming previously suspended capital spending and investments, because of "strong business trends and the expectation of expanded operating margins."

luxury home furniture decorating a living room

Image source: Getty Images.

Revenue declined 19.3% compared to the year-ago quarter, but Friedman said the report included "unimaginable results during what has been one of the most disruptive business environments of our lifetime." The company strategy during the pandemic crisis is to remain a high-margin, luxury brand and "not chase demand through promotions," he said. 

During the first quarter, the company took steps to protect its balance sheet by reducing costs and deferring new investments. RH was able to maintain adjusted operating margins of 10% for the quarter, and Friedman said despite the difficult period from the pandemic crisis, he still expects operating margins to grow in fiscal 2020. "[We] now see a clear path to 20% operating margin in the next few years," he said.

The company said it has ample liquidity and plans to pay the balance of a convertible note due in July in cash. It said it plans to spend "$125 [million] to $150 million net of landlord contributions and asset sales for the year." Management also plans to "reinvest approximately $80 to $90 million of the previously announced $150 million of expense reductions."

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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