In the middle of the Christmas shopping season, Los Angeles has a new shopping attraction. The "RH Newport Beach, The Gallery at Fashion Island" opened in the south of the metropolis on December 16. The luxury furniture retailer RH presents its entire product range on an area of 97,000 square meters. The range extends from furniture and lighting to textiles and decorative items. The whole thing is framed by works of art and antiques as well as a rooftop restaurant - on the roof of the sophisticated building, the wealthy clientele can enjoy seafood and caviar and a spectacular view of the California coast. "RH Newport Beach is one of our most dramatic, impressive and brand-defining locations to date," enthused CEO Gary Friedman at the opening. In total, RH operates almost 70 such galleries. In addition, there are 38 outlets and 14 showrooms of the subsidiary Waterworks, which specializes in fittings and furniture for kitchens and bathrooms.
The majority of the stationary sales network extends across North America. But the trading company, which was founded in 1979 as "Restoration Hardware", or RH for short, is now also present in the UK, Germany, Belgium and Spain. RH has been hit hard by the recent slump in the global real estate market. In the 2021 financial year (as at the end of January), the company still posted record figures and earned more than USD 900 million from operations. In the following two financial periods, revenue shrank while earnings slumped. At USD 366 million, operating profit in 2023 was on a par with 2019. On the sales side, RH managed to turn things around: in the first nine months of 2024, revenue increased by 3.4% to just under USD 2.4 billion. In operational terms, however, the Californian company recorded a further decline.
The CEO is nevertheless optimistic. "The positive development of our business has gained further momentum," writes Gary Friedman in a letter to investors. Although the housing market continues to be in the worst crisis for 30 years, demand in the luxury furniture store is steadily increasing. Accordingly, the CEO has slightly increased the forecast. Friedman now expects sales growth of between 6.8% and 7.2% for 2024. Previously, the target range was 5% to 7%. The top manager narrowed the outlook for the adjusted operating margin to 11.5% to 11.7% from 11% to 12%. The news was well received on the stock market. On December 13, the trading day following the publication, the share price rose by almost a fifth.
Looking ahead to 2025, analysts believe that the company will see further improvements thanks to new collections and store openings. In North America, the CEO wants to open seven additional sales outlets in the coming year. On the old continent, business is set to really take off with new galleries in London and Paris. The management is planning to open a representative office in Milan in 2026. "We are convinced that our luxurious brand positioning and unique aesthetic have a strong international appeal," is how those responsible explain their strategy in the 2023 annual report. At the same time, they make it clear where the expansion should lead: RH is confident of annual global sales of USD 20 billion to USD 25 billion. While this outlook is a dream of the future, the luxury company's share price already needs to confirm its breakout above the technical resistance level of USD 400.
The new soft callable barrier reverse convertibles offer an interesting investment opportunity in the event that the US small cap is moving sideways. Leonteq has once again integrated a conditional coupon payment into this issue. In the product currency CHF, the yield opportunity is 13.60% p.a., with the USD-denominated counterpart 18.60% p.a.. If RH is quoted above the trigger level of 55% of the starting price on the quarterly reference date, the respective distribution is due. If the share does not meet this requirement, the product "remembers" the missed opportunity. As soon as the underlying reaches the specified hurdle on a later observation date, the issuer pays the current coupon and makes up for missed distributions. There is partial protection in terms of redemption: as long as the luxury security does not fall to the barrier of 55% or lower in the next 18 months, investors receive the full nominal amount. Please also note the soft callable function. It enables early termination and, if necessary, redemption of this BRC.
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