Restoration Hardware announced financial results for the third quarter ended October 29, 2016.
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Third quarter fiscal 2016 net revenues of $549 million and adjusted EPS of $0.20 were ahead of company's guidance for the quarter.
Gary Friedman, chairman and chief executive officer, commented, "Net revenues were driven by a higher conversion of orders into sales than expected given our strong in stock levels and supply chain improvements.
"In addition, our margins continued to be negatively impacted by many of the temporal factors impacting our fiscal 2016 earnings in addition to one-time costs associated with the remodel and refresh of our legacy Galleries during the quarter."
"As previously communicated, we are making several strategic investments and changes to our business model in fiscal 2016 that are temporarily depressing financial results in the short term, that we believe will strengthen our brand and position the business for accelerated growth in 2017 and beyond.
"These temporal issues include the costs related to the launch of RH Modern; the timing of recognizing membership revenues related to the transition from a promotional to a membership model; efforts to reduce inventories and rationalize our SKU count; and the decision to push our 2016 Source Book mailing from the Spring to the Fall.â€
"We are lowering our outlook for fiscal 2016 net revenues and adjusted EPS based on trends to-date during the fourth quarter. First, our business in November was below our expectations, which we largely attribute to consumer softness related to the U.S. election and our Fall 2016 Source Books getting in homes later than planned.
"While our Fall 2016 Source Books began mailing in mid-September, the vast majority of the circulation is just getting in homes over the last few weeks versus our original expectations for the Books to be building earlier in the mailing cycle.
"This is resulting in a shift of sales that would have been booked in the fourth quarter into the first quarter of next year. In addition, sales of our Holiday Collection are trending lower than our expectations.
"We are taking a more aggressive approach to clear seasonal merchandise as well as taking deeper markdowns to accelerate our overall SKU rationalization efforts which are expected to result in lower product margins during the quarter.
"We are lowering our fiscal 2016 capital expenditures guidance to a range of $180 million to $190 million from our prior range of $180 to $210 million." ■