(Adds details, background; updates shares)
Sept 6 (Reuters) - Upscale furniture retailer RH raised its full-year earnings forecast as the company benefits from its shift to a membership model, sending its heavily shorted shares surging 38 percent in after-market trading on Wednesday.
The company, which plans to save about $15 million to $20 million annually, said it would shut down one distribution center, bringing the total to three.
RH, formerly Restoration Hardware Holdings Inc, had struggled with weak revenue and profits in 2016, largely due to soft demand in oil-focused markets such as Texas and Canada.
The retailer in that year launched initiatives to help boost sales including the RH Grey Card, which provides members a 25 percent discount on all products for an annual fee of $100.
"While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture, and cash at RH," Chief Executive Gary Friedman said on Wednesday.
The company also introduced a new line of stores called Design Galleries that offer customers food and beverage along with high-end furniture.
The efforts seem to be paying off, with revenue jumping 13.2 percent in the second quarter ended July 29.
The company posted an adjusted profit of 65 cents per share, handily beating the analysts' average estimate of 47 cents, according to Thomson Reuters I/B/E/S.
RH raised its full-year profit forecast range to $2.43-$2.67 per share from $1.67-$1.94 it forecast in June.
The company also said it expects to generate free cash flow of about $400 million this year.
RH's shares were trading at $68 after the bell. Half of the company's outstanding shares are held by short sellers as of Aug. 15, according to Thomson Reuters data.
(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila)