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Bull of the Day: RH (RH)

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RH (RH - Free Report) , formerly known as Restoration Hardware, is a leading luxury home furnishings retailer. The company offers merchandise assortments across a growing number of categories, including furniture, lighting, textiles, bath ware, décor, outdoor and garden, tableware, and child and teen furnishings.

Q2 Earnings Recap

Shares of RH soared to new all-time highs after reporting blowout second-quarter fiscal 2020 results; the stock spiked above $400 a share for the first time ever.

Earnings and revenue easily beat the Zacks Consensus Estimate, and while revenue was only up less than 1%, total company demand surged 16% year-over-year. And, diluted EPS increased 30% to $3.71.

Free cash flow was also strong, about doubling to $218 million compared to $109 million last year.

Despite this strong performance, management decided against issuing any guidance for the rest of 2020.

CEO Gary Friedman said that “The emergence of RH as a luxury brand generating luxury margins has arrived years sooner than expected,” cementing a tone of confidence in his letter to shareholders.

Even with the coronavirus pandemic, the company still thinks it can generate annual net revenue growth of 8% to 12%, and annual adjusted net income growth of 15% to 20%, going forward, all to help RH become a $20 billion retail brand.

RH Breaks Out

 

RH Price and Consensus

 

Since March 23, shares of RH have surged over 370% compared to the S&P 500’s 48% increase. Earnings estimates have been rising too, and RH is a Zacks Rank #1 (Strong Buy) right now.

For the current fiscal year, nine analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up over five dollars to $16.56 per share. Earnings are expected to grow about 42% compared to the prior year period. 2021 looks strong too, and earnings should see double-digit year-over-year growth next year as well.

Like nearly all retailers, RH has been impacted by the Covid-19 crisis; its supply chain definitely felt the effects in the early days of the pandemic, negatively impacting its delivery/direct-to-consumer business.

But, there have been few order cancellations and demand is starting to surge. Now that we’re all spending much more time in our homes, having furniture that we actually like is a priority. RH already has a successful brand—not every home retailer can call its stores galleries—and renewed demand will likely translate to strong revenue growth in the near-term.

If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep RH on your shortlist.

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