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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 high-end retailer in the home furnishing space.  The company offers dominant merchandise assortments across a growing number of categories, including furniture, lighting, textiles, bath ware, décor, outdoor and garden, tableware, and child and teen furnishings. Over the years, RH’s Gallery concept has grown in popularity, which are curated showrooms for its brand and products.

Q2 Earnings Recap

Earlier this month, RH impressed Wall Street once again, posting blowout second quarter earnings results.

Sales during the period jumped 39% year-over-year to $989 million, coming in above management’s guidance range it announced in early June.

The company credited a very strong selling environment for last quarter’s success."RH continues to set a new standard for financial performance in the home furnishings industry," CEO Gary Friedman said in a press release, "and our results now reflect those of the luxury sector."

Adjusted operating income increased 70% compared to the prior-year quarter to reach 26.6% of sales, while adjusted diluted earnings per share grew to $8.48 per share (vs. $4.90 in Q2 2020).

The operating income number tells us that RH has been able to successfully manage any supply chain disruptions as well as stock their galleries with on-trend and in-demand merchandise, two good signs as the crucial holiday season quickly approaches.

Can RH Surge Higher?RH Price and Consensus

Year-to-date, shares of RH have risen about 50% compared to the S&P 500’s gain of 18%. Earnings estimates have climbed as well, making the luxury furniture retailer a Zacks Rank #1 (Strong Buy) right now.

For the current fiscal year, eight analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up from $22.44 per share to $25.90 per share. Earnings are expected to spike over 45% year-over-year for fiscal 2021, with 2022 continuing the positive earnings growth trend.

Looking ahead, management has raised its outlook for the fiscal year, and the company now expects revenue growth to rise between 31% and 33%. Additionally, adjusted operating margin is forecasted to land in the range of 24.9% to 25.5% of sales.

RH also raised its return on investment capital (ROIC) outlook, which is an important measure of efficiency, to 70% compared to the prior forecast of 60%.

Based on the company’s performance in the second quarter, it’s safe to say that RH took another giant step in achieving its long-term goal of $5+ billion in annual sales in the U.S. market. 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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