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RH to Report Stellar Q3 Earnings on Solid Housing Market

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RH (RH - Free Report) is scheduled to report third-quarter fiscal 2020 (ended Oct 31, 2020) results on Dec 9, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 42.4%. Markedly, the company beat earnings expectations in each of the last four quarters, with the average being 32.6%. The metric also increased 53.1% from the year-ago level. Also, its revenues topped expectation by 2.1% and grew 0.4% year over year.

Trend in Estimate Revisions

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has moved 0.8% upward to $5.35 over the past seven days. The estimated figure indicates an increase of 91.8% from $2.79 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $839.6 million, suggesting 24.1% growth from the year-ago reported figure of $676.7 million.

RH Price and EPS Surprise

RH Price and EPS Surprise

RH price-eps-surprise | RH Quote

Factors to Note

The company’s earnings and revenues for the fiscal third quarter are expected to have witnessed major improvements on a year-over-year basis, courtesy of several tailwinds like rising demand for high-end furniture from affluent consumers, shift in spending from travel and entertainment, along with strengthening housing market.

On its fiscal second-quarter conference call on Sep 9, RH highlighted that core demand (excluding outlet and hospitality) grew 47% year over year in August. Also, September core demand showed persistent strength, up 44% in the first 10 days of the month. Total demand (including outlet and hospitality) increased 38% year over year in August. Total demand grew 37% in the first 10 days of September.

The company has been working on various strategies to elevate and reimage the RH brand. Also, it has been transforming the entire business into a digital platform via The World of RH — a portal presenting the company’s products, places, services and spaces. Its digital experience — including RH Interiors, Modern, Outdoor, Baby & Child plus Teen — has been significantly adding strength to the company as it generates strong online revenues, while its Source Books drives traffic to Galleries and websites.

Meanwhile, RH has been working on cost-saving initiatives such as redesigning the supply chain, reducing inventory, improving product margins and so on. Management expects these initiatives to be reflected on fiscal third-quarter earnings and margin expansion.

Although the economy has been rebounding from COVID-19 impacts, retailers are still grappling with the effects of the same. Owing to reduced inventory receipts and disruption across the global supply chain, the company expects total demand to exceed revenue growth by 500-1,000 basis points in the fiscal third quarter, and revenues to catch up to demand in the fiscal fourth quarter.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for RH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of -0.81%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: RH — which shares space with Williams-Sonoma, Inc. (WSM - Free Report) , At Home Group Inc. (HOME - Free Report) and Tempur Sealy International, Inc. (TPX - Free Report) in the Zacks Retail - Home Furnishings industry — currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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