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RH Gears Up to Report Q1 Earnings: What's in the Offing?

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RH (RH - Free Report) is scheduled to report first-quarter fiscal 2021 (ended May 1, 2021) results on Jun 9, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 6.1%. Markedly, the company beat earnings expectations in each of the last four quarters, with the average being 30.4%. The metric also increased 36% from the year-ago level. Also, its net revenues topped expectation by 2% and grew 22% year over year.

Trend in Estimate Revisions

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has moved upward to $4.14 from $4.10 over the past 30 days. The estimated figure indicates an increase of 226% from $1.27 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $752.1 million, suggesting 55.8% growth from the year-ago reported figure of $482.9 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 first quarter are expected to have witnessed significant improvements on a year-over-year basis, courtesy of several tailwinds like rising demand for high-end furniture among affluent consumers in the solid luxury home market (particularly for large suburban homes) along with strengthening housing market.

RH has been working on various strategies to elevate and upgrade the image of 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 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 fourth-quarter earnings and margin expansion. Also, more pricing power is expected to have boosted gross margins, while SG&A expenses are likely to have remained under control as the company limits advertising due to supply chain constraints.

Overall, RH expects first-quarter fiscal 2021 revenues to grow at least 50% and adjusted operating margin in the 20% range.

Although the economy has been rebounding from COVID-19 impacts, retailers are still grappling with the effects of the same. Disruption across the global supply chain owing to the pandemic remains a cause of concern. Also, rising raw material costs may have been risks.

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: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.46%. 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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