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Looking for a Profitable Home Furnishing Stock? Buy RH Now
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Solid momentum in the housing market has been a silver lining for home furnishing companies. The migration of consumers to larger suburban and second homes is resulting in substantial square footage growth, thereby driving accelerated furniture and furnishings demand.
Among the industry bellwethers, RH (RH - Free Report) has been riding high, given prudent growth initiatives, margin expansion efforts and stellar performance. Shares of this leading luxury retailer in the home furnishing space have rallied 78.7% over the past year, outperforming the Zacks Retail - Home Furnishings industry’s 73.2% growth.
This trend is expected to continue in the near term, courtesy of its solid performance for the first half of fiscal 2021, supported by solid gross and operating margin expansion.
Fiscal 2021 earnings estimates for this Zacks Rank #1 (Strong Buy) company have moved 14.1% upward over the past 30 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Let’s delve into the major driving factors.
Prudent Growth Initiatives
Over the past five years, RH has been busy architecting a new operating platform that includes transitioning from a promotional to membership model, distribution center network redesign, restructuring of reverse logistics and outlet business along with re-conceptualization of home delivery and customer experience. These initiatives have helped the company lower costs and inventory levels, while boosting earnings as well as inventory turns.
Management emphasized on a number of strategic initiatives to evolve RH from a home furnishings retailer to a luxury lifestyle brand over time including 1) a transformation of the website to "The World of RH" 2) expansion of interior design services to include architecture and landscape architecture 3) the launch of RH Residences or furnished homes and condos 4) the introduction of RH3, a luxury yacht that customers can rent for travel to the Caribbean and Mediterranean and 5) international expansion in Europe.
Margin Expansion Efforts
From fiscal 2016 through second-quarter fiscal 2021, RH significantly increased operating margins in its business. For the upcoming period, the company expects continued improvements in operating margins as a result of its focus on a number of strategic initiatives that include (i) occupancy leverage that it expects to gain from real estate transformation (ii) product margin expansion as it continues to drive full price selling in core business and (iii) cost savings from an improvement of the operating platform and organizational structure.
For second-quarter fiscal 2021, adjusted gross margin expanded 180 basis points (bps) to 49.3%. Adjusted operating margin expanded 480 bps year over year to 26.6%. Adjusted EBITDA margin also expanded 320 bps year over year to 29.4%.
Higher Return on Equity (ROE)
RH’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 131.3%, much higher than the industry’s 35.3%, reflecting the company’s efficient usage of shareholders’ funds.
Solid Expected Earnings Growth
It has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2021 earnings of $25.90 per share, which indicates 45.3% year-over-year growth. RH is a great pick in terms of value investment, supported by a Growth Score of A.
Other Key Picks in Retail-Wholesale Space
Other top-ranked stocks in the Zacks Retail-Wholesale sector include Williams-Sonoma, Inc. (WSM - Free Report) , Tempur Sealy International, Inc. (TPX - Free Report) and The Gap, Inc. (GPS - Free Report) , each sporting a Zacks Rank #1.
Williams-Sonoma’s earnings for fiscal 2021 are expected to rise 47.2%.
Tempur's earnings for 2021 are expected to rise 69.1%.
The Gap has a trailing four-quarter earnings surprise of 649.9%, on average.
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Looking for a Profitable Home Furnishing Stock? Buy RH Now
Solid momentum in the housing market has been a silver lining for home furnishing companies. The migration of consumers to larger suburban and second homes is resulting in substantial square footage growth, thereby driving accelerated furniture and furnishings demand.
Among the industry bellwethers, RH (RH - Free Report) has been riding high, given prudent growth initiatives, margin expansion efforts and stellar performance. Shares of this leading luxury retailer in the home furnishing space have rallied 78.7% over the past year, outperforming the Zacks Retail - Home Furnishings industry’s 73.2% growth.
This trend is expected to continue in the near term, courtesy of its solid performance for the first half of fiscal 2021, supported by solid gross and operating margin expansion.
Fiscal 2021 earnings estimates for this Zacks Rank #1 (Strong Buy) company have moved 14.1% upward over the past 30 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s delve into the major driving factors.
Prudent Growth Initiatives
Over the past five years, RH has been busy architecting a new operating platform that includes transitioning from a promotional to membership model, distribution center network redesign, restructuring of reverse logistics and outlet business along with re-conceptualization of home delivery and customer experience. These initiatives have helped the company lower costs and inventory levels, while boosting earnings as well as inventory turns.
Management emphasized on a number of strategic initiatives to evolve RH from a home furnishings retailer to a luxury lifestyle brand over time including 1) a transformation of the website to "The World of RH" 2) expansion of interior design services to include architecture and landscape architecture 3) the launch of RH Residences or furnished homes and condos 4) the introduction of RH3, a luxury yacht that customers can rent for travel to the Caribbean and Mediterranean and 5) international expansion in Europe.
Margin Expansion Efforts
From fiscal 2016 through second-quarter fiscal 2021, RH significantly increased operating margins in its business. For the upcoming period, the company expects continued improvements in operating margins as a result of its focus on a number of strategic initiatives that include (i) occupancy leverage that it expects to gain from real estate transformation (ii) product margin expansion as it continues to drive full price selling in core business and (iii) cost savings from an improvement of the operating platform and organizational structure.
For second-quarter fiscal 2021, adjusted gross margin expanded 180 basis points (bps) to 49.3%. Adjusted operating margin expanded 480 bps year over year to 26.6%. Adjusted EBITDA margin also expanded 320 bps year over year to 29.4%.
Higher Return on Equity (ROE)
RH’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 131.3%, much higher than the industry’s 35.3%, reflecting the company’s efficient usage of shareholders’ funds.
Solid Expected Earnings Growth
It has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2021 earnings of $25.90 per share, which indicates 45.3% year-over-year growth. RH is a great pick in terms of value investment, supported by a Growth Score of A.
Other Key Picks in Retail-Wholesale Space
Other top-ranked stocks in the Zacks Retail-Wholesale sector include Williams-Sonoma, Inc. (WSM - Free Report) , Tempur Sealy International, Inc. (TPX - Free Report) and The Gap, Inc. (GPS - Free Report) , each sporting a Zacks Rank #1.
Williams-Sonoma’s earnings for fiscal 2021 are expected to rise 47.2%.
Tempur's earnings for 2021 are expected to rise 69.1%.
The Gap has a trailing four-quarter earnings surprise of 649.9%, on average.