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RH Rises 11.5% on Q3 Earnings Beat, Ups '21 View on Solid Demand

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RH (RH - Free Report) reported stellar results for third-quarter fiscal 2021 (ended Oct 30, 2021) on the back of solid demand. Both adjusted earnings and revenues handily beat the Zacks Consensus Estimate. All key metrics grew significantly on a year-over-year basis.

It is to be noted that shares of this leading luxury retailer in the home furnishing space jumped 11.53% in the after-hours trading session on Dec 8, post the earnings release.

The upsurge is mainly backed by strong demand buoyed by solid momentum in the housing market, given the migration of consumers to larger suburban and second homes. The company highlighted that this trend is resulting in substantial square footage growth, thereby driving accelerated furniture and furnishings demand. Additionally, historically low-interest rates, a record stock market, reopening of several large parts of the economy and elevated home spending are added tailwinds.

For fiscal 2022, RH remains optimistic about various actions by the company during the period. These include the introduction of RH Contemporary, the elevation and expansion of RH Interiors and RH Modern, the launch of Global Expansion with the opening of RH England, the opening of the company’s first RH Guesthouse in New York, the inauguration of The World of RH, the lift off of RH1 & RH2, and many more.

RH Price, Consensus and EPS Surprise

RH Price, Consensus and EPS Surprise

RH price-consensus-eps-surprise-chart | RH Quote

Earnings, Revenue & Margin Discussion

Adjusted earnings of $7.03 per share surpassed the consensus mark of $6.68 by 5.2% and increased 13.4% from the year-ago figure of $6.20.

Net revenues of $1,006 million improved a notable 19.1% year over year and topped the consensus mark of $986 million by 2.1%.

Adjusted gross margin expanded 180 basis points (bps) to 50.2% for the quarter. Adjusted SG&A contracted 70 bps to 22.5%.

Adjusted operating margin expanded a notable 100 bps year over year to 27.7%. Adjusted EBITDA spiked 20.4% year over year to $310.7 million for the quarter. Adjusted EBITDA margin also expanded 40 bps year over year to 30.9%.

Store Update & Balance Sheet

As of Oct 30, RH operated 66 RH Galleries and 38 RH outlet stores as well as 14 Waterworks showrooms.

RH’s cash and cash equivalents were $2,199 million at fiscal third quarter-end compared with $100.4 million on Jan 30, 2021 and $89.9 million a year ago. The company ended the quarter with merchandise inventories worth $633.6 million compared with $544.2 million at fiscal 2020-end and $497.1 million a year ago.

Net cash used in operating activities was $533.7 million for the first nine months of fiscal 2021 compared with $347.3 million in the comparable year-ago period.

Free cash flow totaled $145.3 million at fiscal third quarter-end versus $194.8 million a year ago. That said, the metric increased to $379.9 million for the first nine months of 2021 from the year-ago level of $275.5 million.

Raised Fiscal 2021 View

The company provided a conservative view of revenues for the fiscal fourth quarter, given uncertainties arising from the new virus variant, the postponed opening of RH’s new San Francisco Gallery until Spring, and continued shipping and port delays.

Nonetheless, backed by a solid operational model, RH raised its fiscal 2021 guidance for the third time this year. The company now expects fiscal 2021 revenues to grow 32-33% versus the prior guided range of 31-33%. Adjusted operating margin is now anticipated within 25.3-25.5%, indicating growth of 350-370 bps from the year-ago figure of 21.8%. The metric was earlier expected within 24.9-25.5%.

Zacks Rank

RH currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

Williams-Sonoma Inc. (WSM - Free Report) — which currently carries a Zacks Rank #1 — reported solid third-quarter fiscal 2021 results. The company’s earnings and revenues handily beat the Zacks Consensus Estimate and significantly increased year over year.

Williams-Sonoma has been benefiting from strength across all brands and accelerated e-commerce growth. Impressively, it lifted its fiscal 2021 outlook once again, courtesy of encouraging macro trends.

Builders FirstSource (BLDR - Free Report) — which currently carries a Zacks Rank #1 — reported solid results for third-quarter 2021, wherein earnings and net sales surpassed the Zacks Consensus Estimate as well as increased significantly on a year-over-year basis.

Builders FirstSource’s results were driven by an increase in net sales and gross margin, partially offset by higher tax and selling, general & administrative expenses.

The Home Depot, Inc. (HD - Free Report) — which currently carries a Zacks Rank #2 (Buy) — posted third-quarter fiscal 2021 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year.

Home Depot gained from continued strong demand for home-improvement projects, robust housing market trends and ongoing investments.

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