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RH Q2 Earnings and Revenues Top, Q3 & FY'22 Views Tepid

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RH (RH - Free Report) delivered impressive results in second-quarter fiscal 2022 (ended Jul 30, 2022), with adjusted earnings and revenues beating the Zacks Consensus Estimate. This marks the company’s 19th consecutive quarter of earnings beat. On a year-over-year basis, earnings declined despite revenue growth.

Shares of this leading luxury retailer in the home furnishing space rose more than 1% in the after-hours trading session on Sep 8, post the earnings release.

RH expects continued softness in the business trends due to weakness in the housing market that will likely persist over the next several quarters and the Federal Reserve’s anticipated interest rate hikes. Due to construction and approval delays, RH is delaying the opening of RH England until the 2023 Spring. Also, RH Palo Alto is now shifted to first-quarter 2023.

Earnings, Revenues & Margin Discussion

Adjusted earnings of $8.08 per share topped the consensus mark of $6.81 by 18.7% but decreased 4.7% from the year-ago figure of $8.48.

RH Price, Consensus and EPS Surprise


RH Price, Consensus and EPS Surprise

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


Adjusted net revenues of $991.62 million surpassed the consensus mark of $970.77 million by 2.2% and inched up 0.3% on a year-over-year basis. Revenues outpaced its revised guidance thanks to faster backlog relief.

Adjusted gross margin expanded 350 bps to 52.8% for the quarter. The upside was driven by an increase in product margins.

Adjusted selling, general & administrative expenses rose 530 bps to 28.1%, as a percentage of total revenues. Adjusted operating margin contracted 90 bps year over year to 24.7%. Adjusted EBITDA declined 3.6% year over year to $279.8 million for the quarter. Adjusted EBITDA margin also contracted 120 bps year over year to 28.2%.

Store Update & Balance Sheet

As of Jul 30, there were 67 RH Galleries, 39 outlet stores and 14 Waterworks showrooms operational.

RH’s cash and cash equivalents were $2,085.1 million in the fiscal second-quarter end compared with $2,177.9 million in the fiscal 2021 end (ended Jan 29, 2022). The company ended the fiscal second quarter with merchandise inventories worth $859.1 million compared with $734.3 million in fiscal 2021 end. RH ended the quarter with net debt of $446.1 million.

Net cash provided by operating activities was $192.5 million in the fiscal first half compared with $316.7 million in the comparable year-ago period. Free cash flow totaled $23.4 million in the fiscal second-quarter end versus $94 million a year ago.

For trailing 12-months period, total net debt to adjusted EBITDA was 0.4. Adjusted capital expenditures for the reported period were $53.5 million compared with $61.7 million a year ago.

Tepid Views

Based on the current market conditions and the shift of RH England, RH expects net revenue to decline 15-18% for the fiscal third quarter. This is in comparison to 19% growth in the year-ago period. The company expects an operating margin of 18.5-19% for the fiscal next quarter compared with 27.7% a year ago.

For fiscal 2022, RH now expects net revenue growth in the range of negative 3.5-5.5% compared with a negative 2-5% growth expected earlier. The latest projected figure indicates a decline from the 32% growth reported in fiscal 2021.

For the entire year, RH now expects an adjusted operating margin within 21-21.5% (compared with 21-22% of earlier projection). In the year-ago period, the metric was 25.6%.

Zacks Rank & Key Picks

RH currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mexico-based Coca-Cola FEMSA, S.A.B. de C.V. (KOF - Free Report) , the largest Coca-Cola franchise bottler, is a subsidiary of Fomento Economico Mexicano. It remains committed to leveraging its revenue management capabilities, working intensively to provide affordability to consumers, and offering the right product at the right price. The company will likely benefit from the progress on its strategic goals, including the rollout of its digital omni-channel platform. Volume growth, pricing initiatives and favorable price-mix effects have been driving Coca-Cola FEMSA’s revenues.

The Zacks Consensus Estimate for KOF’s 2022 sales indicates a year-over-year rise of 12.1%. The same for earnings suggests a decline of 4.3%. The company currently sports a Zacks Rank #1.

The Mexico-based Fomento Economico Mexicano, S.A.B. de C.V. (FMX - Free Report) is also known as FEMSA. It has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company has been gaining from favorable trends across all operations. FEMSA remains on track with its strategy of creating a national distribution platform in the United States through the expansion of its footprint in the specialized distribution industry.

The Zacks Consensus Estimate for FMX’s 2022 sales indicates a year-over-year rise of 11.3%. The same for earnings suggests a decline of 3.6%. The company currently has a Zacks Rank #2 (Buy).

The Hershey Co. (HSY - Free Report) is benefiting from solid consumer demand due to sustained at-home consumption. Higher prices, improved volumes and contributions from buyouts drove HSY’s performance.  The buyouts of Pretzels, Dot's and Lily's boosted net sales by 4.6 points. Also, Hershey is gaining from its focus on innovation and capacity expansion. HSY raised its top and bottom-line view supported by greater visibility in 2022.

The Zacks Consensus Estimate for HSY’s 2022 sales and earnings indicates a year-over-year rise of 13.9% and 14.4%, respectively. The company currently has a Zacks Rank #2.

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