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RH Reports Q3 Loss, Misses Revenue Estimates, Stock Down
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RH (RH - Free Report) posted lackluster results for third-quarter fiscal 2023 (ended Oct 28, 2023). The company incurred a loss in the fiscal third quarter and the top line missed the Zacks Consensus Estimate.
Unexpectedly higher expenses, encompassing international openings, expenditures linked to the impending acquisition of the New York Guesthouse property, and unsuccessful endeavors to secure the iconic One Ocean Drive Miami Beach location contributed to the unfavorable outcome.
RH is content with the positive demand trends resulting from the launch of new RH Interiors and RH Contemporary collections. However, in early October, the company faced increased challenges when mortgage rates rose more than 8%, and the conflict in the Middle East escalated due to the Hamas invasion of Israel.
RH’s shares lost 9.1% in the after-hours trading session on Dec 7.
Meanwhile, RH has narrowed its revenue guidance range and lowered its adjusted operating margin for fiscal 2023.
The company reported an adjusted loss of 42 cents per share, much below the consensus mark of earnings of 91 cents. In the year-ago period, RH reported adjusted earnings per share (EPS) of $4.26.
Adjusted net revenues of $751 million missed the consensus mark of $753 million by 0.2% but fell 13.6% on a year-over-year basis.
Adjusted gross margin contracted 440 basis points (bps) to 45.3% in the reported quarter. Adjusted selling, general & administrative expenses increased 910 bps to 38% of total revenues.
Adjusted operating margin contracted 1,350 bps year over year to 7.3%. Adjusted EBITDA declined year over year to $93.5 million for the quarter from $216.2 million a year ago. Adjusted EBITDA margin also contracted 1,250 bps year over year to 12.4%.
Store Update & Balance Sheet
As of Oct 28, 2023, there were 68 RH Galleries, 42 outlet stores, one RH Guesthouse and 14 Waterworks showrooms operational throughout the United States, Canada, and the United Kingdom.
In the fiscal third-quarter end, RH’s cash and cash equivalents, along with the restricted cash, were $382.7 million compared with $2.15 billion at the fiscal 2022-end (ended Jan 28, 2023).
RH ended the reported quarter with a net debt of $2.12 billion.
Net cash provided by operating activities was $316.2 million in the first nine months of fiscal 2023 compared with $336 million in the comparable year-ago period. Capital expenditures for the said period were $131.8 million compared with $109.7 million a year ago. Adjusted free cash flow was $184.3 million during the first nine months of fiscal 2023, down from $231.6 million a year ago.
Guidance
Considering the present market conditions, RH has decided to postpone the distribution of the RH Modern Sourcebook until the first quarter of fiscal 2024, anticipating more favorable demand conditions. Consequently, RH is refining its revenue guidance for the year to a range of $3.06 billion to $3.08 billion. Additionally, the company now expects the adjusted operating margin to fall within the range of 13.6% to 14.0%.
RH anticipates an acceleration in demand trends during the first half of 2024 as the company undergoes a product transformation, enhances in-stock availability, completes the reset of its Galleries, and introduces new RH Modern and RH Outdoor Sourcebooks in the first quarter of fiscal 2024. The company foresees the inflection point reaching its peak in the fiscal second quarter of 2024 as the new collections reach full capacity, initiating another cycle of Sourcebook mailings. This process is expected to completely transform and refresh the entire brand over 12 months.
Williams-Sonoma Inc. (WSM - Free Report) reported mixed results for the third quarter of fiscal 2023 (ended Oct 29, 2023). In the quarter, earnings beat the Zacks Consensus Estimate, but revenues missed the same. Also, both metrics declined year over year.
The quarterly results of Williams-Sonoma reflect low contributions from the company’s reportable brands driven by ongoing softness witnessed in consumer discretionary spending, especially on furniture. Also, elevated levels of promotional activity and current macroeconomic uncertainties added to the downtrend.
The Lovesac Company (LOVE - Free Report) posted better-than-expected results in its third-quarter fiscal 2024 (ended Oct 29, 2023), with earnings and net sales surpassing the Zacks Consensus Estimate. On a year-over-year basis, net sales increased and the adjusted loss improved.
Lovesac anticipates its strong balance sheet and proactive investments in new products to drive consumer demand and expand market leadership in the upcoming periods.
Builders FirstSource’s (BLDR - Free Report) third-quarter 2023 earnings and net sales surpassed the Zacks Consensus Estimate. However, both metrics declined year over year.
The manufacturer and supplier of building materials reported adjusted earnings of $4.24 per share, which topped the consensus mark of $4.05 by 4.7%. The reported figure of BLDR decreased 18.5% from the year-ago quarter owing to lower net sales, partially offset by share repurchases. Net sales of $4.53 billion surpassed the consensus mark of $4.87 billion by 6.9% but fell 21.3% on a year-over-year basis.
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RH Reports Q3 Loss, Misses Revenue Estimates, Stock Down
RH (RH - Free Report) posted lackluster results for third-quarter fiscal 2023 (ended Oct 28, 2023). The company incurred a loss in the fiscal third quarter and the top line missed the Zacks Consensus Estimate.
Unexpectedly higher expenses, encompassing international openings, expenditures linked to the impending acquisition of the New York Guesthouse property, and unsuccessful endeavors to secure the iconic One Ocean Drive Miami Beach location contributed to the unfavorable outcome.
RH is content with the positive demand trends resulting from the launch of new RH Interiors and RH Contemporary collections. However, in early October, the company faced increased challenges when mortgage rates rose more than 8%, and the conflict in the Middle East escalated due to the Hamas invasion of Israel.
RH’s shares lost 9.1% in the after-hours trading session on Dec 7.
Meanwhile, RH has narrowed its revenue guidance range and lowered its adjusted operating margin for fiscal 2023.
RH Price, Consensus and EPS Surprise
RH price-consensus-eps-surprise-chart | RH Quote
Earnings, Revenue & Margin Discussion
The company reported an adjusted loss of 42 cents per share, much below the consensus mark of earnings of 91 cents. In the year-ago period, RH reported adjusted earnings per share (EPS) of $4.26.
Adjusted net revenues of $751 million missed the consensus mark of $753 million by 0.2% but fell 13.6% on a year-over-year basis.
Adjusted gross margin contracted 440 basis points (bps) to 45.3% in the reported quarter. Adjusted selling, general & administrative expenses increased 910 bps to 38% of total revenues.
Adjusted operating margin contracted 1,350 bps year over year to 7.3%. Adjusted EBITDA declined year over year to $93.5 million for the quarter from $216.2 million a year ago. Adjusted EBITDA margin also contracted 1,250 bps year over year to 12.4%.
Store Update & Balance Sheet
As of Oct 28, 2023, there were 68 RH Galleries, 42 outlet stores, one RH Guesthouse and 14 Waterworks showrooms operational throughout the United States, Canada, and the United Kingdom.
In the fiscal third-quarter end, RH’s cash and cash equivalents, along with the restricted cash, were $382.7 million compared with $2.15 billion at the fiscal 2022-end (ended Jan 28, 2023).
RH ended the reported quarter with a net debt of $2.12 billion.
Net cash provided by operating activities was $316.2 million in the first nine months of fiscal 2023 compared with $336 million in the comparable year-ago period. Capital expenditures for the said period were $131.8 million compared with $109.7 million a year ago. Adjusted free cash flow was $184.3 million during the first nine months of fiscal 2023, down from $231.6 million a year ago.
Guidance
Considering the present market conditions, RH has decided to postpone the distribution of the RH Modern Sourcebook until the first quarter of fiscal 2024, anticipating more favorable demand conditions. Consequently, RH is refining its revenue guidance for the year to a range of $3.06 billion to $3.08 billion. Additionally, the company now expects the adjusted operating margin to fall within the range of 13.6% to 14.0%.
RH anticipates an acceleration in demand trends during the first half of 2024 as the company undergoes a product transformation, enhances in-stock availability, completes the reset of its Galleries, and introduces new RH Modern and RH Outdoor Sourcebooks in the first quarter of fiscal 2024. The company foresees the inflection point reaching its peak in the fiscal second quarter of 2024 as the new collections reach full capacity, initiating another cycle of Sourcebook mailings. This process is expected to completely transform and refresh the entire brand over 12 months.
Zacks Rank
RH currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Peer Releases
Williams-Sonoma Inc. (WSM - Free Report) reported mixed results for the third quarter of fiscal 2023 (ended Oct 29, 2023). In the quarter, earnings beat the Zacks Consensus Estimate, but revenues missed the same. Also, both metrics declined year over year.
The quarterly results of Williams-Sonoma reflect low contributions from the company’s reportable brands driven by ongoing softness witnessed in consumer discretionary spending, especially on furniture. Also, elevated levels of promotional activity and current macroeconomic uncertainties added to the downtrend.
The Lovesac Company (LOVE - Free Report) posted better-than-expected results in its third-quarter fiscal 2024 (ended Oct 29, 2023), with earnings and net sales surpassing the Zacks Consensus Estimate. On a year-over-year basis, net sales increased and the adjusted loss improved.
Lovesac anticipates its strong balance sheet and proactive investments in new products to drive consumer demand and expand market leadership in the upcoming periods.
Builders FirstSource’s (BLDR - Free Report) third-quarter 2023 earnings and net sales surpassed the Zacks Consensus Estimate. However, both metrics declined year over year.
The manufacturer and supplier of building materials reported adjusted earnings of $4.24 per share, which topped the consensus mark of $4.05 by 4.7%. The reported figure of BLDR decreased 18.5% from the year-ago quarter owing to lower net sales, partially offset by share repurchases. Net sales of $4.53 billion surpassed the consensus mark of $4.87 billion by 6.9% but fell 21.3% on a year-over-year basis.