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Will RH's 11.7% Rally Continue in 2024 Amid Tepid Projections?
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RH's(RH - Free Report) shares spiked 11.74% on Dec 14, after the Commerce Department reported an unexpected rise in U.S. retail sales, which increased 0.3% in November. This was better than the analysts’ expectation of 0.1% growth and a decline of 0.2% reported in October.
The upside was also contributed by the Federal Reserve’s recent decision to hold interest rates as the inflation rate is showing signs of ease. The committee members also expect at least three rate cuts in 2024.
Other home furnishing retailers like Williams-Sonoma, Inc. (WSM - Free Report) , Fortune Brands Innovations, Inc. (FBIN - Free Report) and Ethan Allen Interiors, Inc. (ETD - Free Report) also gained 4.5%, 4.77% and 4.74%, respectively, in the last trading session after the news release.
In the past month, shares of RH rose 24.6%, outpacing WSM, FBIN and ETD’s 20.4%, 20.6% and 16.9% growth, respectively.
Image Source: Zacks Investment Research
This leading home furnishing retailer has undertaken various growth initiatives to drive profitability and stands out from its peers by expanding its presence across the globe.
A Look at the Factors Impacting RH's Business & Expectations
Unexpected 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 negatively impacted RH’s third-quarter fiscal 2023 results. In early October, the company also 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.
Recently, it posted lackluster third-quarter fiscal 2023 results, wherein it incurred an adjusted loss of 42 cents per share versus adjusted earnings of $4.26 in the year-ago period. Adjusted net revenues of $751 million declined 13.6% on a year-over-year basis.
Consequently, the company now expects revenues for the year to be in the range of $3.06-$3.08 billion. It now expects the adjusted operating margin to fall in the band of 13.6-14%.
RH currently carries a Zacks Rank #5 (Strong Sell).
Earnings estimates for fiscal 2023 have moved south to $8.03 per share from $9.21 in the past seven days, indicating a 60% year-over-year decline on 14.6% lower revenues.
Nonetheless, the recent news, along with improving inflationary conditions and a strong job market, is likely to build strength for the company. In fact, RH anticipates an acceleration in demand trends during the first half of 2024 as it 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.
Let’s delve deeper into the factors likely to offset economic woes.
Strategic Transitional Initiatives: The company’s new strategic operating platform, which includes transitioning from a promotional to a membership model, a distribution center network redesign, the makeover of reverse logistics and outlet businesses and the re-conceptualization of home delivery and customer experience, is driving its performance. These initiatives have helped reduce costs and inventory levels while driving earnings and inventory turns.
RH plans to evolve from a home furnishing retailer to a luxury lifestyle brand over time with the help of Product Elevation, Gallery Transformation, Brand Elevation & Digital Reimagination and Global Expansion moves. The firm has plans to unveil a collection of new products, with more than 70 new furniture and upholstery collections across RH Interiors, Contemporary, Modern, Outdoor, Baby & Child and Teen in fiscal 2023.
The company expects its inflection point to reach its peak in the first half of 2024 as new collections fully ramp and another cycle of Sourcebook mailings begins. This will completely transform and refresh the assortment across its entire brand over 12 months.
Global Expansion Efforts: RH is steadfast in expanding its presence globally. The company's global expansion plan, local market initiatives and North American Gallery transformation present a multi-billion-dollar opportunity. During second-quarter fiscal 2023, it expanded its presence in the United Kingdom with the opening of RH England, located at the historic Aynho Park, a 17th-century estate spanning 73 acres.
Given its countryside setting, RH anticipates that most of its revenues will come from interior design and trade businesses, relying on building relationships with high-value repeat clients such as interior design firms and hospitality projects. The firm has also secured its first new location for a Design Studio in Palm Desert, which is scheduled to open in the first half of 2024.
RH focuses on several strategic initiatives that include occupancy leverage that it expects to gain from real estate transformation, product margin expansion as it continues to drive higher full-price selling in core business and cost savings from improvements in its operating platform and organizational structure. Although the company expects margin contraction in the near future, these moves are likely to boost its performance in the long term.
A Brief on the Abovementioned Stocks
Williams-Sonoma's earnings surpassed estimates in three of the trailing four quarters, delivering an average surprise of 8.9%. For fiscal 2023, the earnings expectation for WSM moved up to $14.49 per share from $13.92 in the past 30 days.
Fortune Brands Innovations' earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 10.6%. For 2023, the earnings expectation moved up to $3.88 per share from $3.87 in the past seven days.
Ethan Allen's earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, delivering an average surprise of 8.9%. Earnings estimates for fiscal 2024 have decreased to $2.98 per share from $3.24 over the past 60 days.
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Will RH's 11.7% Rally Continue in 2024 Amid Tepid Projections?
RH's (RH - Free Report) shares spiked 11.74% on Dec 14, after the Commerce Department reported an unexpected rise in U.S. retail sales, which increased 0.3% in November. This was better than the analysts’ expectation of 0.1% growth and a decline of 0.2% reported in October.
The upside was also contributed by the Federal Reserve’s recent decision to hold interest rates as the inflation rate is showing signs of ease. The committee members also expect at least three rate cuts in 2024.
Other home furnishing retailers like Williams-Sonoma, Inc. (WSM - Free Report) , Fortune Brands Innovations, Inc. (FBIN - Free Report) and Ethan Allen Interiors, Inc. (ETD - Free Report) also gained 4.5%, 4.77% and 4.74%, respectively, in the last trading session after the news release.
In the past month, shares of RH rose 24.6%, outpacing WSM, FBIN and ETD’s 20.4%, 20.6% and 16.9% growth, respectively.
Image Source: Zacks Investment Research
This leading home furnishing retailer has undertaken various growth initiatives to drive profitability and stands out from its peers by expanding its presence across the globe.
A Look at the Factors Impacting RH's Business & Expectations
Unexpected 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 negatively impacted RH’s third-quarter fiscal 2023 results. In early October, the company also 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.
Recently, it posted lackluster third-quarter fiscal 2023 results, wherein it incurred an adjusted loss of 42 cents per share versus adjusted earnings of $4.26 in the year-ago period. Adjusted net revenues of $751 million declined 13.6% on a year-over-year basis.
Consequently, the company now expects revenues for the year to be in the range of $3.06-$3.08 billion. It now expects the adjusted operating margin to fall in the band of 13.6-14%.
RH currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for fiscal 2023 have moved south to $8.03 per share from $9.21 in the past seven days, indicating a 60% year-over-year decline on 14.6% lower revenues.
Nonetheless, the recent news, along with improving inflationary conditions and a strong job market, is likely to build strength for the company. In fact, RH anticipates an acceleration in demand trends during the first half of 2024 as it 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.
Let’s delve deeper into the factors likely to offset economic woes.
Strategic Transitional Initiatives: The company’s new strategic operating platform, which includes transitioning from a promotional to a membership model, a distribution center network redesign, the makeover of reverse logistics and outlet businesses and the re-conceptualization of home delivery and customer experience, is driving its performance. These initiatives have helped reduce costs and inventory levels while driving earnings and inventory turns.
RH plans to evolve from a home furnishing retailer to a luxury lifestyle brand over time with the help of Product Elevation, Gallery Transformation, Brand Elevation & Digital Reimagination and Global Expansion moves. The firm has plans to unveil a collection of new products, with more than 70 new furniture and upholstery collections across RH Interiors, Contemporary, Modern, Outdoor, Baby & Child and Teen in fiscal 2023.
The company expects its inflection point to reach its peak in the first half of 2024 as new collections fully ramp and another cycle of Sourcebook mailings begins. This will completely transform and refresh the assortment across its entire brand over 12 months.
Global Expansion Efforts: RH is steadfast in expanding its presence globally. The company's global expansion plan, local market initiatives and North American Gallery transformation present a multi-billion-dollar opportunity. During second-quarter fiscal 2023, it expanded its presence in the United Kingdom with the opening of RH England, located at the historic Aynho Park, a 17th-century estate spanning 73 acres.
Given its countryside setting, RH anticipates that most of its revenues will come from interior design and trade businesses, relying on building relationships with high-value repeat clients such as interior design firms and hospitality projects. The firm has also secured its first new location for a Design Studio in Palm Desert, which is scheduled to open in the first half of 2024.
RH focuses on several strategic initiatives that include occupancy leverage that it expects to gain from real estate transformation, product margin expansion as it continues to drive higher full-price selling in core business and cost savings from improvements in its operating platform and organizational structure. Although the company expects margin contraction in the near future, these moves are likely to boost its performance in the long term.
A Brief on the Abovementioned Stocks
Williams-Sonoma's earnings surpassed estimates in three of the trailing four quarters, delivering an average surprise of 8.9%. For fiscal 2023, the earnings expectation for WSM moved up to $14.49 per share from $13.92 in the past 30 days.
Fortune Brands Innovations' earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 10.6%. For 2023, the earnings expectation moved up to $3.88 per share from $3.87 in the past seven days.
Ethan Allen's earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, delivering an average surprise of 8.9%. Earnings estimates for fiscal 2024 have decreased to $2.98 per share from $3.24 over the past 60 days.