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Why Is RH (RH) Down 30.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for RH (RH - Free Report) . Shares have lost about 30.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
RH Q4 Earnings & Revenues Miss Estimates, FY24 View Solid
RH reported tepid results for fourth-quarter fiscal 2023 (ended Feb 3, 2024). The top and bottom lines missed the Zacks Consensus Estimate and declined on a year-over-year basis. Nonetheless, its strong fiscal 2024 guidance for revenues and margins is encouraging investors.
While RH expects business conditions to remain challenging until interest rates ease and the housing market begins to rebound, it expects demand trends to accelerate throughout fiscal 2024.
Earnings, Revenue & Margin Discussion
Adjusted earnings of 72 cents per share lagged the consensus mark of $1.71 by 57.9% and decreased from the year-ago figure of $2.88.
Adjusted net revenues of $738 million missed the consensus mark of $777 million by 5% and fell 4.4% on a year-over-year basis. Revenues declined $40 million due to the severe weather in January and shipping delays related to the ongoing conflict in the Red Sea.
Adjusted gross margin contracted 430 basis points (bps) to 43.5% in the reported quarter. Adjusted selling, general & administrative expenses decreased 320 bps to 34.4% of total revenues.
Adjusted operating margin contracted 750 bps year over year to 9.1%. Adjusted EBITDA declined 31.6% year over year to $112.8 million for the quarter. Adjusted EBITDA margin also contracted 600 bps year over year to 15.3%. Deleverage from lower revenues, increased markdowns to support the product transformation and investments in international expansion ailed the bottom line.
Fiscal 2023 (Ended Feb 3, 2024) Highlights
Adjusted earnings came in at $6.87 per share, significantly down from $20.06 a year ago. Net revenues were $3.03 billion, down 15.6% from a year ago.
Adjusted gross margin contracted 490 bps to 45.9% in the year. The adjusted operating margin was 13% in the year, down 900 bps from 22% a year ago. Adjusted EBITDA margin contracted 770 bps year over year to 18.2%.
Store Update & Balance Sheet
In fiscal 2023-end, RH’s Cash, cash equivalents and restricted cash were $123.7 million compared with $1.51 billion at the end of fiscal 2022 (ended Jan 28, 2023). The company ended fiscal 2023 with merchandise inventories worth $754.1 million compared with $801.8 million at the end of fiscal 2022.
RH ended the year with a net debt of $2.37 billion and a net debt to adjusted EBITDA of 4.3.
Net cash provided by operating activities was $202.2 million in fiscal 2023 compared with $403.7 million in the year-ago period. Adjusted free cash flow totaled negative $67.1 million in fiscal 2023 versus $235.3 million a year ago.
Adjusted capital expenditures for the reported period were $269.4 million compared with $173.6 million a year ago.
Guidance
For fiscal 2024, RH expects demand growth of 12-14% and revenue growth of 8-10% year over year. It also projects an adjusted operating margin in the range of 13-14% and an adjusted EBITDA margin between 18% and 19%.
RH is forecasting to end fiscal 2024 with an increased backlog of $110-$130 million as revenues lagging demand throughout 2024. This will negatively impact the adjusted operating and EBITDA margin by approximately 140 bps for the year. Additionally, investments and startup costs to support its international expansion are estimated to be approximately 200 bps for 2024.
For the fiscal first quarter, RH expects demand to grow in the mid-single digits but revenues to decline in the low-single digits. It anticipates an adjusted operating margin in the band of 6-7% and an adjusted EBITDA margin in the 12-13% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -109.32% due to these changes.
VGM Scores
At this time, RH has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, RH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is RH (RH) Down 30.1% Since Last Earnings Report?
It has been about a month since the last earnings report for RH (RH - Free Report) . Shares have lost about 30.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
RH Q4 Earnings & Revenues Miss Estimates, FY24 View Solid
RH reported tepid results for fourth-quarter fiscal 2023 (ended Feb 3, 2024). The top and bottom lines missed the Zacks Consensus Estimate and declined on a year-over-year basis. Nonetheless, its strong fiscal 2024 guidance for revenues and margins is encouraging investors.
While RH expects business conditions to remain challenging until interest rates ease and the housing market begins to rebound, it expects demand trends to accelerate throughout fiscal 2024.
Earnings, Revenue & Margin Discussion
Adjusted earnings of 72 cents per share lagged the consensus mark of $1.71 by 57.9% and decreased from the year-ago figure of $2.88.
Adjusted net revenues of $738 million missed the consensus mark of $777 million by 5% and fell 4.4% on a year-over-year basis. Revenues declined $40 million due to the severe weather in January and shipping delays related to the ongoing conflict in the Red Sea.
Adjusted gross margin contracted 430 basis points (bps) to 43.5% in the reported quarter. Adjusted selling, general & administrative expenses decreased 320 bps to 34.4% of total revenues.
Adjusted operating margin contracted 750 bps year over year to 9.1%. Adjusted EBITDA declined 31.6% year over year to $112.8 million for the quarter. Adjusted EBITDA margin also contracted 600 bps year over year to 15.3%. Deleverage from lower revenues, increased markdowns to support the product transformation and investments in international expansion ailed the bottom line.
Fiscal 2023 (Ended Feb 3, 2024) Highlights
Adjusted earnings came in at $6.87 per share, significantly down from $20.06 a year ago. Net revenues were $3.03 billion, down 15.6% from a year ago.
Adjusted gross margin contracted 490 bps to 45.9% in the year. The adjusted operating margin was 13% in the year, down 900 bps from 22% a year ago. Adjusted EBITDA margin contracted 770 bps year over year to 18.2%.
Store Update & Balance Sheet
In fiscal 2023-end, RH’s Cash, cash equivalents and restricted cash were $123.7 million compared with $1.51 billion at the end of fiscal 2022 (ended Jan 28, 2023). The company ended fiscal 2023 with merchandise inventories worth $754.1 million compared with $801.8 million at the end of fiscal 2022.
RH ended the year with a net debt of $2.37 billion and a net debt to adjusted EBITDA of 4.3.
Net cash provided by operating activities was $202.2 million in fiscal 2023 compared with $403.7 million in the year-ago period. Adjusted free cash flow totaled negative $67.1 million in fiscal 2023 versus $235.3 million a year ago.
Adjusted capital expenditures for the reported period were $269.4 million compared with $173.6 million a year ago.
Guidance
For fiscal 2024, RH expects demand growth of 12-14% and revenue growth of 8-10% year over year. It also projects an adjusted operating margin in the range of 13-14% and an adjusted EBITDA margin between 18% and 19%.
RH is forecasting to end fiscal 2024 with an increased backlog of $110-$130 million as revenues lagging demand throughout 2024. This will negatively impact the adjusted operating and EBITDA margin by approximately 140 bps for the year. Additionally, investments and startup costs to support its international expansion are estimated to be approximately 200 bps for 2024.
For the fiscal first quarter, RH expects demand to grow in the mid-single digits but revenues to decline in the low-single digits. It anticipates an adjusted operating margin in the band of 6-7% and an adjusted EBITDA margin in the 12-13% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -109.32% due to these changes.
VGM Scores
At this time, RH has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, RH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.