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RH Stock Before Q2 Earnings: Should You Buy Now or Sell?
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RH (RH - Free Report) , formerly known as Restoration Hardware) is scheduled to release second-quarter fiscal 2024 (ended Aug. 3, 2024) results on Sept. 12, after the closing bell.
In the first quarter of fiscal 2024, the company delivered tepid results, with an adjusted loss of 40 cents per share, missed the consensus mark of a loss of 8 cents by a whopping 400%. The reported figure also decreased from the year-ago period’s earnings of $2.21 per share.
Adjusted net revenues of $727 million slightly came ahead of the consensus mark of $725 million but fell 1.7% on a year-over-year basis. The housing market remained difficult, influenced by high interest rates, which reached more than 7%. Despite this, demand trends turned positive, although growth slightly underperformed the company's forecast.
Nonetheless, during the quarter, RH launched new collections in outdoor, modern, and interiors, with more launches expected throughout the year. It aims to strengthen its market share in luxury home furnishings. The company highlighted that it is aggressively investing in product transformation and platform expansion despite a challenging housing market and rising interest rates. The company believed that RH is positioned to capitalize on long-term opportunities as weaker competitors exit the market.
RH, a prominent luxury furniture retailer, has an uninspiring track record of surpassing earnings expectations, exceeding the consensus mark in only one of the last four quarters, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision For RH
The Zacks Consensus Estimate for the fiscal second-quarter EPS has decreased to $1.54 from $1.59 over the past 60 days. The estimated figure indicates a 60.8% decrease from the year-ago EPS of $3.93. Also, the consensus mark for revenues is $827.7 million, indicating 3.4% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for RH
Our proven model does not conclusively predict an earnings beat for RH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: RH currently carries a Zacks Rank #5 (Strong Sell).
RH’s fiscal second-quarter results are likely to be affected by an industry-wide soft demand for home furnishings. While RH primarily caters to affluent households, it has been encountering challenges due to a softening luxury housing market, affecting its demand dynamics. Additionally, higher expenses, including international openings and clearance pressure, are expected to have weighed on results.
Nonetheless, gains in market share due to newer and more competitively priced product collections, expanded sourcebook mailings, optimized assortment, and improved in-stock levels are expected to have contributed to the company’s topline. RH guided for a 9-10% year-over-year demand growth and revenue growth of 3%-4% for the fiscal second quarter, given the above-mentioned tailwinds.
One of RH’s key demand drivers in the fiscal second quarter was the expansion of its sourcebook mailings, including new mailings for Baby & Child and Teen collections. This likely provided a lift to demand, but the expected Contemporary sourcebook was delayed or canceled, which could weigh on future performance.
New product launches and better execution of marketing initiatives and the B2B segment might have also helped mitigate some of the headwinds, contributing to overall results. The company had already witnessed a positive inflection in demand during the first quarter of fiscal 2024, with a 3% increase.
From the margin perspective, RH has struggled with elevated clearance inventory. Clearance sales, while necessary to clear discontinued products, indicate that RH is still adjusting to the post-pandemic normalization of demand. As a result, margins remain pressured despite the company’s attempts to stabilize them.
The company expects adjusted operating margin to be in the range of 11% to 12% and adjusted EBITDA margin of 17% to 18%. In the year-ago period, the company’s adjusted operating margin was 20.2% and adjusted EBITDA margin was 24.7%. The operating margin is under pressure due to rising selling general and administrative (SG&A) expenses, driven by marketing costs like sourcebook mailings and other promotional activities.
RH Stock’s Price Performance & Valuation
RH’s stock has exhibited a downward movement in the year-to-date (YTD) period. In contrast, Hoya Capital Housing ETF (HOMZ - Free Report) has gained 13.7% in the same period, which has 20% exposure in the home improvement and furnishings segment.
The company has also underperformed companies like Arhaus, Inc. (ARHS - Free Report) , down 8.4% YTD), Ethan Allen Interiors Inc. (ETD - Free Report) , down 10.2% YTD) and Williams-Sonoma, Inc. (WSM - Free Report) , up 31.1% YTD).
Technical indicators are not in support of RH’s performance. The stock is currently trading at $241.46 on Monday, lower than its 50-day moving average of $261.3 and the 200-day moving average of $268.5. This technical strength reflects a bearish market perception of RH’s prospects.
YTD Price Performance of RH
Image Source: Zacks Investment Research
Let's assess the value RH offers to investors at its current levels.
RH is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 21.3, which is slightly above its five-year median of 20.6. This elevated P/E ratio could indicate that the stock is overvalued, suggesting that investors might be overly optimistic about RH's future earnings.
How Should Investors Play RH Stock?
RH’s performance remains highly sensitive to macroeconomic factors like rising interest rates, consumer confidence, and luxury consumer spending. Any further tightening in the credit environment or slowdown in high-income consumer spending could add downside risk to RH’s outlook for the remainder of the year. Although the market’s anticipation of a potential rate cut by the Federal Reserve in September may lift the performance of RH stock ahead, the timing and the magnitude of the cut are still unclear.
Industry-wide weakness, execution risks, and ongoing inventory issues could limit growth and margin expansion, leaving RH in a cautious position for the remainder of the year. These headwinds are echoing well through a downward estimate revision trend, bearish stock price performance and lower growth rates. Given market uncertainties, potential volatility in promotions, international expansion costs, and high valuation, potential investors are advised to stay away from RH now.
Image: Bigstock
RH Stock Before Q2 Earnings: Should You Buy Now or Sell?
RH (RH - Free Report) , formerly known as Restoration Hardware) is scheduled to release second-quarter fiscal 2024 (ended Aug. 3, 2024) results on Sept. 12, after the closing bell.
In the first quarter of fiscal 2024, the company delivered tepid results, with an adjusted loss of 40 cents per share, missed the consensus mark of a loss of 8 cents by a whopping 400%. The reported figure also decreased from the year-ago period’s earnings of $2.21 per share.
Adjusted net revenues of $727 million slightly came ahead of the consensus mark of $725 million but fell 1.7% on a year-over-year basis. The housing market remained difficult, influenced by high interest rates, which reached more than 7%. Despite this, demand trends turned positive, although growth slightly underperformed the company's forecast.
Nonetheless, during the quarter, RH launched new collections in outdoor, modern, and interiors, with more launches expected throughout the year. It aims to strengthen its market share in luxury home furnishings. The company highlighted that it is aggressively investing in product transformation and platform expansion despite a challenging housing market and rising interest rates. The company believed that RH is positioned to capitalize on long-term opportunities as weaker competitors exit the market.
RH, a prominent luxury furniture retailer, has an uninspiring track record of surpassing earnings expectations, exceeding the consensus mark in only one of the last four quarters, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision For RH
The Zacks Consensus Estimate for the fiscal second-quarter EPS has decreased to $1.54 from $1.59 over the past 60 days. The estimated figure indicates a 60.8% decrease from the year-ago EPS of $3.93. Also, the consensus mark for revenues is $827.7 million, indicating 3.4% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for RH
Our proven model does not conclusively predict an earnings beat for RH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: RH currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Influencing RH’s Q2 Performance
RH’s fiscal second-quarter results are likely to be affected by an industry-wide soft demand for home furnishings. While RH primarily caters to affluent households, it has been encountering challenges due to a softening luxury housing market, affecting its demand dynamics. Additionally, higher expenses, including international openings and clearance pressure, are expected to have weighed on results.
Nonetheless, gains in market share due to newer and more competitively priced product collections, expanded sourcebook mailings, optimized assortment, and improved in-stock levels are expected to have contributed to the company’s topline. RH guided for a 9-10% year-over-year demand growth and revenue growth of 3%-4% for the fiscal second quarter, given the above-mentioned tailwinds.
One of RH’s key demand drivers in the fiscal second quarter was the expansion of its sourcebook mailings, including new mailings for Baby & Child and Teen collections. This likely provided a lift to demand, but the expected Contemporary sourcebook was delayed or canceled, which could weigh on future performance.
New product launches and better execution of marketing initiatives and the B2B segment might have also helped mitigate some of the headwinds, contributing to overall results. The company had already witnessed a positive inflection in demand during the first quarter of fiscal 2024, with a 3% increase.
From the margin perspective, RH has struggled with elevated clearance inventory. Clearance sales, while necessary to clear discontinued products, indicate that RH is still adjusting to the post-pandemic normalization of demand. As a result, margins remain pressured despite the company’s attempts to stabilize them.
The company expects adjusted operating margin to be in the range of 11% to 12% and adjusted EBITDA margin of 17% to 18%. In the year-ago period, the company’s adjusted operating margin was 20.2% and adjusted EBITDA margin was 24.7%. The operating margin is under pressure due to rising selling general and administrative (SG&A) expenses, driven by marketing costs like sourcebook mailings and other promotional activities.
RH Stock’s Price Performance & Valuation
RH’s stock has exhibited a downward movement in the year-to-date (YTD) period. In contrast, Hoya Capital Housing ETF (HOMZ - Free Report) has gained 13.7% in the same period, which has 20% exposure in the home improvement and furnishings segment.
The company has also underperformed companies like Arhaus, Inc. (ARHS - Free Report) , down 8.4% YTD), Ethan Allen Interiors Inc. (ETD - Free Report) , down 10.2% YTD) and Williams-Sonoma, Inc. (WSM - Free Report) , up 31.1% YTD).
Technical indicators are not in support of RH’s performance. The stock is currently trading at $241.46 on Monday, lower than its 50-day moving average of $261.3 and the 200-day moving average of $268.5. This technical strength reflects a bearish market perception of RH’s prospects.
YTD Price Performance of RH
Image Source: Zacks Investment Research
Let's assess the value RH offers to investors at its current levels.
RH is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 21.3, which is slightly above its five-year median of 20.6. This elevated P/E ratio could indicate that the stock is overvalued, suggesting that investors might be overly optimistic about RH's future earnings.
How Should Investors Play RH Stock?
RH’s performance remains highly sensitive to macroeconomic factors like rising interest rates, consumer confidence, and luxury consumer spending. Any further tightening in the credit environment or slowdown in high-income consumer spending could add downside risk to RH’s outlook for the remainder of the year. Although the market’s anticipation of a potential rate cut by the Federal Reserve in September may lift the performance of RH stock ahead, the timing and the magnitude of the cut are still unclear.
Industry-wide weakness, execution risks, and ongoing inventory issues could limit growth and margin expansion, leaving RH in a cautious position for the remainder of the year. These headwinds are echoing well through a downward estimate revision trend, bearish stock price performance and lower growth rates. Given market uncertainties, potential volatility in promotions, international expansion costs, and high valuation, potential investors are advised to stay away from RH now.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.