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RH Q2 Earnings Beat Estimates, Shares Gain on Strong View

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Shares of RH (RH - Free Report) , formerly known as Restoration Hardware, gained 35.6% in after-hour trading on Sep 6, owing to stellar second-quarter performance and raised fiscal 2017 guidance.

Earnings & Revenues

The company reported second-quarter fiscal 2017 earnings per share of 65 cents, an improvement of 47.7% compared to the prior-year quarter. Also, earnings surpassed the Zacks Consensus Estimate by 38.3%.

Revenues increased 13.2% to $615.3 million, surpassing the Zacks Consensus Estimate of $612.7 million by 0.4%. Core RH Business, excluding outlet and Waterworks acquisition, increased 10% year over year.

RH’s comparable brand revenues increased 7% year over year, compared with the 3% decline in the prior-year quarter. The company’s direct revenues increased 14% and store revenues rose 13% from the prior year quarter.

Restoration Hardware Holdings Inc. Price, Consensus and EPS Surprise

 

Margins

Adjusted operating income in the reported quarter improved from the prior-year figure of $33.2 million to $39.9 million. Adjusted operating margin expanded 30 basis points (bps) to 6.4%. Adjusted gross profit came in at $210.9 million, up 15.1% year over year. Adjusted gross margin also improved 40 bps to 34.1%.

Store Update

As of July 2017, RH operated 85 retail galleries, slightly higher than 84 in the prior-year quarter. These included 50 legacy galleries, six large format galleries, eight next generation design galleries, one RH Modern Gallery and five Baby & Child galleries in the United States and Canada, and 15 Waterworks showrooms in the United States and U.K.

Balance Sheet

RH had cash and cash equivalents of $21.6 million as on Jul 29, 2017, compared with $87.0 million as on Jan 28, 2017. The company ended the quarter with merchandise inventories worth $608 million.

Third-Quarter Outlook

Revenues are projected in the $575 million to $590 million range.

Adjusted operating margins are expected in the 7% to 7.6% band.

Adjusted net income is projected in the range of $16 million to $19 million, leading to adjusted diluted earnings per share of 68 cents to 80 cents.

Fiscal 2017 Outlook

Revenues are expected in the $2.4 billion to $2.5 billion range.

The company expects adjusted net income in the $70 million to $77 million band (previously $60-$70 million) and adjusted diluted earnings per share of $2.43 to $2.67 (previously $1.67-$1.94).

RH expects to open three next generation Design Galleries this year.

Zacks Rank & Other Key Picks

RH carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the Retail-Wholesale sector include Bravo Brio Restaurant Group, Inc. (BBRG - Free Report) , Domino's Pizza Inc. (DPZ - Free Report) and Papa John's International, Inc. (PZZA - Free Report) .

All the companies carry a Zacks Rank #2. Full-year 2017 earnings for Bravo Brio Restaurant are expected to increase 50%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Domino's is likely to witness 33.8% earnings growth in 2017.

Papa John's is expected to see 11.8% growth in 2017 earnings.

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