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RH's Q1 Earnings Top Estimates, Recent Sales Trends Improve
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RH (RH - Free Report) reported first-quarter fiscal 2020 results (ending May 2, 2020), wherein adjusted earnings handily beat the Zacks Consensus Estimate but revenues missed the same. Shares of this leading luxury retailer in the home furnishing space gained 1.6% in the after-hour trading session on Jun 4.
RH’s strength of the multi-channel platform and membership model enabled it to engage with customers virtually and not chase demand through promotions. While fiscal first-quarter adjusted revenues were lower than expected, adjusted earnings topped the same for the 10th consecutive quarter as it continues to manage the business with a bias for earnings over revenue growth.
Earnings, Revenue & Margin Discussion
Adjusted earnings of $1.27 per share surpassed the consensus mark of 80 cents by 58.8%. However, the reported figure dropped 35.5% from the year-ago level.
Adjusted revenues (including recall accrual) of $482.9 million missed the consensus mark by 0.9%. The figure also declined 19.3% from the year-ago level of $598.4 million.
Adjusted gross margin increased 270 basis points (bps) to 41.8% in the quarter. However, the company’s adjusted operating margin contracted 180 bps year over year to a record 10%. Adjusted EBITDA also dropped 22.9% year over year to $77.4 million in the quarter.
As of May 2, 2020, RH operated 69 RH Galleries and 38 RH outlet stores in 31 states, the District of Columbia and Canada, as well as 15 Waterworks showrooms throughout the United States and U.K., and had sourcing operations in Shanghai and Hong Kong. Balance Sheet
RH’s cash and cash equivalents were $17.2 million as of May 2, 2020 compared with $47.7 million on Feb 1, 2020. The company ended the quarter with merchandise inventories worth $494.3 million compared with $438.7 million as of Feb 1, 2020. Net cash used in operating activities was $16.9 million in the fiscal first quarter versus $38.8 million cash provided by operating activities.
Fiscal 2020 View
Given uncertainties in the overall market, RH did not provide any guidance for fiscal 2020. Nonetheless, it highlighted that the company experienced a strong rebound in performance in the second quarter and remains optimistic that these business trends will continue as it reopens Galleries, Outlets and Restaurants. As of Jun 3, 2020, RH had reopened approximately 74% of Galleries, 68% of Outlets and 50% of Restaurants.
Its business had been strong in May, with core RH business demand increasing 7% year over year, with significantly higher product margins. In the first week of June, its core RH business demand further increased 11% despite business disruption due to the recent civil unrest in many markets served. The company remains optimistic that these trends will continue to improve with the reopening of the rest of the galleries during the quarter and new Design Galleries in Charlotte and Marin from mid to late June, and the expected positive response to the mailing of RH Interiors and RH Modern Sourcebooks that are arriving in home in June.
Owing to reduced inventory receipts and disruption across the global supply chain, it expects revenue improvement to lag demand growth by approximately 10-12 points in the fiscal second quarter. It expects a positive impact on revenues in the second half of the fiscal year as manufacturing recovers and inventory receipts catch up to demand.
Meanwhile, it continues to expect operating margins to expand in fiscal 2020 despite the current setbacks from COVID-19. Also, it expects capital expenditures of $125-$150 million net of landlord contributions and asset sales for fiscal 2020. Additionally, it has plans to reinvest $80-$90 million of the previously announced $150 million of expense reductions.
Other top-ranked stocks in the same space include Haverty Furniture Companies Inc. (HVT - Free Report) and The Lovesac Company (LOVE - Free Report) . While Haverty Furniture sports a Zacks Rank #1, Lovesac carries a Zacks Rank #2 (Buy).
Haverty Furniture’s earnings for 2021 are expected to grow 38.2%.
Lovesac has a three-five year expected EPS growth rate of 35%.
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RH's Q1 Earnings Top Estimates, Recent Sales Trends Improve
RH (RH - Free Report) reported first-quarter fiscal 2020 results (ending May 2, 2020), wherein adjusted earnings handily beat the Zacks Consensus Estimate but revenues missed the same. Shares of this leading luxury retailer in the home furnishing space gained 1.6% in the after-hour trading session on Jun 4.
RH’s strength of the multi-channel platform and membership model enabled it to engage with customers virtually and not chase demand through promotions. While fiscal first-quarter adjusted revenues were lower than expected, adjusted earnings topped the same for the 10th consecutive quarter as it continues to manage the business with a bias for earnings over revenue growth.
Earnings, Revenue & Margin Discussion
Adjusted earnings of $1.27 per share surpassed the consensus mark of 80 cents by 58.8%. However, the reported figure dropped 35.5% from the year-ago level.
Adjusted revenues (including recall accrual) of $482.9 million missed the consensus mark by 0.9%. The figure also declined 19.3% from the year-ago level of $598.4 million.
Adjusted gross margin increased 270 basis points (bps) to 41.8% in the quarter. However, the company’s adjusted operating margin contracted 180 bps year over year to a record 10%. Adjusted EBITDA also dropped 22.9% year over year to $77.4 million in the quarter.
RH Price, Consensus and EPS Surprise
RH price-consensus-eps-surprise-chart | RH Quote
Store Update & Balance Sheet
As of May 2, 2020, RH operated 69 RH Galleries and 38 RH outlet stores in 31 states, the District of Columbia and Canada, as well as 15 Waterworks showrooms throughout the United States and U.K., and had sourcing operations in Shanghai and Hong Kong.
Balance Sheet
RH’s cash and cash equivalents were $17.2 million as of May 2, 2020 compared with $47.7 million on Feb 1, 2020. The company ended the quarter with merchandise inventories worth $494.3 million compared with $438.7 million as of Feb 1, 2020. Net cash used in operating activities was $16.9 million in the fiscal first quarter versus $38.8 million cash provided by operating activities.
Fiscal 2020 View
Given uncertainties in the overall market, RH did not provide any guidance for fiscal 2020. Nonetheless, it highlighted that the company experienced a strong rebound in performance in the second quarter and remains optimistic that these business trends will continue as it reopens Galleries, Outlets and Restaurants. As of Jun 3, 2020, RH had reopened approximately 74% of Galleries, 68% of Outlets and 50% of Restaurants.
Its business had been strong in May, with core RH business demand increasing 7% year over year, with significantly higher product margins. In the first week of June, its core RH business demand further increased 11% despite business disruption due to the recent civil unrest in many markets served. The company remains optimistic that these trends will continue to improve with the reopening of the rest of the galleries during the quarter and new Design Galleries in Charlotte and Marin from mid to late June, and the expected positive response to the mailing of RH Interiors and RH Modern Sourcebooks that are arriving in home in June.
Owing to reduced inventory receipts and disruption across the global supply chain, it expects revenue improvement to lag demand growth by approximately 10-12 points in the fiscal second quarter. It expects a positive impact on revenues in the second half of the fiscal year as manufacturing recovers and inventory receipts catch up to demand.
Meanwhile, it continues to expect operating margins to expand in fiscal 2020 despite the current setbacks from COVID-19. Also, it expects capital expenditures of $125-$150 million net of landlord contributions and asset sales for fiscal 2020. Additionally, it has plans to reinvest $80-$90 million of the previously announced $150 million of expense reductions.
Zacks Rank & Other Key Picks
RH — which shares space with Williams-Sonoma, Inc. (WSM - Free Report) in the Zacks Retail - Home Furnishings industry — currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other top-ranked stocks in the same space include Haverty Furniture Companies Inc. (HVT - Free Report) and The Lovesac Company (LOVE - Free Report) . While Haverty Furniture sports a Zacks Rank #1, Lovesac carries a Zacks Rank #2 (Buy).
Haverty Furniture’s earnings for 2021 are expected to grow 38.2%.
Lovesac has a three-five year expected EPS growth rate of 35%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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