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Omar Venerio
Omar Venerio
Articles (920) 

Despite Today's Decline, RH Is a Winner

Company reported strong quarterly results while transforming the business model

September 11, 2017 | About:

In Monday trading, RH’s (NYSE:RH) stock had a declined pattern all day; the stock was down more than 3%.

The company recently reported its financial results for the first quarter of fiscal 2017, posting an adjusted EPS of 5 cents, in line with analysts' expectations. The company's revenue of $562.08 million was higher by 23.4% than the figure reported a year earlier. Moreover, the revenue beat the consensus estimate by $3.54 million.

CEO Gary Friedman said, “Our business is off to a strong start to the year with first quarter net revenues increasing 23%, of which approximately six points of growth was due to the acquisition of Waterworks and six points was related to higher outlet and warehouse sales stemming from accelerated inventory optimization efforts during the quarter.”

Last year, the company's business evolved from a promotional to a membership model, which had several positive impacts like enhancing the brand and improving the customer experience. Further, the company had several business initiatives like the RH Modern, RH Teen, RH Hospitality, the redesign of the RH Interiors Source Book, the rollout of Design Ateliers across the retail galleries and the addition of Waterworks to its platform. These initiatives should contribute to growth this year.

Guidance for fiscal 2017 is solid with increased revenue guidance between $2.4 billion and $2.45 billion, due to a more aggressive approach to rationalizing the product offer and reducing inventories while increasing free cash flow. But this should negatively impact the earnings. For that reason, adjusted net income was revised from $65 million to $80 million to a range of $60 million to $70 million. As a result, adjusted diluted earnings per share would be in the range of $1.67 to $1.94.

Despite the decline, on a year-to-date basis, the stock has added 161% to $68.46 from $31.68.

Disclosure: The author holds no position in any stocks mentioned

About the author:

Omar Venerio
Omar Venerio is capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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