It has been about a month since the last earnings report for RH (RH Quick QuoteRH - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RH due for a pullback? 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, Tepid View

RH reported lower-than-expected results for the fourth quarter of fiscal 2022 (ended Jan 28, 2023). The top and bottom lines missed the Zacks Consensus Estimate. The company’s earnings lagged the consensus mark after beating the same in the last 20 consecutive quarters.

RH expects continued softness in business trends due to weakness in the housing market, which is likely to persist over the next several quarters, the Federal Reserve’s anticipated interest rate hikes, uncertainties related to the recent banking crisis and the cycling of record pandemic-driven sales and backlog reductions.

Earnings, Revenue & Margin Discussion

Adjusted earnings of $2.88 per share lagged the consensus mark of $3.35 by 14% and decreased 49.1% from the year-ago figure of $5.66.
 
Adjusted net revenues of $772.5 million missed the consensus mark of $777 million by 5% and fell 13% on a year-over-year basis.

The adjusted gross margin contracted 260 basis points (bps) to 47.8% for the quarter. The decline was due to fixed occupancy deleverage.

Adjusted SG&A expenses rose 600 bps to 31.2% of total revenues. The adjusted operating margin contracted 860 bps year over year to 16.6%. Adjusted EBITDA declined 36.1% year over year to $164.9 million for the quarter. The adjusted EBITDA margin also contracted 730 bps year over year to 21.3%.

Store Update & Balance Sheet

As of Jan 28, 2023, there were 67 RH Galleries, 39 outlet stores, one Guesthouse and 14 Waterworks showrooms operational.

In the fiscal 2022-end (ended Jan 28, 2023), RH’s cash and cash equivalents were $1,511.7 million compared with $2,177.9 million in the fiscal 2021-end (ended Jan 29, 2022). The company ended fiscal 2022 with merchandise inventories worth $801.8 million compared with $734.3 million at the end of fiscal 2021. RH ended the quarter with total net debt of $1,010.7 million.

Net cash provided by operating activities was $403.7 million in fiscal 2022 compared with $662.1 million in the comparable year-ago period. Adjusted free cash flow totaled $3.7 million (versus $96.8 million a year ago) in the fiscal fourth quarter and $235.3 million in fiscal 2022 (versus $476.7 million in fiscal 2021).

For the trailing 12-month period total net debt to adjusted EBITDA was 1.1. Capital expenditures for the reported quarter were $64 million (up from $31.6 million a year ago) and in fiscal 2022 were $173.6 million (down $185.4 million in fiscal 2021).

Fiscal 2022 Highlights

Adjusted earnings came in at $20.66 per share, down from $26.12 a year ago. Net revenues were $3,590.5 million, down 4.5% from a year ago. The adjusted operating margin was 22% in the year, down from $25.6% a year ago.

Tepid View

For the first quarter of fiscal 2023, RH expects revenues of $720 to $735 million and an adjusted operating margin in the range of 13-14%.

For fiscal 2023, based on the current market conditions, RH expects net revenues between $2.9 billion and $3.1 billion, down from the $3.6 billion reported in fiscal 2022.

For the entire year, RH expects an adjusted operating margin within 15-17% (compared with the 22% reported in fiscal 2022). This guidance includes a 150 bps drag due to the ramp-up of global expansion. It also expects that the 53rd week will result in revenues of about $60 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -48.16% due to these changes.

VGM Scores

Currently, 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. It's no surprise RH has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

RH is part of the Zacks Consumer Products - Staples industry. Over the past month, Ollie's Bargain Outlet (OLLI Quick QuoteOLLI - Free Report) , a stock from the same industry, has gained 15.8%. The company reported its results for the quarter ended January 2023 more than a month ago.

Ollie's Bargain Outlet reported revenues of $549.79 million in the last reported quarter, representing a year-over-year change of +9.7%. EPS of $0.84 for the same period compares with $0.69 a year ago.

For the current quarter, Ollie's Bargain Outlet is expected to post earnings of $0.49 per share, indicating a change of +145% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.

Ollie's Bargain Outlet has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.