We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
RH's Q3 Earnings Lag Estimates, Revenues Top, Stock Up 18%
Read MoreHide Full Article
RH’s (RH - Free Report) shares rallied 17.7% in yesterday’s after-hours trading session despite its third-quarter fiscal 2024 (ended Nov. 2, 2024) earnings missing the Zacks Consensus Estimate.
The luxury home furnishings retailer surpassed expectations for revenues, driven by resilient demand despite a tough housing market. Both metrics increased on a year-over-year basis.
The company successfully met its growth expectations for demand and revenues in the fiscal third quarter, demonstrating solid year-over-year performance in net revenues and product demand.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the fiscal third quarter, total demand growth increased 13% with November showing an acceleration to 18%. The RH brand gained market share by 15-25 points in the fiscal third quarter, with expectations of a 25-45 point increase in the fiscal fourth quarter based on current trends. The company's collections provide unmatched design and quality, positioning it for continued market share growth in future.
Owing to current trends, the company raised its full-year guidance for total demand and revenue growth.
RH’s Q3 Earnings, Margin & Revenue Discussion
The company reported adjusted earnings per share of $2.48, which missed the consensus mark of $2.67 by 7.1%. The reported figure, however, increased from the year-ago period’s loss of $1.33 per share.
Net revenues of $811.7 million came ahead of the consensus mark of $810.9 million and grew 8.1% year over year. In the fiscal third quarter, demand for RH's products increased 14% and continued to rise, finishing November with a gain of 24%. The introduction of the RH Modern Sourcebook played a key role in driving this growth. Month-to-date demand in December rose 30%, highlighting the strong impact of the company’s product transformation. This demand growth is notable given the tough housing market, indicating that RH’s product and platform strategy is resonating with its high-end consumer base.
Gross margin contracted 80 basis points (bps) to 44.5% in the reported quarter. Adjusted selling, general & administrative expenses decreased 850 bps to 29.5% of total revenues.
Adjusted operating margin expanded 770 bps year over year to 15%. Adjusted EBITDA increased 80.2% year over year to $168.5 million for the quarter. Adjusted EBITDA margin also expanded 840 bps year over year to 20.8%.
RH’s Balance Sheet & Cash Flow
In the third quarter of fiscal 2024-end, RH’s cash and cash equivalents were $87 million compared with $123.7 million at the end of fiscal 2023. The company ended third-quarter fiscal 2024 with merchandise inventories worth $978.6 million compared with $754.1 million at the end of fiscal 2023.
RH ended the quarter with a net debt of $2.53 billion and a net debt-to-adjusted EBITDA ratio of 4.9x.
Net cash provided by operating activities was $35.9 million in the first nine months of fiscal 2024 compared with $316.2 million in the year-ago period. Free cash flow was negative $96 million in the fiscal third quarter (against $17.6 million a year ago) and was negative $144 million in the first nine months of fiscal 2024.
Capital expenditures for the reported quarter were $64.6 million and $179.9 million during the first nine months of fiscal 2024.
RH Raises Fiscal 2024 Guidance
For fiscal 2024, RH now expects demand growth to be between 9.9% and 10.4%, up from the prior estimate of 8-10%. The company now anticipates revenue growth between 6.8% and 7.2%, up from the prior estimate of 5-7%.
Adjusted operating margin is now expected to be between 11.5% and 11.7%, while adjusted EBITDA margin is forecasted to be between 17.2% and 17.4%. Earlier, the company had expected an adjusted operating margin in the range of 11-12% and an adjusted EBITDA margin between 17% and 18%.
RH expects an increased backlog in the range of $80-$100 million by the end of fiscal 2024, which will weigh on results but should convert into revenues in future. This will negatively impact adjusted operating and EBITDA margins by approximately 100 bps for the year. Additionally, investments and startup costs to support international expansion are now estimated to be an approximate 230 bps drag for fiscal 2024.
Fiscal Q4 Guidance of RH
Demand growth is expected to be between 20% and 22%, and revenue growth between 18% and 20%. Adjusted operating margin is forecasted to be in the range of 12.2-13.2%, and adjusted EBITDA margin is expected to be between 18% and 19%, indicating a strong rebound from earlier in the year.
Other Updates on RH
Product Transformation: The company continues to enhance its product offerings with significant updates to RH’s Sourcebooks and collections. These efforts aim to strengthen brand presence, improve customer experience and drive demand growth. The second mailing of the RH Modern Sourcebook introduced 54 new collections in November, supported by a $6 million advertising investment. This initiative is expected to boost demand in the fiscal fourth quarter and the first half of fiscal 2025. The RH Interiors Sourcebook, with 89 new collections, and the RH Outdoor Sourcebook, featuring eight new collections and improved stock levels, are planned for early February 2025.
The company also is expanding the Waterworks brand, introducing it to RH Galleries and RH.com. This move aims to amplify Waterworks' market presence and transit it to a consumer and trade-based model. Dmitriy & Co. and a new brand extension set for fiscal 2025 will further support long-term growth.
Platform Expansion: The company continues to expand its physical retail presence with immersive and strategically located Design Galleries, alongside innovative concepts.
RH Newport Beach (opening December 2024): This 90,000-square-foot gallery spans four floors with Pacific Ocean views. It features the RH Ocean Grill, a 270-seat rooftop restaurant, two Wine & Barista Bars, an Interior Design Atelier, the first Waterworks Showroom and an expansive outdoor furniture collection. It is expected to replace three legacy locations and has the potential to become a $100 million-plus gallery.
RH Montecito (opening December 2024): Located in a historic firehouse, this boutique gallery includes The RH Firehouse Grill, an indoor-outdoor courtyard restaurant with fireplaces, a Wine & Barista Bar and an Interior Design Atelier.
RH Interior Design Studio, Palm Desert (opening December 2024): This standalone studio aims to position the company as a leading interior design firm. It will focus on selling fully conceptualized spaces, attracting top designers and high-value customers. Future plans include a nearby 10,000-square-foot Design Gallery, a 5,000-square-foot Outdoor Furniture Gallery and a potential RH All Day Cafe to complete the ecosystem.
RH Raleigh (opened November 2024): This 50,000-square-foot gallery features a rooftop restaurant, garden courtyards, a Wine & Barista Bar and an Interior Design Atelier.
RH’s Gallery Openings in Fiscal 2025
The company plans to open seven galleries in Montreal, Manhasset, Detroit, Oklahoma City, Los Gatos, Palm Desert and Aspen in North America, along with two international galleries in Paris and London.
RH’s Zacks Rank & Stocks to Consider
RH currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Staple sector have been discussed below.
UNFI has a trailing four-quarter earnings surprise of 553.1%, on average. The stock has surged 84.6% in the past year. The Zacks Consensus Estimate for UNFI’s fiscal 2025 earnings per share (EPS) indicates growth of 407.1% from the year-ago levels.
Ingredion Incorporated (INGR - Free Report) currently carries a Zacks Rank #1. INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The stock has surged 33.6% in the past year.
The Zacks Consensus Estimate for INGR’s 2025 EPS indicates growth of 5.5% from the year-ago levels.
Freshpet, Inc. (FRPT - Free Report) currently has a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average. The stock has surged 72.9% in the past year.
The Zacks Consensus Estimate for FRPT’s 2025 sales and EPS indicates growth of 24.4% and 66.8%, respectively, from the year-ago levels.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
RH's Q3 Earnings Lag Estimates, Revenues Top, Stock Up 18%
RH’s (RH - Free Report) shares rallied 17.7% in yesterday’s after-hours trading session despite its third-quarter fiscal 2024 (ended Nov. 2, 2024) earnings missing the Zacks Consensus Estimate.
The luxury home furnishings retailer surpassed expectations for revenues, driven by resilient demand despite a tough housing market. Both metrics increased on a year-over-year basis.
The company successfully met its growth expectations for demand and revenues in the fiscal third quarter, demonstrating solid year-over-year performance in net revenues and product demand.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the fiscal third quarter, total demand growth increased 13% with November showing an acceleration to 18%. The RH brand gained market share by 15-25 points in the fiscal third quarter, with expectations of a 25-45 point increase in the fiscal fourth quarter based on current trends. The company's collections provide unmatched design and quality, positioning it for continued market share growth in future.
Owing to current trends, the company raised its full-year guidance for total demand and revenue growth.
RH’s Q3 Earnings, Margin & Revenue Discussion
The company reported adjusted earnings per share of $2.48, which missed the consensus mark of $2.67 by 7.1%. The reported figure, however, increased from the year-ago period’s loss of $1.33 per share.
Net revenues of $811.7 million came ahead of the consensus mark of $810.9 million and grew 8.1% year over year. In the fiscal third quarter, demand for RH's products increased 14% and continued to rise, finishing November with a gain of 24%. The introduction of the RH Modern Sourcebook played a key role in driving this growth. Month-to-date demand in December rose 30%, highlighting the strong impact of the company’s product transformation. This demand growth is notable given the tough housing market, indicating that RH’s product and platform strategy is resonating with its high-end consumer base.
RH Price, Consensus and EPS Surprise
RH price-consensus-eps-surprise-chart | RH Quote
Gross margin contracted 80 basis points (bps) to 44.5% in the reported quarter. Adjusted selling, general & administrative expenses decreased 850 bps to 29.5% of total revenues.
Adjusted operating margin expanded 770 bps year over year to 15%. Adjusted EBITDA increased 80.2% year over year to $168.5 million for the quarter. Adjusted EBITDA margin also expanded 840 bps year over year to 20.8%.
RH’s Balance Sheet & Cash Flow
In the third quarter of fiscal 2024-end, RH’s cash and cash equivalents were $87 million compared with $123.7 million at the end of fiscal 2023. The company ended third-quarter fiscal 2024 with merchandise inventories worth $978.6 million compared with $754.1 million at the end of fiscal 2023.
RH ended the quarter with a net debt of $2.53 billion and a net debt-to-adjusted EBITDA ratio of 4.9x.
Net cash provided by operating activities was $35.9 million in the first nine months of fiscal 2024 compared with $316.2 million in the year-ago period. Free cash flow was negative $96 million in the fiscal third quarter (against $17.6 million a year ago) and was negative $144 million in the first nine months of fiscal 2024.
Capital expenditures for the reported quarter were $64.6 million and $179.9 million during the first nine months of fiscal 2024.
RH Raises Fiscal 2024 Guidance
For fiscal 2024, RH now expects demand growth to be between 9.9% and 10.4%, up from the prior estimate of 8-10%. The company now anticipates revenue growth between 6.8% and 7.2%, up from the prior estimate of 5-7%.
Adjusted operating margin is now expected to be between 11.5% and 11.7%, while adjusted EBITDA margin is forecasted to be between 17.2% and 17.4%. Earlier, the company had expected an adjusted operating margin in the range of 11-12% and an adjusted EBITDA margin between 17% and 18%.
RH expects an increased backlog in the range of $80-$100 million by the end of fiscal 2024, which will weigh on results but should convert into revenues in future. This will negatively impact adjusted operating and EBITDA margins by approximately 100 bps for the year. Additionally, investments and startup costs to support international expansion are now estimated to be an approximate 230 bps drag for fiscal 2024.
Fiscal Q4 Guidance of RH
Demand growth is expected to be between 20% and 22%, and revenue growth between 18% and 20%. Adjusted operating margin is forecasted to be in the range of 12.2-13.2%, and adjusted EBITDA margin is expected to be between 18% and 19%, indicating a strong rebound from earlier in the year.
Other Updates on RH
Product Transformation: The company continues to enhance its product offerings with significant updates to RH’s Sourcebooks and collections. These efforts aim to strengthen brand presence, improve customer experience and drive demand growth. The second mailing of the RH Modern Sourcebook introduced 54 new collections in November, supported by a $6 million advertising investment. This initiative is expected to boost demand in the fiscal fourth quarter and the first half of fiscal 2025. The RH Interiors Sourcebook, with 89 new collections, and the RH Outdoor Sourcebook, featuring eight new collections and improved stock levels, are planned for early February 2025.
The company also is expanding the Waterworks brand, introducing it to RH Galleries and RH.com. This move aims to amplify Waterworks' market presence and transit it to a consumer and trade-based model. Dmitriy & Co. and a new brand extension set for fiscal 2025 will further support long-term growth.
Platform Expansion: The company continues to expand its physical retail presence with immersive and strategically located Design Galleries, alongside innovative concepts.
RH Newport Beach (opening December 2024): This 90,000-square-foot gallery spans four floors with Pacific Ocean views. It features the RH Ocean Grill, a 270-seat rooftop restaurant, two Wine & Barista Bars, an Interior Design Atelier, the first Waterworks Showroom and an expansive outdoor furniture collection. It is expected to replace three legacy locations and has the potential to become a $100 million-plus gallery.
RH Montecito (opening December 2024): Located in a historic firehouse, this boutique gallery includes The RH Firehouse Grill, an indoor-outdoor courtyard restaurant with fireplaces, a Wine & Barista Bar and an Interior Design Atelier.
RH Interior Design Studio, Palm Desert (opening December 2024): This standalone studio aims to position the company as a leading interior design firm. It will focus on selling fully conceptualized spaces, attracting top designers and high-value customers. Future plans include a nearby 10,000-square-foot Design Gallery, a 5,000-square-foot Outdoor Furniture Gallery and a potential RH All Day Cafe to complete the ecosystem.
RH Raleigh (opened November 2024): This 50,000-square-foot gallery features a rooftop restaurant, garden courtyards, a Wine & Barista Bar and an Interior Design Atelier.
RH’s Gallery Openings in Fiscal 2025
The company plans to open seven galleries in Montreal, Manhasset, Detroit, Oklahoma City, Los Gatos, Palm Desert and Aspen in North America, along with two international galleries in Paris and London.
RH’s Zacks Rank & Stocks to Consider
RH currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Staple sector have been discussed below.
United Natural Foods, Inc. (UNFI - Free Report) currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
UNFI has a trailing four-quarter earnings surprise of 553.1%, on average. The stock has surged 84.6% in the past year. The Zacks Consensus Estimate for UNFI’s fiscal 2025 earnings per share (EPS) indicates growth of 407.1% from the year-ago levels.
Ingredion Incorporated (INGR - Free Report) currently carries a Zacks Rank #1. INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The stock has surged 33.6% in the past year.
The Zacks Consensus Estimate for INGR’s 2025 EPS indicates growth of 5.5% from the year-ago levels.
Freshpet, Inc. (FRPT - Free Report) currently has a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average. The stock has surged 72.9% in the past year.
The Zacks Consensus Estimate for FRPT’s 2025 sales and EPS indicates growth of 24.4% and 66.8%, respectively, from the year-ago levels.