RH Earnings: What You Might Have Missed

HR (NYSE: RH) had more good news for investors this week. The luxury furniture specialist has published operating results for the period ending at the end of October.

Let’s get right to the point and see if there is anything that could have been missed in the initial reports.

Image source: Getty Images.

Accelerate sales trends

Investors feared slower growth as consumer spending shifted away from the home furnishings category, which had grown rapidly over the past 18 months. Another big concern in this report was that RH, formerly known as Restoration Hardware, may have struggled to secure the right inventory due to supply chain bottlenecks.

The company cleared those concerns on Wednesday. Sales jumped 19% year-on-year to $ 1 billion, translating into a 49% increase from the same period in 2019. This two-year pace of expansion marked an acceleration from the previous year. 40% increase reported by the company in the previous quarter.

He also exceeded management’s short-term goals. “Our performance demonstrates both the value of our proprietary products,” said CEO Gary Friedman in a letter to shareholders, “and our ability to overcome (…) supply chain challenges.”

Expanding margins

The news was just as good on the earnings side, where profits surged on the back of rising margins. RH recorded a 1.8 percentage point increase in gross margin, pushing this metric above 50% of sales. The operating margin continued its impressive rise to reach 27% of sales, well above that of most competitors in the furniture industry.

HR operating margin graph (TTM)

HR operating margin data (TTM) by YCharts

“Our results now mirror those of the luxury sector,” said Friedman. Rising prices helped, as did the strong demand for the releases of exclusive HR products. The company’s adjusted earnings rose 13% to $ 7.03 per share, from $ 6.20 per share a year ago.

Looking to 2022

In its guidance for the fourth quarter, management cited several potential challenges to the outlook for the holiday season, including supply chain issues that have forced HR to delay several gallery and product launches. The spread of a new variant of COVID-19 also adds uncertainty to the growth story.

But RH has always seen reasons to give its third straight boost to its 2021 fiscal outlook. Sales are now expected to increase 32% to 33%, year-over-year, instead of the 31-year increase. % to 33% that management had forecast three months ago. Profitability metrics have received a similar boost, and the adjusted margin is now on track to reach up to 26% of sales.

RH is busy preparing for a busy period of product and gallery launches in 2022, in part thanks to the delays that impacted the second half of 2021. Thus, although management has not released a detailed outlook for the next fiscal year, the company is likely to set more sales records if sales conditions do not deteriorate.

In fact, rather than showing signs of slowing down, HR trends through the end of October confirm that demand is on the rise in its luxury niches. Combined with his proven track record in tackling supply chain challenges, this boost involves a long trail for future sales gains. And, as the operating margin hits 30% of sales, investors should reap strong returns from holding this growth stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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