One of the biggest winners last week was RH (RH), which rose 22.6% after earnings were better than expected. Luxury lifestyle retailers have indeed not reached the peak, and their guidance is also mixed. However, the increase in profit margins and the upgrade of analysts have contributed to the rise in stocks.
The fiscal fourth quarter, which includes holidays, is robust. Revenue increased by 14% to $670 million, which was only the analyst’s target of $672.6 million. Shop revenue increased by 18% and direct revenue increased by 10%. This is a huge leap, but after a 9% drop in the fourth quarter of last year, this comparison is easy. In the past two years, revenue in the strongest quarter of RH has grown by less than 4%, and direct sales are actually still lower than the 2015 peak in this period.
The top line may not have reached expectations, but the bottom line is another story.
RH Stocks was one of the biggest winners last year, and its explosive earnings growth has been the main catalyst. Adjusted revenue increased by 55% to US$43.3 million. Based on earnings per share – This is a particularly significant sign since RH invested more than $ 1 billion in repurchasing 2020 shares last year – a growth rate of 149% to $ 1.69. Analysts expect earnings of only $1.55 per share. The stock soared by 181% in 2017.
In the past year, RH has recovered nearly half of its shares, but recently we have seen net income grow faster than sales. RH is undergoing a huge transformation. It is redefining the high-end furniture market and moving to its current membership platform that accounts for 95% of its sales.
The concept itself is also constantly evolving. The number of galleries in 2017 has been reduced from 85 to 83, but after its square footage has increased, the company has opened a pair of large venues, integrating cafes, wine vaults and coffee bars. Its initial attempt to provide food and drinks in Chicago inspired new locations in Toronto and West Palm Beach. Three of the four galleries that will open this year will also showcase food and beverage options centered on gourmets, helping to convert RH into more events.
The impression given by Wolff Research was enough to upgrade stocks from peer performance to outperform. Thanks to RH’s omni-channel success and brand strengthening, the Bulls saw the upside here. The credit issue should also slow down because its improved cash flow gives it more room to repay its debt and continues to repurchase stocks.