RH (NYSE: RH) offers various products such as furniture, lighting, textiles, decor, outdoor, and many more. The company distributes products through multiple channels, including galleries, source books, and websites.
Following the luxury home-furnishings retailer’s most recent earnings report, shares fell 1.3% in the extended trading session on Thursday after closing almost 4% higher on the day. Despite upbeat first-quarter Fiscal 2022 results, management’s warnings of continual soft demand in the near term shook investors.
Results in Detail
RH posted adjusted earnings of $7.78 per share, up 59% on a year-over-year basis, and came in well ahead of analysts’ expectations of $5.36 per share.
Adjusted net revenues jumped 11% to $957 million and beat the consensus estimate of $925 million.
Additionally, the adjusted operating margin was 24.7%, up 210 basis points year-over-year. Also, the adjusted gross margin increased by 480 basis points to 52.1% in the quarter.
As of April 30, 2022, RH had $2.24 billion in cash and net debt of $166 million. Additionally, free cash flow came in at $107 million, with an adjusted EBITDA of $1.13 billion.
Recently, RH’s Board of Directors authorized an additional $2 billion common share repurchase program. The new program is in addition to the prior share repurchase authorization with $450 million remaining.
Guidance
For Fiscal Q2 2022, the company expects net revenue growth in the range of negative 1% to negative 3%, while adjusted operating margin to range between 23% and 23.5%.
For Fiscal 2022, net revenue growth is anticipated in the range of 0% to 2%, with an adjusted operating margin of 23% to 24%.
Sharing his thoughts, RH CEO Gary G. Friedman commented, “While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID driven spending shift, shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving industry-leading performance.”
Wall Street’s Take
Following the Q1 2022 results, Wells Fargo analyst Zachary Fadem reiterated a Buy rating on the stock but lowered the price target to $400 (32.48% upside potential) from $500.
Despite the current challenging macroeconomic environment and lingering trend uncertainty, Fadem maintained a bullish stance on RH, based on better-than-expected results, the launch of new products, and strong capital deployment activities.
The analyst said, “While shares unlikely re-rate higher absent macro clarity or signs of active/aggressive buyback, we continue to view RH as a category winner and name to own for investors with a LT horizon.”
Furthermore, the five-star analyst believes that the company’s attractive valuation, strong balance sheet, and expectation of mid-20% EBIT margins with new products, should limit downside risks.
The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 10 Buys, five Holds, and one Sell. The average RH price target of $447.56 implies 48.23% upside potential. Shares have lost 50.63% over the past year.
Investors Remain Positive
TipRanks’ Stock Investors tool shows that investors currently have a Positive stance on RH, with 0.5% of investors maintaining portfolios on TipRanks increasing their exposure to RH stock over the past 30 days. Furthermore, 0.6% of these individuals have increased their holdings in the recent week.
Ending Words
Though demand may be weak in the short term, the company’s innovative product portfolio is projected to pay off handsomely in the long term. As a result, investors may view the current price level as an attractive entry point and consider adding the stock to their portfolio.
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