RH (RH) Shares Fall After Revenue Miss and 'Softening Demand' Commentary, Jefferies Upgrades to Buy on Solid Buying Opportunity
Restoration Hardware (NYSE: RH) reported worse-than-expected Q4 net revenue, sending its shares down more than 4% in premarket trading Wednesday.
RH reported adjusted EPS of $5.66 in the fourth quarter, up from $5.07 in the year-ago period and beating the consensus estimates of $5.60 per share. Net revenue in the quarter came in at $902.7 million, up 11% YoY, though below the analyst estimates of $933 million.
The adjusted gross margin was reported at 50.4%, up from 47.4% in the year-ago quarter and above the consensus projection of 48.5%. The adjusted operating margin stood at 25.2% in the period, up from 23.7% in the year-ago period. RH reported a total location count of 81 in Q4.
For the current first quarter, RH expects an adjusted operating margin in the range of 23% to 23.5%. The company anticipates Q1 revenue growth of 7-8%. For the full-fiscal 2023, the company expects revenue growth of 5-7% and estimates adjusted operating margin to range between 25% to 26%.
Furthermore, the home-furnishings company said it plans for a 3-for-1 stock split in the spring.
RH’s CEO Gary Friedman plans to offload roughly 1.7 million shares related to 2.9 million options that are due to expire. Following the sale, Friedman will retain beneficial ownership of around 21%.
The company said that rising inflation and interest rates, as well as geopolitical tensions, continue to add to the uncertainty. It said first-quarter sales and margin trends remain healthy, though the company has seen “softening demand” following Russia’s invasion of Ukraine and the consequent market volatility.
Jefferies analyst Jonathan Matuszewski upgraded RH to Buy from Hold with a $560.00 per share price target.
Matuszewski argues that the plunge in RH’s P/E seems “excessive,” hence he sees "a rare entry point in a high-quality, branded biz." The analyst also sees strong demand for furniture driven by the company’s initiatives.
"We think a moderation in luxury real estate is baked into shares, and March data suggests >$1M home sales aren't 'doomed'. With RH trading closer to aspirational brands vs. true luxury brands, we see minimal downside, and investors should feel comforted by its unmatched pricing power across Consumer Discretionary," Matuszewski said in a client note.
Elsewhere, BofA analyst Curtis Nagle lowered the price target to $650.00 per share from the prior $700.00 after “not so cool” results.
“Despite recent uncertainty, RH management has also never been more positive on the company’s competitive positioning, reiterating several large growth initiatives launching this year and long-term revenue targets. RH is operating with strong margins in a difficult environment, and has optionality with $2.2bn of cash on its balance sheet. We expect continued domestic share gains and new market expansion in Europe and reiterate our Buy rating,” Nagle said in a client note.
By Senad Karaahmetovic