RH (RH) Soars 8% on Beat-and-Raise, Analysts Raise Estimates and Price Targets

Shares of RH (NYSE: RH), formerly known as Restoration Hardware, soared 8% in pre-open after the company reported stronger-than-expected quarterly results.

The furniture retailers made a profit of $5.07 per share to beat the $4.76 expected from the market analysts. Sales came in at $812.4 million, again higher than $798 million the Street was calling for, while 2020 full-year sales climbed 8% to $2.85 billion.

“We continue to build the most productive operating platform and business model in our industry with adjusted operating margins increasing 750 basis points to 21.8% versus 14.3% last year on only 8% revenue growth. Let me say that again, 750 basis points on only 8% revenue growth. It’s an operating margin never seen before in the furniture/home furnishings market, and more than 50% better than the closest competitor. Our ROIC of 53% in 2020 also puts us in a class of our own,” CEO Gary Friedman said.

JP Morgan analyst Tami Zakaria raised the price target to $610.00 per share from the prior $570.00 on a profit and sales beat.

“We continue to believe that RH’s long-term targets of 8-12% sales growth, (at least) 25%+ op margin, and 15-20% income growth through the ongoing real estate transformation (US and global) and operating platform redesign are a rarity in the retail landscape. Thus, we remain Overweight,” Zakaria wrote in a note sent to clients.

In a similar manner, Cowen analyst Max Rakhlenko was impressed by results and outlook and he moved as well to hike the PT to $600.00 per share (from $570.00).

“Initial guide of revs +15% to +20% and EBIT margin +100bps to +200bps is impressive, and leaves plenty of room to outperform. Favorable macro + significant newness should drive top-line strength, while RH's pricing power, fixed cost leverage, & other tailwinds will drive margin expansion,” Rakhlenko said in a memo.

The analyst is also bullish on the demand outlook in the mid-term.

“The luxury housing market remains incredibly strong, with February accelerating to +81% Y/Y following January's decline to +77% Y/Y, as sales have increased above +90% on average over the past six months. Overall, given the ongoing housing strength combined with a longer furniture purchase cycle, we anticipate demand can remain elevated for at-least the remainder of 2021.”

“Further, we anticipate suburban sprawl will continue over the longer-term which bodes well for RH as 80% of revenue mix is in the suburbs (12% second homes, 8% urban), and management pointed to 2x square footage increase when shoppers move out of cities into the suburbs, suggesting an opportunity to significantly increase sales,” adds Rakhlenko.

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