RH breaks out as high-end shoppers remain flush with cash
1min read RH reported Q3 adjusted EPS of $2.48, missing analyst expectations of $2.65, while revenue of $811.7 million was slightly below the $812.2 million forecast. Despite these misses, revenue grew 8.1% year-over-year, and the company swung to a profit from a loss of $0.42 per share in the prior year.
The company raised its Q4 guidance significantly, projecting revenue growth of 18% to 20%, far exceeding Wall Street’s estimate of 7.2%. Total demand growth is expected to accelerate to 20% to 22%, driven by strong performance in November and early December, where brand demand increased 24% and 30%, respectively.
Key metrics include an adjusted operating margin of 15.0% for Q3 and an adjusted EBITDA margin of 20.8%. For Q4, RH anticipates operating margins between 12.2% and 13.2% and EBITDA margins between 18.0% and 19.0%, reflecting confidence in maintaining profitability despite the challenging macro environment.
CEO Gary Friedman attributed the positive momentum to RH’s robust brand positioning and the strength of its collections, which he said "reflect a level of design and quality inaccessible in our current market." This has helped the company gain market share even amid a weak housing market, which Friedman described as the worst in 30 years.
Consumer trends highlighted RH’s ability to attract high-end clientele, with strong demand for premium items like luxury furniture and decor. Management also noted that RH is shifting its sourcing away from China to Mexico and other regions, minimizing exposure to potential trade disruptions and tariffs.
The stock surged 18% in premarket trading to $450, buoyed by its raised outlook and significant short interest of 12% on a share float of only 15 million. The short squeeze effect amplified the rally, contributing to the sharp gains as bearish bets unwound.
RH’s guidance uplift and accelerating demand trends have positioned it as a standout in the luxury home furnishings market. Analysts have taken note, with Guggenheim raising its price target to $550 from $425 and expressing increased conviction in RH's ability to capitalize on its peak demand trends over the next 12-24 months.
In conclusion, while Q3 results fell slightly short of expectations, RH’s strong Q4 outlook and robust demand growth have reignited investor confidence. The stock’s rally reflects optimism around its ability to navigate economic challenges and gain market share, supported by its differentiated business model and strategic shifts in sourcing.
