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Will RH’s Third-Quarter Earnings Boost Its Stock Price?

Rajiv  Nanjapla - Author
By

Nov. 29 2018, Published 8:30 a.m. ET

Stock performance

RH (RH) is scheduled to post its third-quarter earnings results after the market closes on December 4. As of November 28, RH is trading at $116.61, a fall of 22.9% since its announcement of its second-quarter earnings results on September 4.

In the second quarter, which ended on August 4, RH posted adjusted EPS of $2.05, outperforming analysts’ expectation of $1.74. However, its revenue and SSSG (same-store sales growth) failed to meet analysts’ expectations.

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The company’s revenue of $642.7 million fell short of analysts’ revenue expectation of $661.0 million, while its SSSG of 5.0% failed to meet analysts’ estimate of 7.7%. After the company posted its second-quarter earnings, its management raised its EPS guidance for 2018 but lowered its revenue guidance for the year. The company’s weaker-than-expected second-quarter sales and lowering of its sales guidance appear to have led to the fall in its stock price.

Ongoing trade tensions between the United States and China have also negatively affected the company’s stock price. Investors are cautious that tariffs could put pressure on the company’s margins. RH’s management expects 35% of its products to be sourced from China in 2018. The Trump administration has also stated that it will raise tariffs to 25% by the end of the year. To mitigate the impact of the tariffs, RH’s management expects to lower its imports from China to 25%–30% in 2019.

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Year-to-date performance

Despite the fall in its stock price, RH is still trading at a rise of 35.3% YTD (year-to-date). During the same period, Williams-Sonoma (WSM) has risen 10.2%, and Bed Bath & Beyond (BBBY) has fallen 43.5%. The broader comparative index, the SPDR S&P Homebuilders ETF (XHB), which invests ~9% of its holdings in home furnishing and furniture companies, has fallen 19.4% YTD.

Series overview

With its third-quarter earnings around the corner, in this series, we’ll look at analysts’ expectations for RH in the quarter. We’ll also cover management’s guidance and analysts’ estimates for it in 2018. We’ll end the series by looking at analysts’ recommendations and RH’s valuation multiple. Let’s start by looking at analysts’ revenue expectation for the third quarter.

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