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RH Raises Its EPS Guidance after Its Strong Q3 Earnings

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Dec. 5 2018, Updated 9:01 a.m. ET

Third-quarter EPS

In the third quarter, RH (RH) posted EPS of $0.81. However, removing special items, the company’s adjusted EPS stood at $1.73, a rise of 66.3% from $1.04 in the third quarter of 2017. This EPS growth was driven by its revenue growth, the expansion of its adjusted operating margin, and its lower effective tax rate.

Due to the enactment of tax reforms in December 2017, RH’s effective tax rate for the quarter fell to 18.9% compared to 32.1% in the third quarter of 2017.

However, some of the growth in RH’s EPS was offset by higher adjusted weighted average shares outstanding. The company’s adjusted weighted average shares outstanding for the quarter stood at 27.70 million compared to 23.54 million in the third quarter of 2017.

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Peer comparison

In the same period, Williams-Sonoma (WSM) posted EPS growth of 10.5%, and analysts expect Bed Bath & Beyond’s (BBBY) EPS to fall 59.3%.

Outlook

After posting its third-quarter earnings results, RH has raised its EPS guidance for the fourth quarter to the range of $2.75–$2.90 from its earlier guidance of $2.33–$2.54. This new guidance represents growth of 62.7%–71.6% from $1.69 in the fourth quarter of 2017.

In 2019, RH’s management expects its EPS to be in the range of $9.30–$10.70. Its EPS growth is likely to be driven by revenue growth and the expansion of its adjusted operating margin.

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