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What Drove RH’s EPS in Q4 2018?

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Fourth-quarter EPS

In the fourth quarter of fiscal 2018, RH (RH) posted adjusted EPS of $3.0, outperforming analysts’ expectation of $2.86. Year-over-year, the company’s adjusted EPS rose 77.5%.

Revenue growth, the expansion of its adjusted operating margin, its lower effective tax rate, and share repurchases drove the company’s adjusted EPS during the quarter.

In the fourth quarter, RH’s adjusted operating margin expanded from 11.2% in the corresponding quarter of 2017 to 15.9%. The company’s expansion in its gross margin, its lower selling, general, and administrative expenses, and its adoption of a new accounting standard contributed to the expansion in its adjusted operating margin.

RH’s effective tax rate for the quarter stood at 21.8% compared to 34.0% in the corresponding quarter of 2017. The company repurchased 2.05 million shares for $250.3 million in fiscal 2018. Share repurchases lower the number of shares a company has outstanding, driving its EPS.

Peer comparison

During the comparable quarter, Williams-Sonoma (WSM) posted EPS growth of 25%, and analysts expect Bed Bath & Beyond’s (BBBY) EPS to fall 24.7%.

Outlook

RH’s management has lowered its adjusted EPS guidance for fiscal 2019 to the range of $8.41–$9.08 from its earlier guidance of $9.30–$10.70. The new guidance represents growth of 11%–19% from $8.54 in fiscal 2018. RH’s EPS growth will likely be driven by revenue growth, improvement in its adjusted operating margin, and share repurchases.

RH’s management expects its adjusted operating margin to be in the range of 12.7%–13.3% in fiscal 2019 compared to 12.1% in fiscal 2018.

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