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Why Investors Are Optimistic about RH’s Q4 Earnings

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Stock performance

RH (RH) is scheduled to post its fiscal 2018 fourth-quarter earnings results after the market closes on March 28. As of March 25, the company was trading at $133.67, a rise of 8.1% since its announcement of its fiscal 2018 third-quarter earnings results on December 3.

Its strong third-quarter earnings, the Federal Reserve’s toning down its aggressive rate hike stance, and the expectation of the United States and China reaching a trade deal appear to have led to a rise in RH’s stock price.

In the third quarter, RH posted adjusted EPS of $1.73 on revenue of $638.5 million, outperforming analysts’ EPS expectation of $1.27 on revenue of $632.2 million. For the quarter, the company posted comparable brand revenue growth of 4.0%. During its third-quarter earnings call, RH’s management stated that tariff-related shipping congestion had resulted in the delay of shipment of special orders, which had negatively affected the company’s revenue and comparable brand revenue growth by 1.0%.

However, management stated that delayed receipts would boost RH’s fourth-quarter sales, and they raised its fourth-quarter revenue and EPS expectations.

Peer comparison

After returning 39% in 2018, RH stock has risen 11.6% since the beginning of 2019. In comparison, Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) have returned 14.8% and 22.5%, respectively, YTD (year-to-date). The broader comparative index, the SPDR S&P Homebuilders ETF (XHB), which invests ~9.5% of its holdings in home furnishing and furniture companies, has returned 17.4% YTD.

Series overview

With RH’s fourth-quarter earnings results around the corner, in this series, we’ll look at analysts’ revenue and EPS expectations for the quarter. We’ll also cover RH’s management’s guidance for fiscal 2018 and fiscal 2019. We’ll end this series by looking at analysts’ recommendations and RH’s valuation.

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