Pause in the trade war
On June 29, the US and China agreed to resume trade talks following the tentative truce reached between President Donald Trump and Chinese President Xi Jinping during the G20 Summit in Japan.
Trump has agreed to restrain from imposing additional tariffs on $300 billion worth of goods imported from China, and also relax the restrictions imposed on Huawei. In return, China has agreed to buy more US agricultural products. However, the current tariffs imposed by the US on $250 billion worth of Chinese imports and the retaliatory measures taken by China will hold.
The surge in RH’s stock price
In 2018, RH (RH) sourced 39% of its products from China. So, the announcement appears to come as a relief for the company. On July 1, the company’s stock price rose to a high of $119.67 before closing the day at $118.87, which implies a rise of 2.8% from its previous day’s closing price. However, on the same day, RH’s peers Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY), who also have significant exposure to China, fell 0.7% and 1.5%, respectively.
During the announcement of its first-quarter earnings on June 12, RH’s management stated that to mitigate the effects of tariffs on Chinese imports, the company has been renegotiating the cost of products and also raising prices on select products. Further, management added that it is moving some of its production and new product development out of China, looking at new partnerships, and expanding its own manufacturing facilities in the US.
Despite yesterday’s rise in its stock price, RH was trading 0.8% lower YTD. RH has been underperforming the broader equity market and its peers this year. The S&P 500 Index has increased by 18.2%, while the SPDR S&P Homebuilders ETF (XHB) has returned 29.2% YTD. XHB has invested more than 11.5% of its holdings in home furnishing and furniture companies. During the same period, RH peers WSM and BBBY have returned 28.0% and 1.1%, respectively.
RH’s weak fourth-quarter earnings negatively impacted its stock price. However, some of the declines were offset by an impressive first-quarter performance. You can read more about RH’s first-quarter performance at RH Stock Surges after Impressive First-Quarter Results.