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The luxury furniture retailer formally known as Restoration Hardware has soared over the last year amid the housing boom, as part of a much longer and larger run. RH RH shares have pulled back 15% from their late-April records heading into its first quarter fiscal 2021 financial release on Wednesday, June 9.
Going Big in Luxury
RH is a high-end furniture and home décor giant that has thrived in a changing retail landscape by keeping it old-school in the Amazon AMZN age that’s seen most companies dive into all things digital.
The firm still has massive roughly 2,500-page physical catalogs, and it has opened large, luxury-centered stores, many with accompanying bars and restaurants in major cities from Chicago to New York. RH is also trying to expand its international footprint
The firm, under chief executive Gary Friedman, understands what its affluent clientele craves. And RH isn’t stopping at in-store eateries. In fact, it plans to enter the housing and hotel market, with RH Guesthouses and Residences.
“Our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion hotel industry, and RH Residences, fully furnished luxury homes, condominiums, and apartments with integrated services that will deliver taste and time value to wealthy and affluent, time starved consumers,” Friedman wrote in his annual letter to shareholders that came out on June 2.
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Recent Performance & Outlook
The high-end retailer posted blowout Q4 FY20 results on March 24, with 2020 sales up 8%. RH has grown its revenue at a solid clip since its debut on the public markets in 2012. It has also expanded its gross margins for five straight years, with its 2020 gross margin at 46.5%, up from 41.4% in the year-ago period.
RH raised its 2021 guidance last quarter as it stands to benefit from the booming housing market. Home sales hit their highest levels since 2006 in 2021. Better yet, home buying and updating are likely to continue since millennials are now driving the housing market.
Furthermore, the pandemic had far less of an impact financially on higher-income Americans, which bodes well for RH as many move into larger spaces they need to furnish. Given this backdrop, Zacks estimates call for its Q1—the period ended on May 1—revenue to skyrocketed 56% against the easy-to-compere period last year. Yet, the $752 million it’s projected to pull in would also crush the pre-pandemic period in Q1 FY19.
Meanwhile, its adjusted first quarter earnings are expected to climb 226% to $4.14 a share. Peeking ahead, RH’s fiscal 2021 revenue is projected to jump over 18% to hit $3.37 billion, representing its strongest top-line expansion since FY15. RH’s adjusted FY21 earnings are projected to climb 18%, with its 2022 revenue and earnings set to pop another 8% and 11.5%, respectively.
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RH is part of the Zacks Retail-Home Furnishings space that includes Ethan Allen ETH, Tempur Sealy TPX, Williams-Sonoma WSM, and others and is in the top 8% of over 250 Zacks industries. The company also lands an “A” grade for Growth and a “B” for Momentum in our Style Scores system, and 11 of the 15 brokerage recommendations Zacks has are “Strong Buys,” with the other four at “Holds.”
RH shares are in the midst of a stellar run since its 2012 IPO, up nearly 1,900%. This has helped it outclimb Apple AAPL, Amazon, Nike NKE, Starbucks SBUX, and “just about everyone else but Tesla,” as its CEO pointed out at the top of its recent letter to shareholders.
More recently, the luxury furniture firm’s shares have skyrocketed 150% in the last year to destroy fellow coronavirus stars such as Shopify SHOP and top its highly-ranked industry’s 120% run. Despite its outperformance, the stock has continually traded at a discount to the broader retail industry and it sits at 28.6X forward 12-month earnings at the moment, which marks a discount to its own year-long highs.
As we mentioned at the top, RH stock is down around 15% from its April highs. The recent pullback has sent the stock below neutral RSI (50) levels at 42, which could give it room to run if it’s able to provide strong guidance when it reports its Q1 results on June 9.
Some investors might want to consider the luxury home furniture power that Warren Buffett’s Berkshire Hathaway took a position in last year. However, the stock has dipped below its 50-day moving average, which means some might want to see it crack that technical level again before buying.
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