Restoration Hardware (RH) Down 2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Restoration Hardware (RH). Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Restoration Hardware due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
RH Beats on Q1 Earnings, Raises 2021 View on Solid Demand
RH reported stellar results for first-quarter fiscal 2021 (ended May 1, 2021) on the back of solid total company demand (up 101% year over year). Both adjusted earnings and revenues handily beat the Zacks Consensus Estimate. Notably, all key metrics grew significantly on a year-over-year basis.
RH witnessed a 109% increase in RH core demand in the quarter, which marked the strongest demand trends in the industry.
Earnings, Revenue & Margin Discussion
Adjusted earnings of $4.89 per share surpassed the consensus mark of $4.20 by 16.4% and increased a whopping 285% from the year-ago figure of $1.27.
Net revenues of $860.8 million improved a notable 78% year over year and topped the consensus mark of $$756 million by 13.8%.
Adjusted gross margin expanded 550 basis points (bps) to 47.3% for the quarter. Adjusted SG&A contracted 720 bps.
Adjusted operating margin also expanded a notable 1,260 bps year over year to 22.6%. Adjusted EBITDA spiked 194.8% year over year to $228.3 million for the quarter. Adjusted EBITDA margin also expanded 1,050 bps year over year to 26.5%.
Store Update & Balance Sheet
As of May 1, RH operated 68 RH Galleries and 38 RH outlet stores in 31 states, the District of Columbia and Canada, as well as 14 Waterworks showrooms throughout the United States and U.K., and had sourcing operations in Shanghai as well as Hong Kong.
RH’s cash and cash equivalents were $229.5 million at first quarter-end compared with $100.4 million on Jan 30, 2021 and $17.2 million a year ago. The company ended the quarter with merchandise inventories worth $593.9 million compared with $544.2 million at fiscal 2020-end.
Net cash used in operating activities was $51.4 million for the first three months of fiscal 2021 compared with $16.6 million in the comparable year-ago period. Free cash flow totaled $136.1 million at fiscal first quarter-end against negative $35.6 million a year ago.
Raised Fiscal 2021 View
Solid housing and renovation market momentum, a record stock market, low interest rates, reopening of several large parts of the economy, combined with the recent acceleration in RH demand trends are expected to contribute to the company’s fiscal 2021 results.
Backed by solid business trends, RH now expects fiscal 2021 revenues to grow 25-30% versus its prior guided range of 15-20%. Adjusted operating margin is now anticipated within 23.5-24.3%, indicating growth of 170-250 bps from the year-ago figure of 21.8%. The metric was earlier expected within 100-200 bps. ROIC is expected in excess of 60% for fiscal 2021.
For the fiscal second quarter, it expects revenue growth in the range of 35-37% and adjusted operating margin within 25.9-26.1%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 10% due to these changes.
VGM Scores
Currently, Restoration Hardware has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Restoration Hardware has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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