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RH Beats on Q1 Earnings, Raises 2021 View on Solid Demand

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RH 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.

Shares of this leading luxury retailer in the home furnishing space jumped 6.8% in the after-hours trading session on Jun 9, post the earnings release. 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%.

RH Price, Consensus and EPS Surprise

RH Price, Consensus and EPS Surprise
RH Price, Consensus and EPS Surprise

RH price-consensus-eps-surprise-chart | RH Quote

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%.

Zacks Rank & Peer Releases

RH — which shares space with Haverty Furniture Companies Inc. HVT in the Zacks Retail - Home Furnishings industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

At Home Group Inc. HOME reported first-quarter fiscal 2022 results, wherein earnings and revenues beat the Zacks Consensus Estimate. Moreover, the top and bottom lines grew significantly on a year-over-year basis.

Williams-Sonoma Inc. WSM reported solid first-quarter fiscal 2021 results. The company’s earnings and revenues handily beat the Zacks Consensus Estimate and significantly increased year over year, courtesy of strength across all brands and accelerated e-commerce growth. Meanwhile, the company has also lifted fiscal 2021 outlook, courtesy of a solid start to the year and encouraging macro trends.

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