RH stock sinks after CEO warns of impact from housing
Shares of RH fell sharply in early trading after the company's CEO Gary Friedman (RH) warned that his company will be feeling the impact from the ongoing woes in the housing market, including mortgage rates are at a 20-year high. RH reported second quarter results that beat on both the top and bottom lines, but guidance fell a little short of estimates. Julie Hyman and Brad Smith breakdown the latest with RH's stock price, its current performance, and its forecast for the third quarter.
Video Transcript
- Restoration Hardware, yeah, shares are slipping today. Very nice mirrors there, too, I will say. After the company's CEO warned that the current economic backdrop would remain challenging for those mirror sales throughout fiscal 2023 as mortgage rates remain at 20 year highs.
What's the correlation? Of course, if people aren't moving into new homes, maybe they don't need a new mirror, or they can just build it in to the one that they're already got under construction. Anyway, Restoration Hardware, some of the details here, particularly as you kind of think through the environment that they've had to navigate, where, of course, they're looking at what the pace of home sales may look like but also in the home furnishings environment that is, of course, a discretionary purchase that has been challenged over the last year. And that is going to be a continued headwind, or a macro headwind, or factor that the company has to acknowledge in this environment, too.
- Yeah, I mean, and this is partly an expectations game when it comes to this stock because the shares are up 38%. Most of the analysts' commentary I've seen has not been that negative. It's just a matter of can they meet what is being priced in in that share performance the company's third quarter forecast is as much as $760 million. So it's a little bit short of estimates. It's not hugely short of estimates. But when you've got a stock that has climbed as much as it has, even if it is not that short of estimate, you see a punishment like we are seeing today for the shares.
- Yeah, and keep a close eye on margins, too, with this company. Margins 47.5%, at least, their GAAP gross margins. Their-- their adjusted gross margin 47.5%, as well, versus 52.8% last year. And so if there is even some moderating in that margin base, especially given the fact that this-- this is not cheap goods that they're selling into people's homes. I mean, I remember walking into one, and you always walk in one.
It's kind of like dark and brooding, but a very sophisticated dark and brooding that it has. And so you come to expect a very high value, high cost, as well, type of purchase that many of their customers are making. And we'll see exactly how they sustain some of these margins.
