RH rises on earnings, revenue beat - warns on housing weakness

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By Sam Boughedda

RH (NYSE:RH) shares rose Friday on the back of its third quarter earnings release in which it beat analyst consensus estimates.

The home furnishings company reported third quarter adjusted earnings per share of $5.67, $0.91 better than the analyst estimate of $4.76. Revenue for the quarter came in at $869 million versus the consensus estimate of $841.93 million.

However, net revenues fell from the $1.006 billion reported last year, while its adjusted earnings per share were also down from $7.03 last year.

In its earnings call, RH CEO Gary Friedman was reported by Yahoo to have said that there is "just a lot of uncertainty right now."

He added: "But one thing I'm certain of: The housing market is collapsing at a level I haven't seen since 2008. I haven't seen this kind of drop since 2008."

The company said in its release that as a result of "accelerating weakness in the housing market over the next several quarters and possibly longer," it expects business trends to continue to deteriorate.

RH now expects fiscal 2022 revenue growth of -3.5%) to -4.5%) versus the prior outlook of -3.5%) to -5.5%), and adjusted operating margin from 21.5% to 22.0% versus previous expectations of 21.0% to 21.5%.

"While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift and shed less valuable market share, we believe our long-term investments will enable us to continue driving industry-leading results," RH said.

Following the release, KeyBanc Capital Markets analysts maintained a Sector Weight rating on the stock, stating: "RH 3Q results were better than expected, benefiting from continued backlog relief and revenue in the RH Hospitality business. As a result, management raised the lower end of sales guidance and increased operating margin guidance for 2022. Looking ahead, we expect softer demand trends in the furniture market to continue."

UBS analysts maintained a Neutral rating on RH shares. They said in a note: "The 3Q print from RH was one of those where it's probably not going to change the views of the bulls or the bears. The co. struck a cautious tone on housing heading into next year. As this pressure builds, its likely to result in sustained top-line weakness for RH. This will drag down its margins."