RH (RH) is seeing strong earnings growth as its Gallery and hospitality concepts roll out across the United States. This Zacks Rank #1 (Strong Buy) is expected to see triple digit earnings growth in 2018.
RH, formerly known as Restoration Hardware, operates retail Galleries and restaurants with the RH, RHModern and Waterworks brands in the United States. It also operates various online websites and publishes its Source Books.
Managing for Earnings Growth in Fiscal 2018
On June 11, RH reported its fiscal first quarter results and blew by the Zacks Consensus Estimate posting $1.33 versus the consensus of $1.01.
It was the 8th consecutive earnings beat in a row.
RH said early in 2018 that it would manage the business for earnings growth versus revenue growth. On that note, comparable brand revenue grew just 1% in the quarter despite a 4 point drag from last year's inventory reduction efforts. Adjusted for the reductions, comparable brand revenue rose 5% versus the 9% increase in the year ago period.
Operating margins of 9.6% were more than double its previous first quarter record of 4.4% in fiscal first quarter 2015.
It continues to build out its Galleries and will add 4 new buildings this year.
Portland opened in March and Nashville opened in June. New York's Gallery, which has been long delayed due to construction issues in the meatpacking district, is scheduled to open in September with Yountville, which is in the Napa Valley, opening later in the fall.
Three of the new Galleries will also get the integrated hospitality experience.
Raised Full Year Guidance
On the conference call, the CEO was bullish given the excellent economic conditions.
The company raised full year guidance including earnings per share.
Net revenue is now expected in the range of $2.53-$2.57 billion, up 5% to 7% on a comparable 52-week basis.
Earnings per share is forecast in the range of $6.34- $6.83.
As a result of the big earnings beat and bullish guidance, analysts have moved to raise their 2018 estimates.
11 estimates were raised since the earnings report with the Zacks Consensus Estimate jumping to $6.54 from $5.85. That's earnings growth of 114% versus fiscal 2017.
They're also bullish on 2019 as 9 estimates moved higher for next year in the last month as well. Analysts are looking for another 13.9% earnings growth in fiscal 2019.
Shares at New Multi-Year Highs
It's been quite the ride over the last 5 years as RH rolled out several new business lines including RHModern and RHTeen as well as its hospitality concept.
RH has been one of the big winners in 2018, with shares up 60% year-to-date.
It still has an attractive P/E, however, with a forward P/E of just 22.
For investors looking for a luxury retailer that is pushing the boundaries in its industry, RH is one to keep on the short list.
[In full disclosure, the author of this article owns shares of RH in her personal portfolio.]
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