RH to Report Q2 Earnings: What’s in Store for the Stock?

RH RH, formerly Restoration Hardware, is slated to report second-quarter fiscal 2018 results on Sep 4, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 31.68%. Meanwhile, the company surpassed/met expectations in the last four quarters, with the average beat being 19.58%.

RH has exhibited an exceptional performance in the past year, having comfortably outperformed its industry. The company’s shares have climbed 223.7% in the said period compared with its industry’s growth of 19.3%. The company has been riding high on its efforts to redesign the supply chain network as well as rationalize its product offerings.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

RH’s efforts toward redesigning its supply chain network and rationalizing product offerings are driving growth, and the trend is expected to have continued in the to-be-reported quarter as well. The company’s initiatives like RH Modern, RH Teen, RH Hospitality, redesign of RH Interiors Source Book and the rollout of Design Ateliers across its retail Galleries are expected to result in comparable brand revenue (comps) growth.

The company expects fiscal second-quarter revenues to be in the range of $655-$662 million (up 6-7% year over year), with comps growth in the 8-9% range. This compares with $615.3 million revenues and 7% comps growth reported in the year-ago quarter. The Zacks Consensus Estimate for second-quarter revenues is pegged at $660.9 million, showing an expected 7.4% year-over-year increase.

Meanwhile, RH is working on various cost-saving initiatives such as redesigning its supply chain, reducing inventory, improving product margins and so on. These have helped the company report stellar gross, EBITDA (earnings before interest, tax, depreciation and amortization) and operating margins in the last reported quarter. The upside was mainly due to expansion in its product margins, lower SG&A (selling, general and administrative) expenses as well as reduced effective tax rate.

For the to-be-reported quarter, the company expects adjusted gross margin in the band of 40.5-40.7% versus 34.1% reported in the year-ago period. Adjusted operating margin is expected in the range of 10.8-11.1% compared with 6.4% reported in the year-ago quarter. Adjusted SG&A, as a percentage of revenues, is expected in the 29.6-29.8% range.

Overall, fiscal second-quarter earnings per share are projected to grow between $1.70 and $1.77 per share, driven by a significant improvement in margins. For the quarter, the consensus estimate for earnings is pegged at $1.73 per share, implying significant 166.2% growth from 65 cents per share recorded in the year-ago period.

What Does the Zacks Model Unveil?

RH has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: RH has an Earnings ESP of +0.24%.

Zacks Rank: RH currently carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Peer Releases

At Home Group Inc. HOME reported better-than-expected results in the second quarter of fiscal 2019, courtesy of higher sales supported by broad-based strength. Adjusted earnings of 34 cents per share surpassed the Zacks Consensus Estimate of 33 cents by 3%. The figure also grew 88.9% year over year, backed by solid gross margin expansion.

Williams-Sonoma Inc. WSM recently reported better-than-expected results in the second quarter, given broad-based strength across all its brands, with Pottery Barn brand recording a steady year-over-year improvement. Non-GAAP earnings of 77 cents per share surpassed the Zacks Consensus Estimate of 68 cents by 13.2%. The figure also grew 26.2% year over year, backed by gross margin expansion.

Kirkland's KIRK came out with a quarterly loss of $0.40 per share in the second quarter, wider than the Zacks Consensus Estimate of $0.37. This compares to a loss of $0.24 per share a year ago.

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