Note: RH’s fiscal year ends in the first week of February.

RH Stock Surges Amidst Mixed Earnings Report

Currently, RH stock, formerly known as Restoration Hardware Holdings Inc., is trading around $396 per share as of December 18. This represents an impressive increase of approximately 80% over the past six months, while the S&P index has only risen by 7% during the same period. So, what is driving this surge in RH stock?

Strong Reactions to Q3 Earnings Despite Shortfall

Despite reporting earnings below expectations, RH’s stock has shown remarkable resilience. The company’s insights into its Q3 results, paired with a positive forecast, have generated considerable enthusiasm among investors. For the third quarter ending November 2, RH reported earnings of $2.48 per share on revenue of $811.7 million, missing the consensus estimates of $2.65 per share and $812 million in revenue. Notably, RH has experienced growth in its core business, supported by new product collections, increased contract revenue, and rising hospitality earnings through new Gallery openings. Furthermore, RH’s Q3 revenue rose by 8% year-over-year, with the adjusted operating margin doubling to 15% and the adjusted EBITDA margin increasing to 21%, up from 12% in the previous year. The company’s optimistic outlook for Q4 anticipates revenue growth between 18% and 20%, further boosting stock performance. For the full year of 2024, RH projects total demand growth between 9.9% and 10.4%, alongside revenue growth between 6.8% and 7.2% year-over-year. Additionally, adjusted operating margins are expected to land between 11.5% and 11.7%, and adjusted EBITDA margins from 17.2% to 17.4%.

Shift in Market Demand and Historical Challenges

RH generates revenue through its extensive catalogs, encouraging both online and in-person sales. Its product range covers several categories, including furniture, lighting, textiles, bathware, and outdoor furnishings. The demand for luxury home furnishings dipped after the pandemic’s peak as the economy reopened. While RH experienced a demand surge in fiscal 2020, the following years, from fiscal 2021 through fiscal 2023, brought challenges due to rising interest rates, high inflation, and a downturn in the housing market. Consequently, RH has underperformed compared to the broader market, with stock returns of 20% in 2021, -50% in 2022, and 9% in 2023.

Comparing with Trefis High Quality Portfolio

In contrast, the Trefis High Quality (HQ) Portfolio, a collection of 30 stocks, has maintained low volatility and has consistently outperformed the S&P 500 throughout the same period. This portfolio has delivered superior returns with less risk, providing a more stable investment experience as demonstrated by its performance metrics.

[1] Returns as of 12/18/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.