RH shares soar 17% as company lifts guidance on strong demand

Luxury home furnishings retailer RH (NYSE:RH ) saw its shares surge over 17% in Friday's premarket after the company reported third-quarter earnings and raised its outlook for the fourth quarter and full year, citing accelerating demand growth.

RH reported third-quarter adjusted earnings per share of $2.48, missing analyst estimates of $2.66. However, revenue came in slightly above expectations at $812.73 million, compared to the consensus estimate of $812.5 million. This represents an 8.1% increase YoY.

The company's total demand growth increased 13% in the third quarter, with RH Brand demand growth rising 14%. Notably, November total demand growth accelerated to 18%, while RH Brand demand growth jumped to 24%.

Based on these trends, RH raised its fourth-quarter guidance, projecting total demand growth of 20% to 22% and revenue growth of 18% to 20%.

For the full year, the company now expects total demand growth of 9.9% to 10.4% and revenue growth of 6.8% to 7.2%.

"The brand remains in 'attack mode' seeking to 'take oxygen out of the room', which should yield tailwinds as housing turnover sees life," Jefferies analysts commented in a post-earnings note. 

"Our chief concern remains that a chunk of recent demand is unsustainable and the pace of GM% expansion could underwhelm with a pricing ceiling," they added, reiterating a Hold rating on the stock while lifting the price target from $289 to $358. 

Also commenting on the report, KeyBanc analysts said that while RH missed earnings expectations, they believe "it is more important that demand growth has continued to accelerate, which should drive further revenue improvements in 4Q."

"We continue to see demand risks for the furniture industry continuing into 2025. However, with assortment and Sourcebook initiatives showing traction, we find ourselves increasingly positive on 2025 and 2026," they added. 

The company's adjusted operating margin for the third quarter was 15.0%, while its adjusted EBITDA margin stood at 20.8%.

RH anticipates fourth-quarter adjusted operating margin between 12.2% and 13.2%, and adjusted EBITDA margin between 18.0% and 19.0%.

"We are pleased with the acceleration of demand in our business and believe it reflects the strength of the RH brand," said Gary Friedman, Chairman and CEO of RH.

Source: Investing.com