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RH Shares Rally Despite Guidance Miss

The American furniture maker outperformed the NYSE on Thursday, as it said it expects to report both demand and revenue growth each quarter during fiscal 2024.

RH Shares Rally Despite Guidance Miss

The Bondi range from RH Outdoor.

MILAN — The paint is hardly dry on RH’s new galleries across U.S. and Europe, but in true form, chief executive officer Gary Friedman is already on to the next big thing.

Friedman said Wednesday during the company’s fiscal 2023 earnings call that in 2024 he’s focused on expanding the Waterworks luxury bath and kitchen business RH bought in 2016 and amplifying the RH residential business. He also said he expects the California-based company to gain significant market share from its new RH Outdoor Sourcebook in fiscal 2024.

The company’s confident outlook sent RH shares soaring over 50 percent in Thursday morning trade, outperforming the NYSE index, which traded up 39 percent after market open.

Another boost came from analysts at Baird, who raised their target price on the shares to $300 from $280 and maintained a neutral rating on Wednesday. “While international expansion elevates execution risk, the long-term opportunity is potentially compelling,” its analysts said in a report on Wednesday.

In the fiscal year ended Feb. 3, RH’s adjusted net income plunged to $128 million from $528.6 million in the same period last year. Sales fell to $3.03 billion from $3.59 billion in the same period a year earlier. In a statement, the company said revenue was negatively impacted by $40 million in the fourth quarter due to the severe January weather and shipping delays caused by the ongoing Red Sea conflict.

“We do expect the majority of the deferred revenue will be realized in 2024 when transit times normalize,” RH said.

The results were lower than company guidance in December that pegged revenue at $3.06 billion to $3.08 billion and adjusted operating margin in the range of 13.6 percent to 14.0 percent. Its operating margin for the full year 2023 reported was only 13 percent.

During the conference call, Friedman admitted that 2023 was marked by one of the most “challenging housing markets in three decades” but was confident that the company would be able to capture significant market share in 2024 while RH expands across the United Kingdom, Europe, Australia and the Middle East over the next several years.

RH Shares Rally Despite Guidance Miss

RH England, The Gallery at Aynho Park.

For fiscal 2024, RH said sees revenue growth between 8 and 10 percent, adjusted operating margin in the range of 13 percent to 14 percent and adjusted earnings before interest, taxes, depreciation and amortization margin in the range of 18 percent to 19 percent.

For the first quarter of fiscal 2024, RH forecast revenue growth in the negative low-single digits, an adjusted operating margin in the range of 6 percent to 7 percent and adjusted EBITDA margin in the range of 12 percent to 13 percent.

Analysts at TD Cowan were positive on the guidance.

“We are positive on RH’s renewed focus on its value prop [proposition] and sharp price points, especially the Outdoor collection. RH has strong vendor partnerships, and despite a re-engineered value equation is still operating with the belief that operating margins can return to the 20 percent range, and we don’t sense much incremental product margin risk past first half of 2024,” wrote Max Rakhlenko, an analyst with TD Cowan.

Looking ahead, RH is planning to cut the ribbon in 2024 on a 3,500-square-foot Waterworks Showroom within its newest and largest design gallery located in Newport Beach, Calif. The company is also in the process of developing a new Waterworks Sourcebook with plans for a test mailing in 2025. “Waterworks today is just shy of a $200 million business with mid-to-high teens EBITDA margin that we believe has the potential to become a billion-dollar global brand on our platform,” RH said.

Management is focused on revolutionizing the RH business further with the launch of RH Residences — fully furnished luxury homes, condominiums and apartments with integrated services. Going forward, RH said its strategy involves conceptualizing and selling residential spaces, to “move beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market.”

RH’s gallery concept, meanwhile, continues to grow at a rapid pace. Earlier this month RH opened five North American design galleries including one in Cleveland. Its Palo Alto, Newport Beach and Montecito, Calif., galleries all include integrated RH Interior Design Offices, restaurants and wine bars.

RH opened a gallery in Brussels this month and will open one in Madrid this summer. Friedman’s European expansion has been met with skepticism as to the likelihood of high-end European consumers embracing furnishings and decor from an American company. During the call, Friedman recognized that “Europe is going to take a while, building great brands. You’ve got to be very very strategic… You’ve got to be patient.”

The opening of RH Paris, however, has been delayed until spring 2025 due to construction restrictions relating to the city’s preparations for the Olympic Games this summer.

RH Sydney, The Gallery in Double Bay, a five-story development with a rooftop restaurant and wine bar, will open in 2026.

During the call, Friedman reiterated that the company’s long-term strategy is focused on adding new revenue streams while “disrupting and redefining multiple industries.”

“Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand in the world.”