Luxury furniture retailer RH has announced its second-quarter financial results, surpassing expectations. Despite this positive news, the company's management has expressed caution regarding the current state of the higher-end housing market, which RH heavily relies on.
Following the announcement, shares of RH (formerly known as Restoration Hardware) experienced an 8% decline in after-hours trading.
Chief Executive Gary Friedman addressed the challenging nature of the luxury housing market and the broader economy in a letter to shareholders. He noted that with mortgage rates remaining at 20-year highs and not expected to change until the second quarter of 2024, the outlook remains unfavorable throughout fiscal 2023 and into the following year.
However, RH has adjusted its full-year sales outlook upward, raising the low end from $3 billion to $3.04 billion. The new range now stands at $3.04 billion to $3.1 billion. This adjustment exceeds FactSet expectations, which estimated sales to reach around $3.08 billion. Additionally, RH maintained its projected adjusted operating margin of 14.5% to 15.5%.
Looking ahead to the third quarter, the company foresees sales between $740 million and $760 million. These figures fall short of FactSet estimates that predicted sales reaching approximately $779 million. For the fourth quarter, RH expects sales to be between $760 million and $800 million, with FactSet forecasts hovering around $775 million.
RH reported second-quarter net income of $76 million, or $3.36 per share, compared to $122 million, or $4.54 per share, in the same quarter last year. Revenue decreased from $992 million in the prior-year quarter to $800 million this quarter.
When adjusted for legal settlements, noncash compensation, and other factors, RH's earnings amounted to $3.93 per share.
RH Reports Lower Than Expected Earnings Amidst Weaker Furniture Trends
RH, a luxury furniture retailer, recently reported its earnings for the quarter, falling short of analysts' expectations. Analysts polled by FactSet had predicted adjusted earnings per share of $2.65, but the company only achieved $2.40. The revenue also fell below estimates at $791 million.
The release of these results coincided with a recovery in the stock market, which is particularly significant for RH as its wealthy customer base is more exposed to market fluctuations. However, the report also indicated weaker trends in furniture spending, suggesting that consumers are becoming more cautious with their purchasing decisions.
In a previous announcement made in May, RH acknowledged the challenges it anticipated in the luxury housing market due to higher mortgage rates. The company also expected to make higher markdowns to clear discontinued products. Consequently, they revised their full-year sales outlook but lowered their adjusted operating margin forecast.
Wedbush analysts shared a similar sentiment in a recent note, highlighting a deceleration in big-ticket furniture spending among competitors such as Williams-Sonoma Inc. and Ethan Allen Interiors Inc. This slowdown was attributed to consumers choosing to allocate more funds towards vacations rather than furniture purchases.
Although the luxury housing market showed stronger demand compared to other segments of the housing market, Wedbush analysts remained cautious about RH's growth prospects. While acknowledging that RH may exceed expectations for this quarter, they believed that concrete results demonstrating the company's ability to regain market share while expanding its presence in the luxury marketplace would be necessary to fully endorse its growth potential.
