RH Shares Down 4% Despite Earnings Beat as Guidance Reflects a Further Slowdown in Demand, Analysts See More EPS Risk and Uncertainty

© Reuters.

By Senad Karaahmetovic

Shares of RH (NYSE:RH) are down more than 3% in premarket trading after the company issued its revenue forecast for the full fiscal 2023.

RH reported Q1 adjusted EPS of $7.78, compared to $4.89 in the year-ago period and above the analyst consensus of $5.36. Net revenue stood at $957 million, up 11% YoY and topping the consensus projection of $925.3 million.

RH reported an adjusted gross margin of 52.1%, compared to 47.3% in the same period last year and above the analyst expectations of 48.2%. The adjusted operating margin was 24.7% in the period, up from 22.6% in the year-ago quarter.

For Q2, RH expects an adjusted operating margin in the range of 23% to 23.5%. RH authorized a share buyback plan of an additional $2 billion.

The company noted a "softening demand trends which began at the time of the Russian invasion of Ukraine and have further slowed during the market disruption over the past several months," and therefore updated its FY outlook based on "current trends and the uncertain macro-economic environment."

UBS analyst Michael Lasser saw “solid” results from RH.

“Looking forward, its 2Q guidance reflects a further slowdown in demand. This is expected to continue as its lowered its FY outlook carrying through weakness for the next few Qs. As a result, estimates will move lower... While share buybacks could provide healthy accretion, the stock won’t see multiple expansion until EBIT stabilizes,” Lasser told clients.

Morgan Stanley analyst Simeon Gutman said RH delivered solid and good results. Still, the analyst sees “more EPS risk than the market perceives,” although the buyback optionality is seen as “significant.”

“RH is among the most intriguing stories in all of Retail with the greatest tail upside in our coverage. We reluctantly stay on the sidelines as it feels early to step in. At ~7.5x NTM EV/EBITDA, valuation is highly attractive against RH's long-term growth potential. But earnings path risk is elevated,” Gutman added in a client note.