RH stock drops on guidance update, accounting errors; analysts downgrade on valuation

© Reuters.

By Senad Karaahmetovic

Shares of RH (NYSE:RH) are moving lower in pre-market Monday after the company said it now expects full-year 2022 revenue growth at the lower end of its range.

RH now expects 2022 revenue growth at the lower end of the prior range of -3.5% -4.5% and adjusted operating margin toward the higher end of the prior range of 21.5% to 22.0%.

The company also disclosed an accounting error in its financial reports for 1Q22, 2Q22, and 3Q22. These mistakes had no impact on the company’s YTD-reported revenue, operating income, or EPS.

Telsey Advisory Group analysts used the opportunity to downgrade RH shares to Market Perform from Outperform but raised the price target to $310 from the prior $330 per share.

“Although we continue to view RH as a strong brand with meaningful potential for growth to re-accelerate in the medium-to-long term, with the stock up 29% since the 3Q22 report on December 8, the shares seem fairly valued at ~20x 2023 consensus EPS, above the three-year average of 19.2x and five-year average of 17.3x. We see sales declining in 2023, given lower demand for RH products and home furnishings that is expected to continue in 1H23,” they wrote in a note.

KeyBanc analysts added:

“We are lowering estimates for 2022 and 2023, and continue to see headwinds from increased competition and promotions in the industry, as well as soft consumer backdrop for furniture shopping.”

RH stock is down about 4% in pre-market Monday.