Shares of luxury furniture retailer RH (NYSE:RH) fell 8.6% in the morning session after the company reported third quarter results with revenue, adjusted operating margin, and EPS all falling below analysts' expectations. Management cited higher than anticipated expenses from international openings, the pending acquisition of the New York Guesthouse property (expected to close in Q4 for approximately $58 million), and its unsuccessful efforts to buy the One Ocean Drive Miami Beach property. Furthermore, the company faced macroeconomic headwinds as mortgage rates peaked above 8% in early October. It added, "With 82% of homeowners having mortgages below 5%, and 62% below 4%, we expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully. Additionally, the home furnishings market has become increasingly promotional, and we believe that it will create a mix shift towards clearance products, pressuring gross margins."
In summary, the overall performance fell short of expectations, with a combination of internal and external factors contributing to the challenges faced by the company in the quarter.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy RH? Access our full analysis report here, it's free.
What is the market telling us:
RH's shares are very volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
RH is down 4.9% since the beginning of the year, and at $241.07 per share it is trading 40% below its 52-week high of $401.84 from August 2023. Investors who bought $1,000 worth of RH's shares 5 years ago would now be looking at an investment worth $1,752.
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