What Happened:
Shares of luxury furniture retailer RH (NYSE:RH) jumped 23.3% in the morning session after the company reported second-quarter earnings results. RH beat analysts' gross margin expectations. In addition, its revenue and EPS narrowly outperformed Wall Street's estimates. The result is encouraging, especially in a challenging housing market that has been frozen by high interest rates and waiting to thaw as the Fed's rate cuts are upcoming.
Interestingly, the top line reflected market share gains in North America for RH's business. Also, the company is expanding to other regions, with plans for new locations in Paris, London, and Milan by 2026. The expansion underscores investments in growth opportunities that could benefit the business as the macro environment improves. Overall, this was an impressive quarter for the company.
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What is the market telling us:
RH’s shares are very volatile and over the last year have had 30 moves greater than 5%. But moves this big are very rare even for RH and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 17.6% on the news that the company reported disappointing first-quarter earnings results: Its adjusted EBITDA and EPS missed analysts' expectations.
Looking ahead, next quarter's guidance was below expectations for both revenue growth and adjusted EBITDA margin, showing that the company is not only growing slower but that growth is less profitable.
Finally, management struck a very cautious tone, calling out "the most challenging housing market in three decades" and the expectation that "the constantly changing outlook regarding monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025." Overall, the results were quite bad.
RH is up 11.4% since the beginning of the year, and at $317.99 per share it is trading close to its 52-week high of $348.26 from March 2024. Investors who bought $1,000 worth of RH’s shares 5 years ago would now be looking at an investment worth $1,830.
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