Why RH Stock Popped on Friday
Key Points
The familiar furniture retail store published its latest set of quarterly earnings.
Although its performance was mixed, top-line growth was robust, especially when compared to top rivals.
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Furniture retailer RH (NYSE: RH) finished the stock trading week in style, with its equity rising by nearly 6% on Friday after it reported third-quarter earnings. This, despite a bottom-line miss and several guidance cuts.
A restorative quarter
For the quarter, RH's net revenue rose by 9% year-over-year to $884 million. Net income according to generally accepted accounting principles (GAAP) also saw an increase, advancing 4% to $36.3 million. On a per-share basis, however, non-GAAP (adjusted) profitability fell to $1.71 from the year-ago figure of $2.48.
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The company slightly beat the average analyst estimate of under $883.3 million for revenue, but missed that for adjusted net income ($2.16 per share).
In a combined shareholder letter and earnings release, RH quoted CEO Gary Friedman as saying that "While a meaningful portion of our market share gains are coming from the fragmented to-the-trade design showrooms, regional high-end furniture stores, and local independent boutiques, we are also gaining share from the better furniture-based national brands."
RH provided a table showing that RH's third-quarter revenue performance compared favorably to a clutch of competitors that included Wayfair (up 8%), Williams-Sonoma-owned West Elm (up 4%), and Ethan Allen Interiors (down 5%).
A few changes in guidance
RH made several adjustments to its full-year guidance for 2025. It now expects to post revenue growth of 9% to 9.2% in 2024, compared to a previous range of 9% to 11%. The adjusted operating margin is expected to be 11.6% to 11.9%, down from the preceding 13% to 14%. However, it left unchanged its forecast for free cash flow, which it expects to be $250 million to $300 million.
None of this greatly impresses me personally. Still, I think it's admirable that the company's revenue growth remains quite healthy, given the affordability concerns of the U.S. consumer these days and the disruptions caused by tariffs earlier this year. This isn't a bad stock for believers in the furniture retail sector.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Williams-Sonoma. The Motley Fool recommends RH and Wayfair. The Motley Fool has a disclosure policy.
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