Why RH Stock Surged 20% Friday Morning

RH (NYSE: RH) -- formerly known as Restoration Hardware -- is thriving even as the housing market stumbles. That's the gist of why investors poured into the stock today. It wasn't the luxury retailer's third-quarter results that had its stock soaring as much as about 20% Friday morning, though.

Its comments about the current quarter and future outlook have investors piling into RH shares. While the stock pared some of Friday morning's gains, it remained higher by 14.1% as of 10:38 a.m. ET. That has now given RH shareholders a 50% return in 2024.

Worst housing market

The first comment the company provided in its shareholder letter touted the fact that the business saw demand increase by 13% despite what it called "the worst housing market in 30 years."

That helped investors overlook a miss on expectations for adjusted earnings per share as well as third-quarter revenue. RH earned $2.48 per share when analysts expected $2.65. Revenue was just shy of $812 million with the Wall Street consensus projecting sales just north of $812 million, according to FactSet Research.

The company is seeing demand accelerate. It said demand in November increased 18%. RH defines demand as the value of orders placed in the period. Profitability is also on the rise. Management said adjusted operating margin more than doubled year over year to 15%.

The demand environment led the company to increase fourth-quarter and full-year guidance as well. It sees revenue growth of between 18% and 20% in the current quarter.

RH has worked to transform its products and brand while expanding its platform for sales. The company stated, "We believe the important investments we are making during this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world."

Investors are buying the stock today hoping those investments leverage even more gains when the housing market inevitably improves.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.