RH Q2 profit beats estimates, lifts FY19 guidance

RH (NYSE: RH), formerly known as Restoration Hardware Holdings, reported a 1% rise in earnings for the second quarter helped by higher revenue and expense leverage. The results exceeded analysts’ expectations. The home furnishings retailer raised its guidance for the full year 2019.

Net income rose by 1% to $63.8 million while EPS jumped by 25% to $2.86 per share driven by lower weighted average shares used in computing. Adjusted earnings soared by 59% to $3.20 per share. Revenue grew by 10.3% to $706.5 million.

Adjusted net revenues increased 9.9% over last year reflecting the strength of core RH business, the performance of new galleries, particularly RH New York, the continued expansion of RH Hospitality, and planned accelerated outlet sales due to the previously mentioned closure of distribution facility in the fourth quarter of fiscal 2018.

For fiscal 2019, the company lifted its adjusted revenue outlook to the range of $2.68 billion to $2.694 billion from the previous range of $2.658 billion to $2.674 billion. Adjusted EPS guidance is raised to the range of $10.53 to $10.76 from the prior range of $9.08 to $9.52.

The company achieved higher revenue, expanding operating margins and higher returns on invested capital and free cash flow from its focus on elevating the brand, architecting an integrated operating platform, and pivoting the company back to growth.

Despite the increase in tariffs and some negative macro trends, RH remains optimistic that its business momentum will continue, supported by a number of positive factors including by the recent mailing of the Fall Interiors and soon to be in-home Modern Source Books, the increasing contribution from RH Beach House, the launch of RH Ski House and new Galleries opening this fall.

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Looking forward, the company expects to accelerate its real estate transformation to a rate of 5 to 7 new Galleries in fiscal 2020 and 7 or more new Galleries in fiscal 2021. Regarding trade with China, RH does not expect the current tariffs to impair its ability to achieve stated financial goals and the impact from the increased tariffs is embedded in its guidance for the year.

The company’s long-term targets are net revenue growth of 8% to 12%, adjusted operating margins in the mid-to-high teens, and adjusted net income growth of 15% to 20% annually. Return on invested capital (ROIC) is predicted to be in excess of 50% for the long term.

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