Why RH Stock Skyrocketed 35% Today

What happened

Shares of RH (NYSE: RH) were up 35.1% as of 11:45 a.m. EDT Tuesday after the home furnishings and design retailer announced stronger-than-expected fiscal first-quarter 2018 earnings and raised its full-year guidance.

RH’s quarterly revenue declined 0.8% year over year to $557.4 million, which translated into adjusted net income of $33.5 million, or $1.33 per share, up from $0.05 per share in the same year-ago period. Analysts, on average, were only expecting earnings of $1.05 per share on slightly higher revenue of $563.2 million.

Image source: RH.

So what

To be fair, RH noted that at the start of its fiscal year, it told investors that it “will be managing the business with a bias for earnings versus revenue growth in fiscal 2018.”

“We will restrain ourselves from chasing low quality sales at the expense of profitability like many in our industry,” the company elaborated, “and instead focus on building an operating platform that will enable us to compete and win over the long term.

Even so, RH managed to increase comparable-brand revenue 1% during the quarter, even with a 4-point drag related to lapping inventory-reduction efforts in the same year-ago period. Adjusted for inventory reduction initiatives, comps would have climbed 5%.

Now what

In addition, RH reiterated its full-year guidance for revenue in the range of $2.53 billion to $2.57 billion, or growth of 5% to 7% on a comparable basis. But it also increased its full-year earnings outlook to call for adjusted net income per share of $6.34 to $6.83, up from its previous per-share guidance range of $5.45 to $6.20.

All things considered, there was nothing not to like about this stellar quarter and bolstered earnings outlook relative to analysts’ expectations, and I think investors are justified in so aggressively bidding up RH shares in response.

10 stocks we like better than RH
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and RH wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 4, 2018

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

You May Also Like

About the Author: Over 50 Finance