In a significant financial report, RH ($RH), the renowned home furnishing retailer, demonstrated its resilience and operational strength as it announced its fiscal second-quarter results, surpassing analyst expectations amidst a shifting market landscape. The firm recorded adjusted earnings of $1.69 per share for the quarter ending August 3, a decline from the $3.93 reported during the same period last year, yet notably above the anticipated consensus of $1.61 from Capital IQ.
Additionally, revenue saw a year-over-year increase, rising to $829.7 million from $800.5 million, comfortably exceeding market forecasts of $824.5 million. Following the positive news, RH's stock surged by an impressive 20% in early trading activities. Gary Friedman, Chief Executive Officer of RH, commented on the robust demand trends reflected in the company’s results.
"Demand was up 7% in the second quarter and has continued to inflect positive, gaining momentum each month with July finishing up 10%," he detailed in his earnings letter to shareholders. He further highlighted that demand accelerated into the third quarter, with August reporting an increase of 12%.
Despite the ongoing challenges presented by one of the toughest housing markets observed in three decades, RH has managed to maintain positive product margins. However, the adjusted operating margin saw a decrease, dropping to 11.7% from 20.2% in the prior-year quarter, reflecting the increased selling, general, and administrative expenses which rose to $278.6 million from $228.7 million.
Friedman remarked, "While aggressively investing into a downturn has put pressure on short-term results, it has also positioned RH to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation." This strategy underlines the company's commitment to future growth despite current market adversities. Looking forward, RH anticipates revenue growth in the range of 7% to 9% for the ongoing three-month period, with demand expected to increase between 12% to 14%.
This outlook aligns with the Street's revenue forecast of $832.9 million, and the adjusted operating margin is projected to fall within 15% to 16%. For the fiscal year 2024, the company has revised its revenue growth expectations to 5% to 7%. This adjustment comes in contrast to the earlier guidance of 8% to 10% as specified in May.
Additionally, the anticipated demand growth has also been moderated, now expected to fall between 8% and 10%, down from the prior forecast of 12% to 14%. Despite the current challenges posed by steadily rising interest rates and a sluggish housing market, Friedman remains optimistic. He stated, "Despite expectations for industry conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout fiscal 2024 and into 2025." Moreover, RH sees potential to conclude the fiscal year 2024 with an increased backlog anticipated to range from $80 million to $100 million.
This is attributed to a discrepancy where revenue has lagged behind demand by approximately 4 to 8 points, a factor that could impact adjusted operating margins by roughly 100 basis points accordingly. The stock's price as of the latest update stands at $308.00, reflecting a change of +51.51 and a percent change of +20.08..