Proactive Investors - RH (NYSE:RH) (NYSE:RH) is expected to report financial results for the third quarter in line with estimates but mixed prints from its competitors pose a risk to its fourth quarter guidance, analysts at the Bank of America (NYSE:BAC) believe.
Premium furniture and home goods retailer RH (NYSE:RH) is due to hand down its results for the quarter ended October 28, 2023, after the stock market closes on Thursday, December 7 and Wall Street analysts on average expect earnings per share (EPS) of $0.98 on revenue of $756 million.
The BoA analysts wrote in a note to clients that they expect slightly higher EPS and revenue at $1.01 and $760 million, citing encouraging steady improvement in key metrics for RH.
“Per BAC aggregated credit and debit card data (93% correlation with RH revenues since the second quarter of 2018), spending for premium furniture was down 13.6% year-over-year in October compared to down 15.3% for fiscal 3Q 2023 and negative 17.9% for fiscal 2Q 2023,” they wrote.
“Trends for high-end existing home volumes (about 80% correlation with RH revenues since the first quarter of 2014) have also improved materially in recent months and were up about 7% year-over-year in October, compared to a trough of about 40% in fiscal 4Q 2022.”
For 4Q, they see some risk to RH's guidance due to largely weaker-than-expected quarterly results from other home durable brands and the fact that RH’s revenue outlook implies a 15 percentage point increase in year-over-year trends which would require a strong response to new products.
“However, RH management noted that early indications were promising and RH web traffic (96% correlation with revenue since the fourth quarter of 2020) has materially accelerated since October, which we view as an encouraging sign for demand,” they wrote.
“We remain constructive on RH revenue/earnings before interest, taxes, depreciation and amortization (EBITDA) trends materially accelerating in 2024 (we are 2.3% above Street revenue) on new products, key industry metrics steadily improving and a big ramp in new gallery openings.”
They also believe housing will turn from a headwind to a potential tailwind in the second half of 2024 on improving rates.
The BoA analysts reiterated their ‘Buy’ rating on the stock and US$345 price target.
RH shares traded at about US$281 on Wednesday afternoon.
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