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Luxury Spend Presses On, Bolstering RH’s Outlook; Global Expansion Set for 2022

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We plan to increase our $385 fair value estimate for no-moat RH by a mid-single-digit rate after incorporating third-quarter results that modestly outpaced our forecast. However, with a 10% jump post report, we still view shares as rich at current levels. In the third quarter, sales growth of 19% (to $1 billion) was above our 16% forecast rise, but more impressively, the adjusted operating margin of 27.7% was 70 basis points ahead of our projection. Better gross margin results made up for all of this outperformance, at 50.2% and around 100 basis points better than we anticipated--despite facing the inflation, logistics, and supply chain woes that have plagued multiple industries. Given the still-solid demand heading into the fourth quarter, RH raised the low end of its 2021 sales outlook, now calling for 32%-33% growth (31%-32% prior), implying a mid-teen sales pace in the coming period. The operating margin outlook was adjusted to 25.3%-25.5%, taking the low end of prior guidance up by 40 basis points.

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Company Profile

Business Description

RH is a luxury retailer operating in the $112 billion furniture and home furnishing industry. The company offers merchandise across many categories including furniture, lighting, textiles, bath, decor, children, and more and is growing the presence of its hospitality business (with 12 restaurant locations). RH innovates, curates, and integrates products, categories, services, and businesses across channels and brand extensions (RH Teen, RH Modern, and Waterworks, for example). The company is fully integrated across store, Web, and catalog channels, and is positioned to broaden its total addressable market over the next decade with the launch of its World of RH digital platform in 2022, along with future offerings in contemporary, antique, bespoke furniture, couture upholstery, and more.

15 Koch Road, Suite K
Corte Madera, CA, 94925
T +1 415 924-1005
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 30, 2022
Stock Type Cyclical
Employees 5,000