Analyst Note| Jaime M. Katz, CFA |
We plan to increase our $292 per share fair value estimate for no-moat RH by a high-single-digit rate after incorporating fourth-quarter results and an updated 2021 forecast. Fourth-quarter top line growth of 22% (to $812 million) was solid, and adjusted operating profit performance was equally stellar, expanding 630 basis points to 23.7%, putting the firm’s earnings power on display. As we adjust our forward outlook more closely in line with RH’s initial full-year guidance (calling for sales of 15%-20% and operating margin expansion of another 100-200 basis points), we are set to raise our 2021 sales estimate to $3.4 billion and our EBIT outlook to 23%, both moderately above our prior forecast for $3.2 billion and 21.4%, respectively. With sales that are expected to rise more than 50% in the first quarter (thanks to core demand that rose 73% in February and 96% in the first two weeks of March), this implies the back three quarters of 2021 should still average a low double-digit sales rate.