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Luxury Consumer Demand Shows No Sign of Slowing at RH, but Shares Still Remain Rich

Jaime M. Katz, CFA Senior Equity Analyst

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.

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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 10 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 with the launch of its World of RH digital platform in autumn 2021.

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