Sales meet expectations, share price rises by 18%

Luxury furniture retailer RH (NYSE:RH) reported second-quarter fiscal 2024 results that were in line with analyst expectations. Revenue increased 3.6% year over year to $829.7 million. Non-GAAP earnings were $1.69 per share, down from earnings of $3.93 per share in the same quarter last year.

Is now the right time to buy RH? Find out in our full research report.

RH (RH) Q2 CY2024 Highlights:

• Revenue: $829.7 million versus analyst estimates of $824.5 million (slightly exceeded)

• Earnings per share (non-GAAP): $1.69 versus analyst estimates of $1.61 (5.2%)

• Gross margin (GAAP): 45.2%, compared to 47.5% in the same quarter last year

• EBITDA margin: 17.2%, compared to 24.7% in the same quarter last year

• Free cash flow was -37.9 million US dollars, a decrease from 114.2 million US dollars in the same quarter last year

• Market capitalization: 4.56 billion US dollars

RH (NYSE:RH), formerly known as Restoration Hardware, is a specialty retailer that exclusively sells its own brand of high-quality furniture and home accessories.

Home furniture retailers

Furniture retailers know that “home is where the heart is,” but that no home is complete without that comfortable sofa to relax on or that dreamy bed to rest in. These stores focus on offering not only what is practically needed in a home, but also aesthetics, style and charm in the form of tables, lamps and mirrors. Decades ago, furniture was thought to resist e-commerce because of the logistical challenges of shipping large pieces of furniture, but now you can buy a mattress online and receive it in a box a few days later; so just like other retailers, furniture stores must adapt to new realities and consumer behaviors.

Sales growth

RH is a mid-sized retailer, which sometimes puts it at a disadvantage compared to larger competitors that benefit from greater economies of scale. On the other hand, the company has an advantage over smaller competitors with fewer resources and can still achieve high growth rates because it is growing from a smaller base than its larger competitors.

As you can see below, the company's annual revenue growth rate over the past five years has been sluggish at 3.1%, but to the company's credit, it has opened new stores and expanded its reach.

This quarter, RH increased its revenue by 3.6% year over year, coming in at $829.7 million, in line with Wall Street estimates. Looking ahead, Wall Street expects revenue growth of 10.3% over the next 12 months, an acceleration from this quarter.

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Sales in comparable stores

Demand for RH has been declining over the last eight quarters and store sales have declined by an average of 11.1% year-on-year. This trend is quite worrying and the company should rethink its strategy before investing its precious capital in new store expansion.

Key takeaways from RH’s Q2 results

It was encouraging to see RH beat analysts' gross margin expectations this quarter. We were also happy to see revenue and earnings per share narrowly beat Wall Street estimates, especially in a weaker consumer environment. Overall, this quarter had some important positives. The stock rose 17.1% to $300.43 immediately following the report.

RH may have had a good quarter, but does that mean you should invest now? When making this decision, it's important to consider valuation, business qualities, as well as what happened last quarter. We cover that in our actionable full research report, which you can read for free here.