Should investors be worried after RH lowered its forecast for the second time this month?
RH yesterday said that it was lowering its annual sales and profit forecast. It was the second time this month that the luxury furniture and furnishings chain has lowered its guidance.
“With mortgage rates double last year’s levels, luxury home sales down 18 percent in the first quarter, and the Federal Reserve’s forecast for another 175 basis point increase to the Fed Funds Rate by year-end, our expectation is that demand will continue to slow throughout the year,” said Gary Friedman, RH chairman and CEO, said in a statement.
The chain is now looking for sales to decline between two and five percent for the year and operating margins in the 21 to 22 percent range. RH has left its guidance for the second quarter unchanged. It expects sales revenues to be down between one and three percent year-over-year against high comps. The retailer reported record revenues during the first quarter with sales increasing 11 percent to $957 million.
Mr. Friedman remains positive about his company’s prospects despite the macroeconomic speed bump in front of it.
“While we anticipate the next several quarters will pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift, shed less valuable market share as we continue to raise our quality, and choose not to promote our business while we navigate through the multiple macro headwinds, we continue to believe our long-term investments will enable us to drive industry-leading performance over a longer-term horizon,” Mr. Friedman said.
RH’s shares took a hit as a result of its lower forecast but investors seem likely to stick with the chain.
William Blair analyst Daniel Hofkin rates the chain’s shares as outperforming its publicly traded peers.
“We continue to view RH as having a superior and highly differentiated business model within the branded consumer/retail space (and particularly within the fragmented luxury furniture market), with a substantially underpenetrated gallery footprint and open-ended long-term domestic and international growth potential,” Mr. Hofkin wrote in a note to investors.
RH in May opened its newest Gallery store in San Francisco. The 80,000-square-foot store, which covers five floors in the historic Bethlehem Steel Building, is described by the retailer as “a first-of-Its-kind design and dining destination.” The store features full floors of RH merchandise, an in-house interior design firm, the Palm Court Restaurant & Wine Bar and “a rooftop park with dramatic views of the San Francisco Bay, Bridge and skyline.”
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- RH (RH) Q1 2022 Earnings Call Transcript – The Motley Fool
DISCUSSION QUESTIONS: Do you find a reason for concern based on RH’s latest lowered forecast or are you confident for the longer term based on its differentiated business model? How will higher mortgage rates and lower home sales affect the furniture and home furnishings market over the next year or two?