Home Furnishing Company RH's Long- Term Growth On Product & Gallery Expansion Remains Intact, Analyst Says

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  • William Blair analyst Phillip Blee reiterated an Outperform rating on the shares of home furnishing company RH RH.
  • RH reported slightly softer-than-expected sales and earnings for its Q4 ending January 2023 as the company continues to face headwinds related to declines in the housing market.
  • On an average-per-selling-square-foot basis, the analyst estimates that sales at RH’s core brand and outlets declined by roughly 18%, partially offset by 7% growth in the Waterworks brand.
  • Management expects fiscal 2023 sales of $2.9 billion - $3.1 billion with continued demand pressures on macro uncertainty and housing market pressures, particularly in the first half of the year.
  • The guidance assumes an inflection in the second half on incremental demand related to the launch of 70 new product and upholstery collections.
  • The analyst believes investors’ primary concerns are centered around the second-half sales inflection against a difficult macro backdrop.
  • While acknowledging the potential for near-term volatility over the next few months, the analyst believes the stock will continue to find support around current levels, minimizing the downside risk.
  • RH identified several opportunities for further growth, including 4 galleries across Europe and Australia, 12 galleries in North America, and 40 locations for design studios where an under-5,000-square-foot, services-focused format is well suited for smaller, affluent towns, similar to its existing locations in Los Gatos, California and East Hampton, New York, said the analyst.
  • Price Action: RH shares are trading lower by 3.54% at $237.27 on the last check Thursday.
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