Why Are Home Furnishing Company RH Shares Slumping Today?

RH RH shares are trading lower after it reported a second-quarter FY23 sales decline of 19.3% year-on-year to $800.48 million, beating the analyst consensus estimate of $784.90 million.

The revenue and adjusted operating margin exceed the guidance due to a $25 million revenue benefit from faster than expected deliveries and a shift of approximately $40 million of advertising costs from Q2 to Q3, reflecting the later mailing of RH Interiors Sourcebook.

Adjusted EPS of $3.93 beat the consensus estimate of $2.56.

Gross margin for the quarter contracted 530 basis points to 47.5%, and the gross profit fell 27.4% to $380 million.

Operating margin compressed 470 basis points and the operating income for the quarter decreased 35.4% to $151.3 million.

The company held $420.6 million in cash and equivalents as of July 29, 2023. Cash provided by operating activities for six months totaled $248.4 million, with a free cash flow of $166.7 million.

Also Read: These Analysts Revise Their Forecasts On RH After Q2 Results

Outlook: RH raised the lower end of FY23 revenue outlook, and now expects revenue of $3.04 billion - $3.1 billion from $3.0 billion - $3.1 billion versus an estimate of $3.07 billion.

The company reaffirmed FY23 adjusted operating margin outlook of 14.5% - 15.5%.

For Q3, it sees revenue of $740 million - $760 million against the $772.87 million consensus.

It expects the luxury housing market and broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20-year highs and the current outlook is for rates to remain unchanged until the second quarter of 2024.

For the fourth quarter of fiscal 2023, RH forecasts revenues of $760 million-$800 million (consensus $774.04 million) and adjusted operating margin of 14.4% - 16.6%.

Price Action: RH shares are trading lower by 14.22% at $316.13 on the last check Friday.