RH (NYSE:RH) shares tumbled more than 7% premarket Friday after the company missed third-quarter earnings and revenue estimates.
The company posted a loss per share of ($0.42), $1.37 worse than the analyst estimate of a $0.95 profit per share, while revenue for the quarter came in at $751 million, below the consensus estimate of $756.73 million and down from the $869 million reported last year.
Its adjusted operating margin of 7.3% was also slightly below expectations due to higher than anticipated expenses, including international openings and costs related to its pending acquisition of the New York Guesthouse property and unsuccessful efforts to secure the iconic One Ocean Drive Miami Beach location.
The company said that while it is pleased with improved demand trends generated from the launch of its new RH Interiors and RH Contemporary collections, it experienced increased headwinds in early October when mortgage rates peaked above 8% and due to the Middle East conflict.
The business continues to expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully. Furthermore, it noted that the home furnishings market has become "increasingly promotional" and believes it will create a mix shift towards clearance products, pressuring gross margins. As a result, the company is delaying the mailing of its RH Modern Sourcebook until the first quarter of fiscal 2024, "when demand conditions will likely be more favorable."
Due to the challenges, RH narrowed its revenue guidance range for the year to between $3.06 billion and $3.08 billion and now expects adjusted operating margin to be in the range of 13.6% to 14%.
Reacting to the results, analysts at Wells Fargo maintained an Overweight rating on the stock but cut the price target to $315 from $335 per share.
Analysts stated in their note Thursday evening that there is still softness, but they would buy on weakness.
"While Q3 topline played out as expected (-DD%), EBIT% were -300bps vs. our model via clearance, sourcebooks & a few 1-timers. This, unfortunately, sets the bull case back w/ pressures likely lingering into 1H'24," they wrote. "That said, sales declines are narrowing (w/ a Q2 inflection targeted) & ~9 new FY24 openings put RH in +MSD% sales growth territory w/ likely margin recovery. In short, we aren't out of the woods, but at ~$250 (20x our $12.50 in FY24), we'd step in."