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Higher Revenues, Margins to Benefit RH's Q4 Earnings

RH RH is scheduled to report fourth-quarter fiscal 2020 (ended Jan 30, 2021) results on Mar 24, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 14.4%. Markedly, the company beat earnings expectations in each of the last four quarters, with the average being 29.8%. The metric also increased 122.2% from the year-ago level. Also, its net revenues topped expectation by 0.4% and grew 24.6% year over year.

Trend in Estimate Revisions

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has moved 0.6% downward to $4.76 over the past seven days. The estimated figure indicates an increase of 28% from $3.72 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $795.4 million, suggesting 19.6% growth from the year-ago reported figure of $665 million.

RH Price and EPS Surprise

RH price-eps-surprise | RH Quote

Factors to Note

The company’s earnings and revenues for the fiscal fourth quarter are expected to have witnessed improvements on a year-over-year basis, courtesy of several tailwinds like rising demand for high-end furniture among affluent consumers in the solid luxury home market (particularly for large suburban homes), along with strengthening housing market.

The company has been working on various strategies to elevate and upgrade the image of the RH brand. Also, it has been transforming the entire business into a digital platform via The World of RH — a portal presenting the company’s products, places, services and spaces. Its digital experience — including RH Interiors, Modern, Outdoor, Baby & Child plus Teen — has been significantly adding strength to the company as it generates strong online revenues, while its Source Books drives traffic to Galleries and websites.

Meanwhile, RH has been working on cost-saving initiatives such as redesigning the supply chain, reducing inventory, improving product margins and so on. Management expects these initiatives to be reflected on fiscal fourth-quarter earnings and margin expansion. Also, more pricing power is expected to continue to have boosted gross margins, while SG&A expenses will likely remain under control as the company limits advertising due to supply chain constraints.

Although the economy has been rebounding from COVID-19 impacts, retailers are still grappling with the effects of the same. Disruption across the global supply chain owing to the pandemic remains a cause of concern.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for RH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: RH has an Earnings ESP of +6.65%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: RH — which shares space with Williams-Sonoma, Inc. WSM, At Home Group Inc. HOME and Tempur Sealy International, Inc. TPX in the Zacks Retail - Home Furnishings industry — currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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