Shares of RH (NYSE:RH), an innovative and fast-growing luxury brand within the home furnishings marketplace, shed roughly a quarter of their value on Friday as of 11:40 a.m. EDT, after the company released its first-quarter results.
The market can be a brutal place. Sometimes, it's "What have you done for me lately?" Other times, it's "What are you going to do next?" Unfortunately for investors in RH, the answer to the latter question disappointed: Though the retailer grew its revenues and met estimates, Wall Street was not thrilled with its full-year guidance.
Revenue jumped 23% to $562.1 million in Q1, topping consensus estimates that called for $558.4 million, per Thomson Reuters. Its comparable brand revenues also jumped 9% during the quarter, better than the 4% increase during the prior year's Q1. RH also recorded adjusted earnings per share of $0.05, which was better than its $0.05 loss a year earlier, and right in line with analysts' estimates.
In the press release, Chairman and CEO Gary Friedman said:
"While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture, and cash. Our efforts will be focused on executing our new business model, architecting a new operating platform, and maximizing cash flow by increasing revenues and earnings, and reducing inventory and capital investments. Our priorities include: the transformation of our real estate; the expansion of our product offer; and the design of our new operating platform, inclusive of the distribution center network, the in-home delivery experience, plus decision data and analytics to support long-term growth."
The issue Wall Street seems to have with RH wasn't its quick return to growth, but rather its disappointing outlook on a slower return to bottom-line growth. Consider that management now forecasts its full-year earnings will check in between $1.67 to $1.94 per share, which is a cut in the range of $0.14 to $0.25 per share.
At the end of the day, RH appears to be making the right long-term moves, but it also appears the investing community is running out of patience with the time it's taking the company to improve profitability.