One of last week's biggest winners was RH (RH -17.08%), soaring 22.6% after posting better-than-expected earnings. The luxury lifestyles retailer did come up short on the top line, and its guidance was also a mixed bag. However, improving margins and an analyst upgrade helped fuel the stock's upward move. 

The holiday-containing fiscal fourth quarter was solid. Revenue climbed 14% to $670.3 million, just shy of the $672.6 million that analysts were targeting. An 18% increase in store revenue was held back by a 10% gain in direct revenue. It's a big jump, but the comparisons were easy after a 9% decline during the prior year's fourth quarter. Revenue for RH's seasonally strongest quarter has grown by less than 4% over the past two years, and direct sales are actually still below peak 2015 levels for the period.

The top line may have failed to live up to expectations, but the bottom line was another story.

Dining room set at RH.

Image source: RH.

Spring cleaning

RH stock was one of last year's biggest winners, and its explosive earnings growth has been a major catalyst. Adjusted earnings rose 55% to $43.3 million. On a per-share basis -- a particularly meaningful marker since RH invested more than $1 billion to repurchase 20.2 million shares last year -- the growth clocked in at a blistering 149% to hit $1.69. Analysts were expecting a profit of just $1.55 a share. The stock soared 181% in 2017

RH has bought back nearly half of its shares over the past year, but recently we've seen net income growing faster than sales anyway. RH is going through a massive transformation. It's redefining the high-end furnishings market, shifting to a membership platform that now accounts for 95% of its sales. 

The concept itself is also evolving. Its gallery count declined from 85 to 83 in 2017, but its square footage increased after the company opened up a pair of big-box locations that have integrated cafes, wine vaults, and coffee bars. Its initial foray into offering food and beverages in Chicago inspired the new locations in Toronto and West Palm Beach. Three of the four galleries it will open this year will also feature the foodie-centric food and drink options, helping turn a visit to RH into more of an event.

Wolfe Research was impressed enough to upgrade the shares from peer perform to outperform. Bulls see upside here given RH's omnichannel success and its strengthening brand. Credit concerns should also ease up as its improving cash flow gives it more wiggle room to pay down its debt and continue to repurchase shares.