What happened
Shares of RH (RH 3.59%), a home furnishings retailer, jumped on Thursday. They rose as much as 11.5% but finished the trading day up 10.1%.
The stock's gain follows an announcement from RH on Thursday that it had authorized a $700 million share repurchase program.
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So what
RH's new repurchase program will likely "be funded with a combination of existing cash, cash flow, borrowings under existing credit facilities, and proceeds from incremental borrowing arrangements," management said in a press release on Thursday. With $22 million cash and cash equivalents on its balance sheet, no borrowings on a $600 million line of credit, and nearly $200 million in trailing-12-month free cash flow, RH has plenty of financial flexibility to execute its repurchases.
RH CEO Gary Friedman says the authorization highlights how management believes the stock is undervalued. "We continue to believe our shares are undervalued and this new repurchase program reflects our confidence in the outlook for our business and continued improvements in our operating model."
Now what
Investors may view this authorization as both evidence of management's confidence in its business and as a way for management to create more shareholder value. As Friedman said, "We believe that this capital allocation strategy represents an opportunity to create value for our long-term shareholders."
