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Why RH Stock Gained 19% in September

By Demitri Kalogeropoulos – Oct 7, 2019 at 9:40AM

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The furniture seller's shift to a membership model is helping to boost profitability.

What happened

RH (RH 0.54%) investors beat the market month as the stock gained 19% compared to a 2% increase in the S&P 500, according to S&P Global Market Intelligence. The rally put Restoration Hardware shares back in solidly positive territory for the year, up 42% after having been down more than 20% in early June.

So what

September's jump was powered by surprisingly strong second-quarter earnings results. RH revealed on Sept. 10 that adjusted sales rose 10% and adjusted operating margin shot up to 14.7% of sales from 12.8% a year earlier. These wins combined to push adjusted earnings to $3.20 per share, or far above the figure Wall Street was expecting.

A modern living room set against a yellow-orange wall.

Image source: Getty Images.

Now what

Investors were even happier to see RH raise its outlook for the third straight quarter. The home furnishings specialist is having no problem passing along higher prices to consumers to offset new tariffs, and executives see no threat of a looming recession. As a result, RH is predicting 2019 sales will go up by about 10% at the midpoint of guidance, which implies a strong holiday season period ahead.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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