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Why RH Stock Soared 51% in May

By Demitri Kalogeropoulos – Jun 3, 2020 at 8:58AM

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Investors are betting on more growth from the retailer as consumer spending shifts towards home furnishings.

What happened

RH (RH -1.77%) shareholders dramatically outperformed the stock market last month. The stock jumped 51% in May compared to a 4.5% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally put the upscale home furnishings retailer -- formerly known as Restoration Hardware -- back in positive territory for the year, up 18% so far in 2020.

A modern furnished living room and kitchen.

Image source: Getty Images.

So what

Investors bid shares higher last month on expectations that the business will quickly rebound from COVID-19 related closures. The luxury retailing giant is situated in the home furnishings industry, which has benefited from an intense shift in consumer spending toward that niche since the start of social distancing efforts. Its stores and galleries have already begun to reopen in recent days, too.

Now what

RH's management team in early June outlined several cost-cutting steps the company is making to respond to the temporary sales disruption. But the stock's rally will see its first major test when executives announce fiscal first-quarter results on Thursday afternoon. Most investors who follow the stock are bracing for a short-term hit to sales as revenue declines 23% to $464 million. But keep an eye on any comments RH makes about its outlook for the rest of 2020.

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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