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Why RH Stock Rose 15% in June

By Demitri Kalogeropoulos - Jul 8, 2020 at 8:19AM

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Intense consumer focus on home upgrades have investors buying into this retailer's margin expansion story.

What happened

RH ( RH 0.11% ) shareholders beat the market last month as their stock gained 15% compared to a 1.8% boost in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally added to a roller coaster of a year for investors, with shares returning to an over 100% gain through the first half of 2020 after having collapsed into negative territory by late March.

A furnished living room.

Image source: Getty Images.

So what

Investors celebrated the home furnishings specialist's first-quarter results, which covered some of the worst impact to date from the COVID-19 pandemic. To be sure, sales dove as stores were closed for much of the period. But RH managed to book positive earnings while keeping its inventory and expenses down.

Now what

Nearly all of its showrooms have been operational since early June, and that situation all but ensures that retailing results will improve in the second quarter as compared to the COVID-19 shutdowns. While CEO Gary Friedman and his team predicted short-term volatility due to inventory and supply chain disruptions, they have noted accelerating demand growth as consumers focus on improving their homes.

Those trends have executives feeling confident they can eventually reach 20% operating margin over the coming years compared to 14% in 2019 and 10% in the most recent quarter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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