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Why RH Stock Popped Today

By Howard Smith – Jun 10, 2021 at 11:54AM

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The company formerly known as Restoration Hardware says business is booming.

What happened

Luxury furniture retailer RH (RH 3.33%) reported blockbuster first-quarter earnings last night, and the stock is reflecting the financial update. As of 11:45 a.m. EDT, shares in the company formerly known as Restoration Hardware had surged more than 14%. 

So what

As the economy rebounds, consumers continue to spend on home furnishings at the high-end retailer. Net revenue increased 78% while diluted earnings per share of $4.89 beat analyst predictions and represented a 285% increase versus the year-ago period. RH also raised its fiscal 2021 outlook on the strong results. 

luxury furniture set up in a modern living room.

Image source: Getty Images.

Now what

The significant gain in bottom-line profit came as the company increased its adjusted operating margin to 22.6%. That's a jump of 1,260 basis points versus the 10% rate in the prior year period. 

The results prompted RH to raise its year-over-year revenue growth estimate for fiscal 2021 to a midpoint of 27.5% compared to the previous outlook of 17.5%. It also bumped up its outlook for gains in adjusted operating margin. RH chairman and CEO Gary Friedman attributes the strong results to pent-up demand in the housing and renovation markets. On the investor conference call, he added, "the un-masking of the general public could lead to a Roaring Twenties type of consumer exuberance."

Friedman also said he believes the RH brand could command a valuation of $20 billion to $25 billion "and possibly larger if aspects of our ecosystem become meaningful revenue streams." If that prediction comes true, it would give owners of the almost $15 billion market cap company additional strong returns. 

Howard Smith 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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