Despite sky-high expectations, investors found plenty to like about RH's (NYSE:RH) latest earnings report. The luxury home furnishings giant is benefiting from some temporary lifts, including exuberant consumer spending attitudes. Its results benefited from comparison to an unusually weak year-ago period, too.

But, as management explained in a conference call with Wall Street analysts, demand is still running above their initial 2021 expectations. There's a good chance at accelerating growth in 2022 and beyond, as well, following a slowdown later this year.

A modern appointed living room.

Image source: Getty Images.

1. A special business

CEO Gary Friedman spent a good portion of the earnings call outlining why management believes RH is in a unique growth position that should serve investors well through a wide range of selling environments, not just today's booming industry expansion. The company's membership model, luxury focus, and decision to stay out of seasonal categories all reduce the risk around inventory markdowns.

Shoppers at the premium end of the home furnishings niche love its core offerings, and their latest 109% order volume spike is a testament to that commitment. RH's reported 78% sales increase was lower only because of shipping delays, executives said. "Our products ... enabled us to achieve industry leading revenues and margins," Friedman said.

2. Earning 25% margins

RH entered 2021 with historically high profitability. Its over 20% adjusted operating margin isn't found elsewhere in the industry, after all. The company extended that lead over the last few months, with margins expanding to 22% of sales in Q1. That success powered spikes in cash flow and earnings.

RH Operating Margin (TTM) Chart

RH Operating Margin (TTM) data by YCharts

The extra funds will help the company be aggressive in its accelerated international push that starts next year. It will also immediately benefit the company's finances, with net debt on track to go to zero by the end of 2021. "We have spent decades building a brand and a business that generates industry leading profitability and return on invested capital," Friedman said.

3. The bright outlook

Investors might take issue with a few of RH's more bullish comments. Management talked up a potential "roaring twenties" growth spike ahead, for example, and claimed that the luxury niche might be more stable in an economic downturn than other segments despite its consumer discretionary status. RH's competition might argue about its claim of having a unique business model that isn't exposed to the usual ups and downs of the home furnishings industry. Earnings and sales growth should slow over the next year in the wake of the pandemic, and there's no sure protection against volatility in this consumer-focused business.

But management's core bullish argument, that the company can reasonably target 25% operating margin during good times and over 20% profitability through any selling environment, is based on some solid assumptions.

RH posted impressive sales growth and unusually high earnings before COVID-19 scrambled demand trends in the industry. Its wins in the last year put it in an ideal position to boost its revenue footprint while cashing in on a flood of new product introductions through early 2022. That success should support continued solid returns for its shareholders.

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