What happened
Shares of RH (RH 2.20%), the company formerly known as Restoration Hardware, took a dive in March as the high-end home furnishings retailer issued a disappointing fourth-quarter report, and fell in the beginning of the month on a broader sell-off in growth stocks.
According to data from S&P Global Market Intelligence, the stock finished the month down 19%. As you can see from the chart below, the stock dove in the first week of March and then again at the end of the month after its earnings report came out.
So what
RH slumped through the first week of March on broader sell-off in the market. While there was no direct news out on the company, a combination of rising oil prices, inflation, rising interest rates, and the war in Ukraine all helped pressure the stock lower. As a luxury retailer, RH is dependent on consumers having discretionary income, and conditions like higher interest rates and inflation affect that.
Image source: RH.
That sentiment seemed to be summarized by Wells Fargo analyst Zachary Fadem, who lowered his price target from $750 to $500 on March 9 after channel checks revealed a slowdown in the home furnishings industry in Q4. Fadem still maintained an overweight rating on RH.
RH's fourth-quarter earnings report confirmed that suspicion as revenue rose 11% to $903 million, missing estimates of $931.8 million. On the bottom line, adjusted earnings per share increased 12% to $5.66, which edged out expectations of $5.58.
The company's outlook was also disappointing, as it called for revenue growth of just 5% to 7% in 2022 compared to the analyst consensus of 10%.
Comments from RH CEO Gary Friedman also added to uncertainty about the macroeconomic environment. Friedman noted uncertainty with inflation, interest rates, housing, and the war in Ukraine, among other factors, weighing on the company's growth and performance in 2022.
Now what
Despite those headwinds, RH is still making significant investments in its future with plans to open up new hotels, restaurants, and even a streaming content business focused on architecture and design.
In other words, RH is aiming to expand beyond a home furnishings brand to be a full-fledged luxury lifestyle brand supporting travel and entertainment as well as home furnishings and decor.
It's a bold vision, but Friedman has proven himself in the past, guiding the company's transition to a membership model, which has helped drive the company's growth and build customer loyalty.
While 2022 may be a slow-growth year, RH still looks like a long-term winner.
