It’s been years since there have been more moving parts around an RH quarter and intermediate-term outlook than the one reported tonight. To be clear, it was a blowout quarter by Best Idea Long RH, with the company putting up $7.78 vs the Street at $5.40 and our estimate at $6.00. The beat came from the top line and Gross Margin – exactly where it should come from. Then there’s guidance, which is a different story – and is down materially for both 2Q and the year – on both top line and margin. People probably aren’t looking at the balance sheet, where deferred revenue is +20%y/y, +13% q/q, and is at an all-time high of 46% of revenue. Doesn’t exactly square away too well with a forecast for down revenue in the upcoming quarter. The tone of the commentary wasn’t as ‘gloom and doom’ as we heard from management last print, but the numbers coming down says it all. To cap it off, there’s the announcement of a $2bn share repo – and we think that the company will execute all of it this year – we’ve seen this story before with RH. With all the puts and takes, there’s a lot of quantification to be done – more than we can do in this note. As such we’re hosting a deep dive Black Book presentation on Wednesday June 8th where we’ll bridge the gap from where revenue, margin and EPS stands today, to what RH guided this evening, and the net of category mean-reversion (post-covid, rising rates, wealth effect, housing slowdown) in the core business alongside major growth initiatives like Contemporary and Europe – and the spending around those initiatives. And that’s not to mention the impact to the P&L of the company taking out half of the adjusted float with its repo. Ultimately, we’ll build to what we think the REAL earnings power is for RH over a TREND and TAIL duration, why the Street is missing the boat on the real earnings power, and why this name is the best long-term story today in global retail. At Hedgeye, we always say that bottoms are processes, not points. While the multiple is likely in purgatory until we’re out of Quad 4, as it relates to sentiment and expectations, we think we’re at the tail end of a long and painful bottoming process. We’ll publish our updated estimates across durations as well as where we think the stock is headed (and when) in our presentation next week.
Call Details:
Date/Time: Wednesday, June 8th at 12:30 EDT Add To Calendar: CLICK HERE
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Confirmation Number: 13730159
Live Video Link CLICK HERE
