RH (RH) Q3 2019 Earnings
Adjusted diluted EPS benefited by $0.24 due to a lower effective tax rate of 13.7% versus the normalized 21% rate. GAAP results include a $6.857 million net loss on extinguishment of debt related to the second lien term loan repayment.
Did RH Beat Earnings? Q3 2019 Results
Yes. RH reported Q3 2019 earnings of $2.79 a share on Dec 4, 2019, beating the $2.23 consensus estimate by 25.1%. Revenue was $677.5M against a $676.4M estimate.
RH posted a blowout third quarter for fiscal 2019, with adjusted diluted EPS of $2.79 clearing the $2.23 consensus estimate by 25.11%, while revenue of $677.53 million edged past the $676.39 million analyst target and rose 6.4% year-over-year. The standout profit performance was driven by a dramatic expansion in adjusted operating margins, up 340 basis points to 13.0%, alongside a favorable effective tax rate of 13.7% that contributed $0.24 per share to the adjusted EPS figure. Equally telling, free cash flow surged to $95.87 million from $15.96 million a year ago, aided by a 24% year-over-year decline in inventories as the company shed unproductive categories and trimmed fringe promotions. On the strength of the quarter, RH raised its full-year fiscal 2019 adjusted diluted EPS guidance to $11.58 to $11.70, up sharply from its prior range of $10.78 to $11.01, and projected free cash flow of $350 million to $360 million, signaling that management sees the momentum carrying into year-end and well beyond.
- Record adjusted operating margin of 13.0%, up 340 basis points year-over-year
- Inventory down 24% ($137 million) year-over-year despite 6% revenue growth
- Free cash flow of $96 million vs $16 million a year ago
- RH New York Gallery trending above $100 million in annual revenue
- Lower effective tax rate of 13.7% contributed $0.24 to adjusted diluted EPS
- SG&A expenses declined as percentage of revenue from 32.7% to 28.7%
“We are pleased to report record third quarter results and are raising our fiscal 2019 guidance for the fourth time this year.”
RH CEO, on the earnings call
What Was RH's Outlook in Q3 2019?
RH raised its fiscal 2019 guidance for the fourth time, now expecting: adjusted net revenues of $2,685M-$2,694M (7% growth); adjusted operating income of $378.6M-$382.3M (32%-33% growth); adjusted operating margin of 14.1%-14.2%; adjusted diluted EPS of $11.58-$11.70 (48%-50% growth); free cash flow of $350M-$360M; and adjusted capital expenditures of $150M-$160M net of landlord contributions. For Q4 2019, the company expects adjusted net revenues of $703.0M-$711.5M (5%-6% growth), adjusted diluted EPS of $3.50-$3.62. Looking further ahead, RH expects at least 200 basis points of operating margin expansion in fiscal 2020 and sees a clear path to 20% operating margin over the next several years. Long-term targets were increased to net revenue growth of 8%-12%, adjusted operating margins in the high teens to low twenties, adjusted net income growth of 15%-20%, and ROIC in excess of 50%. The company sees a path to over $5 billion in North America revenues and a $20 billion global brand through international expansion.
RH YoY Financials
| Metric | Q3 2019 | Q3 2018 | Year over year |
|---|---|---|---|
| Revenue | $677.5M | $636.5M | +6.4% |
| Gross Profit | $284.2M | $254.5M | +11.7% |
| Operating Income | $89.2M | $51.8M | +72.1% |
| Net Income | $52.5M | $22.4M | +134.1% |
Figures from SEC filings and company reports. Not investment advice.