RH Rallied Today — Is It a Buy? – The Motley Fool

Returns as of 12/10/2021
Returns as of 12/10/2021
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You can tell a lot more about a company when times are tough than when everything is going well, and that’s the big story behind RH‘s ( RH -1.87% ) stock advance today. Yes, it’s nice that the retailer’s shares went up as much as 13.5% today, though by around 3 p.m. ET they had fallen back to a gain of roughly 5%. But it’s the story behind the big early stock move that’s much more interesting, because it was driven by an earnings report that requires more than a cursory examination.
The headline-grabbing news from the third quarter of 2021 was that RH managed to post record sales. The $1 billion tally was up 19% from 2020 and 49% from 2019, prior to the pandemic. The retailer also beat Wall Street consensus estimates on the bottom line, which tends to make investors happy. And another eye catcher was the company upping its full-year 2021 guidance, though RH really only narrowed the range of its guidance, lifting the bottom end and keeping the top the same.
Image source: Getty Images.
However, what sets these results apart is that they came despite the supply-chain troubles that are wreaking havoc across the global economy. Indeed, Kirkland’s, another furniture retailer, took it on the chin when it missed analyst estimates and warned that supply chain constraints were a problem that wasn’t going to go away anytime soon. 
What’s interesting about RH is that it posted record results and also had to explain that supply chain issues had caused it to delay a major product launch (RH Contemporary), a number of store openings (some dedicated to the new line), and a launch-related catalog (it will now go out in the spring). This is not a small change. Companies generally plan well in advance for such investments and the anticipated boost to revenue and earnings that go along with them. 
Taking a step back here, there are two important takeaways. First, if RH is hitting records without the new product launch, then customer demand must be pretty strong right now. That’s good news as the economy heads into the holiday sales season. But that big new product launch, and everything in support of it, isn’t canceled, it’s simply being pushed out to 2022. That means the expected benefits will show up next year, and should help to keep the company’s strong results going. At the end of the day that may actually turn out to be a better outcome than if the company’s plans had worked as, well, planned.
If you liked RH coming into its third-quarter earnings release, then you were likely pleased to see its record-breaking results. However, you’ll probably like its future prospects even more now that its new product launch has pushed into next year, given that it hints strongly that there could be more big quarterly results to come.

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