Fourth-quarter results missed the mark, but guidance was better than expected.
Shares of RH (RH 0.27%), the home furnishings company formerly known as Restoration Hardware, were gaining today after the company reported disappointing results in its fourth-quarter earnings report, but gave better-than-expected guidance for 2024, indicating that the company was returning to growth.
As a result, the stock was up 15% as of 9:55 a.m. ET.
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RH is turning the corner
Like much of the home furnishings industry, RH has struggled with a challenging housing market, which CEO Gary Friedman said was the worst in three decades.
As a result, RH's revenue fell 4.4% in the quarter to $738.3 million, which was well below estimates at $777.5 million.
Margins also fell as the company invested in an expected rebound in demand. Operating margin slipped from 14.5% in the quarter a year ago to 8.7%, and adjusted earnings per share fell from $2.88 to $0.72, which missed the consensus at $1.67.
However, management's optimism about 2024 helped stoke the gains in the stock as the company is stepping up investments in marketing and new products in preparation for a recovery in demand.
RH has also been aggressively buying back shares to take advantage of its beaten-down stock price. It reduced shares outstanding by more than 20% over the last year and 35% over the last two years.
How 2024 is shaping up for RH
Friedman said the company was doubling its sourcebook circulation and stepping up advertising in preparation for a recovery in demand.
For 2024, it expects revenue growth of 8%-10% and demand growth of 12%-14% due to an order lag, and it sees adjusted operating margin of 13%-14%, which is slightly better than the the 13% it reported in 2023. RH should also benefit from the expected decline in interest rates later this year.
That top-line growth rate implies revenue of $3.27 billion-$3.33 billion, which was ahead of the consensus at $3.26 billion.
That, and the optimistic commentary from Friedman, has investors feeling good about the stock today.
Jeremy Bowman has positions in RH. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
