For the quarter, RH generated EPS of $1.85 vs. the $1.53 consensus with revenue increasing 7% yr/yr to $598.4 mln compared to the $583.7 mln expectation.
The company also increased its FY20 EPS and revenue guidance to $8.76-$9.27 from $8.05-$8.69, and to $2.643-$2.663 bln from $2.585-$2.635 bln, respectively.
Click here to access RH's earnings press release.
To rewind, when RH issued its Q4 report on March 28, it provided downside guidance for FY20 citing market volatility, negative trends in the high-end housing market, and ongoing efforts to revamp unprofitable business lines.
Since its core customer base mainly comprises high-end consumers, its business is correlated to how the stock market is performing. From early December through late March, the market experienced sharp volatility as tariff-related headlines wildly swung the indices.
During the earnings call last night, RH's CEO commented that the Dow plunged 800 points the day after it provided its FY20 guidance. This type of action plays into the psyche and sentiment of consumers who are considering making big-ticket purchases, such as expensive furniture.
There has been some stabilization in the markets, providing improved confidence levels and improved trends for RH's business and outlet.
In addition to the more favorable climate, RH's growth has accelerated due to the success of its newly launched Beach House outdoor furniture line. Along with new store openings and price increases, these catalysts have helped mitigate the rising costs from tariffs.
In order to insulate itself further from the tariffs, the company is planning on moving production out of China while expanding its own manufacturing facilities in the U.S. RH believes that these actions should allow it to withstand cost pressures resulting from the tariffs, allowing it to achieve its longer-term financial goals.
Key Takeaways: RH's better-than-expected report illustrates the resiliency of its business as many retailers (like JCP, DDS, JWN, etc) have struggled greatly in this environment. Since its customer base mainly includes higher-end consumers, it is better suited to pass along higher prices resulting from the tariffs.
The popularity of its newly launched Beach House collection is another factor that should help it outperform other retailers.
However, the sharp swing in its FY20 guidance also demonstrates how its business is very sensitive to market dynamics and consumer sentiment. Should the market tumble lower again, it could put its upside guidance at risk.