RH Stock Down 42% YTD Ahead of Earnings: Can Strong Results Spark a Rebound?

Shares of RH (NYSE: RH), formerly Restoration Hardware, are under pressure heading into its earnings report today after market close. The luxury home furnishings retailer has seen its stock price plummet 42% year-to-date, leaving markets wondering if a turnaround is on the horizon or if further pain lies ahead.

Analysts expect RH to report strong earnings for the upcoming report today, with an estimated EPS of 3.22, up significantly from 1.69 a year ago. Revenue is projected to reach approximately $905.36 million, reflecting a healthy year-over-year sales growth of about 9.12%. RH shares are currently trading around $231 in pre-market hours, down -41.84% year to date.

The stock's recent performance reflects a complex interplay of factors, including disappointing earnings results, macroeconomic headwinds, and strategic shifts within the company.

RH's most recent earnings reports have been a source of concern. In the fourth quarter of fiscal 2024, the company reported adjusted EPS of $1.58, missing analysts' expectations of $1.91. Revenue also fell short, coming in at $812.4 million versus an estimated $829.5 million. This miss triggered a sharp sell-off, with the stock price declining by over 40%.

The first quarter of fiscal 2025 offered some respite. While revenue of $814 million was slightly below estimates of $818 million, adjusted EPS of $0.13 exceeded expectations of a loss of $0.07 per share. The company reaffirmed its fiscal 2025 outlook, projecting revenue growth of 10% to 13% and free cash flow between $250 million and $350 million. This report led to a roughly 20% surge in the stock.

However, the broader economic environment continues to pose challenges. CEO Gary Friedman has pointed to the impact of new tariffs and a weak housing market as significant headwinds. The company also carries a substantial debt load stemming from previous stock buybacks. These factors underscore the vulnerability of RH to macroeconomic shocks.

Despite these challenges, RH is pursuing an ambitious growth strategy, particularly in Europe. The company recently opened a flagship gallery in Paris, following entries into England, Brussels, Madrid, Düsseldorf, and Munich. These international expansions represent a significant investment and are intended to elevate the brand's global presence.

The Paris gallery, located on the Champs-Élysées, features a design library and a rooftop restaurant with views of the Eiffel Tower, embodying RH's strategy of blending hospitality, design, and architecture.

Analysts currently have a consensus “Hold” rating on RH, with an average 1-year price target of $272.29. This suggests that while analysts see some upside potential, they remain cautious about the company's near-term prospects. The wide dispersion of price targets reflects the uncertainty surrounding RH's ability to navigate the current environment.

While the prevailing sentiment is cautious, there's a case to be made that RH is significantly undervalued. The market may be overly focused on short-term challenges and overlooking the company's long-term potential. RH has cultivated a unique brand identity and a loyal customer base.

Ultimately, the future direction of RH's stock price will depend on the company's ability to execute its strategic plan and navigate the complex macroeconomic landscape. The markets will be closely watching today's earnings report for insights into the company's performance and outlook. The results, and management's commentary, will likely set the tone for the stock in the coming months.