Luxury furnishings retailer RH (formerly known as Restoration Hardware) witnessed a significant downturn in its stock price, plummeting as much as 15% on Friday, which followed a warning from the company about ongoing challenges in the housing market, with expectations of stabilization not anticipated until the next year. This announcement was made during RH’s second-quarter earnings call held on Thursday.
RH expressed its concerns regarding the luxury housing market and the broader economy, citing persisting challenges throughout the fiscal year of 2023 and potentially into the following year. The company pointed to the continued trend of mortgage rates reaching 20-year highs as a key factor contributing to these difficulties. The high-end furniture industry is intrinsically linked to the housing market, which has experienced a virtual standstill as mortgage rates have remained above 7% for an uninterrupted four-week period.
Data released by the National Association of Realtors indicated a 2.2% drop in sales of existing homes in July compared to the previous month, underscoring the challenges RH highlighted. Furthermore, the current outlook for mortgage rates does not suggest any imminent changes, with expectations of rates remaining constant until the second quarter of 2024.
Despite these housing market concerns, RH reported stronger-than-expected second-quarter earnings. The company posted earnings of $3.93 per share, surpassing estimates of $2.48. Additionally, RH’s net revenue reached $800 million, exceeding expectations of $777.7 million. However, the company’s third-quarter revenue forecast fell below Wall Street’s consensus estimate, ranging from $740 million to $760 million, while analysts had expected revenue to hit $774 million.
CEO Gary Friedman addressed questions about the housing market during the earnings call, expressing the company’s outlook for stabilization in the luxury housing sector by next year. Friedman stated, “We expect stabilization we think next year. We don’t think there’s going to be acceleration until there’s interest rate cuts or pricing comes down.”
This is not the first time RH has sounded the alarm about a slowdown in the last several quarters. In June of the previous year, the company’s stock also faced a significant decline after RH cautioned about signs of weakening demand. The ongoing challenges in the housing market continue to pose a significant hurdle for sector stocks in the short term, prompting investors and industry observers to adopt a cautious stance as they await developments for the remainder of the year and into 2024.
In conclusion, the recent stock drop of RH serves as a stark reminder of the lingering uncertainty in the luxury furnishings sector, closely tied to the unpredictable housing market. While the company’s strong second-quarter earnings provided a glimmer of hope, the prevailing challenges underscore the need for a vigilant approach and careful consideration of market conditions in the months ahead. RH, along with its investors, will be closely monitoring the housing market’s evolution and eagerly anticipating any signs of stabilization on the horizon.
Source: Yahoo Finance
