It has been about a month since the last earnings report for RH (RH). Shares have added about 16.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is RH due for a pullback? Well, first let's take a quick look at its most recent earnings report in order to get a better handle on the recent catalysts for RH before we dive into how investors and analysts have reacted as of late.
RH Q4 Earnings Lag Estimates, Revenues Up Y/Y
RH missed expectations for both earnings and revenues, given the challenging operating environment. Net revenues were impacted by about $30 million due to higher backorder and special order balances linked to tariff-related sourcing changes. An additional $10 million impact came from adverse weather toward the end of the quarter.
Nonetheless, net revenues increased year over year in both the quarter and the full year, indicating continued demand despite near-term disruptions. However, earnings declined on a yearly basis, reflecting pressure on profitability.
RH remains focused on long-term growth. The company continues to invest in expansion and platform development. At the same time, the company highlighted risks from tariffs and broader external factors that could impact operations and margins.
RH’s Q4 Earnings, Margin & Revenue Discussion
The company reported adjusted earnings per share of $1.53, which missed the consensus mark of $2.21 by 30.8%. The reported figure decreased slightly by 3.2% from $1.58 per share in the year-ago period.
Net revenues of $842.6 million also lagged the consensus mark of $872 million but improved 3.7% year over year.
RH’s Margin Highlights
Gross margin contracted 180 basis points (bps) year over year to 42.9% in the reported quarter.
Adjusted selling, general and administrative expenses decreased 190 bps year over year to 31.4% of total revenues.
Adjusted operating margin expanded 20 bps year over year to 11.5%. Adjusted EBITDA increased 7.4% year over year to $149.1 million for the quarter. Adjusted EBITDA margin also expanded 60 bps year over year to 17.7%.
Fiscal 2025 Highlights of RH
Adjusted EPS came in at $6.29, up from $5.39 from a year ago. Net sales were $3.44 billion, up 8.1% from fiscal 2024.
Adjusted operating margin expanded 10 bps year over year to 11.4%. Adjusted EBITDA margin expanded 40 bps year over year to 17.3%.
RH’s Balance Sheet & Cash Flow
In fiscal 2025-end, RH’s cash and cash equivalents were $41.1 million compared with $30.4 million at the end of fiscal 2024. The company ended fiscal 2025 with merchandise inventories worth $818.5 million compared with $1.02 billion at the end of fiscal 2024.
RH ended the quarter with a net debt of $2.38 billion and a net debt-to-adjusted EBITDA ratio of 4.0x.
Net cash provided by operating activities was $452.2 million in fiscal 2025 compared with $17.1 million in the year-ago period. Free cash flow was $252.4 million in fiscal 2025, in contrast to the negative $213.7 million in fiscal 2024.
Capital expenditures in fiscal 2025 were $199.8 million, down from $230.8 million in fiscal 2024.
RH Unveils Q1 Fiscal 2026 View
For first-quarter fiscal 2026, the company expects the quarterly revenues to decline between 2% and 4% year over year.
Adjusted EBITDA margin is forecasted to be between 5.5% and 6.5%, down from 13.1% reported in the prior-year quarter.
Fiscal 2026 Guidance of RH
For fiscal 2026, RH expects revenue growth between 4% and 8%.
Adjusted EBITDA margin is forecasted to be between 14% and 16% and adjusted free cash between $300 million and $400 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -280.92% due to these changes.
VGM Scores
At this time, RH has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a score of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise RH has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).