RH Earnings: Weak Housing Market and Investment Keep Profits Depressed, but Demand Remains Healthy

No-moat RH appears to have hit the trough of its earning cycle in its second quarter, with the back half of 2024 poised for sales and EPS growth. This progress sent shares up nearly 20% in Sept. 12 after-hours trading, to modestly above our $295 per share fair value estimate. On the top line, RH continues to buck consumer caution trends, with sales rising 4% during the quarter and demand trends accelerating through the period and into the third quarter. With August demand up 12%, RH pointed to expected sales growth of 7%-9% in the third quarter, in line with our preresults estimate (recall sales are expected to lag demand orders by 4%-8% this year). Moreover, despite the full-year sales growth outlook falling to 5%-7% (from 8%-10% prior), revenue acceleration should continue through year-end—the low end of guidance implies a low-double-digit rise in the fourth quarter. We think this is nothing short of impressive given that the housing market has gained little traction since the spring, with July’s existing home sales volumes still 34% lower than three years ago.