RH's Early Insight Looks Good

No-moat

On the profit side, the company anticipates adjusted operating margins of 9%-10% in 2018, well ahead of our 7% forecast. In our opinion, an increasingly competitive home furnishing landscape underlies slower margin expansion, and we plan to hear management’s commentary surrounding the business’ operating profile before making final changes to our model. With a slimmer distribution profile (the Los Angeles DC has closed, and Dallas is next to be shuttered) RH is set to save approximately $15 million annually. Improvements surrounding the logistics of the outlet business are set to capture another $15 million-$20 million, which when combined with the DC savings should amount to about 5% of SG&A costs. At first blush, and after adding updated information into our forecast, we could estimate a 5%-10% increase to our $53 fair value estimate (although we will wait to hear a full assessment from the investor day to finalize our model) and still view shares as overvalued.

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