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RH Stock Falls 10% as Customer Demand Slumps

  • RH (RH) lowered its full-year revenue and operating margin guidance.
  • The retailer said that higher interest rates were causing the demand for its furniture to drop.
  • Two research firms remained upbeat on RH stock.
RH stock - RH Stock Falls 10% as Customer Demand Slumps

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RH (NYSE:RH) stock is sinking 8.5% in pre-market trading after the retailer lowered its full-year revenue guidance, citing the impact of higher interest rates. RH, formerly known as Restoration Hardware, sells furniture for homes, and now anticipates that its sales will fall up to 5% this year. Roughly a month ago, the retailer had said that it expected its revenue to climb between 0% and 2%.

Additionally, RH now predicts that it will generate an operating margin, excluding some items, of 21% – 22%, versus its previous outlook of 23% – 25%. RH CEO Gary Friedman said in a statement:

With mortgage rates double last year’s levels, luxury home sales down 18% in the first quarter, and the Federal Reserve’s forecast for another 175 basis point increase to the Fed Funds Rate by year end, our expectation is that demand will continue to slow throughout the year.

Two Firms Remain Upbeat on RH Stock

In a note to investors today, Wells Fargo analyst Zachary Fadem called the guidance reduction “disappointing.” However, he added that the cut was “not entirely surprising (and frankly could be worse) considering a host of rising macro concerns.”

But on the positive side, the company’s ability to use the large amount of cash that it has, “looming share repurchases, and attractive [long-term] dynamics ultimately” will “limit” the amount by which RH stock can drop, Fandem contended. The analyst cut his price target on the name to $300 from $400, but he maintained an “overweight” rating on the shares.

Calling the guidance update “neither unexpected nor concerning” Loop Capital reported that the company’s sales are still poised to come in “well above pre-pandemic levels.” The firm maintained a “buy” rating on the shares.

Before today’s decline, RH stock had tumbled 56% in 2022, and the shares were changing hands at a price-earnings ratio of just 9.5.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

Article printed from InvestorPlace Media, https://investorplace.com/2022/06/rh-stock-falls-10-as-customer-demand-slumps/.

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