RH Fell Short on Earnings But Its Stock Is Up. Here's Why

TAMPA, FL - NOVEMBER 12: Restoration Hardware Celebrates The Unveiling Of RH Tampa, The Gallery At International Plaza on November 12, 2015 in Tampa, Florida.(Photo by Mike Dupre/Getty Images — (Image credit: Getty Images)

RH (RH) stock is one of the biggest gainers on Wall Street Friday after the home furnishings retailer reported mixed results for its fiscal third quarter and raised its fourth-quarter and full-year outlook.

In the three months ending November 2, RH's revenue increased 8.1% year over year to $811.7 million. It also swung to a profit of $2.48 per share from a loss of 42 cents in the year-ago period.

"The positive inflection of our business continued to gain momentum with third-quarter demand increasing 13% despite operating in the worst housing market in 30 years," wrote RH CEO Gary Friedman in the company's shareholder letter. "Our vector is increasing in both magnitude and direction with November demand up 18%, as the most prolific product transformation and platform expansion in the history of our industry continues to unfold."

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The results came up short of analysts' expectations. Wall Street was anticipating revenue of $812.2 million and earnings of $2.65 per share, according to MarketWatch.

As a result of "current trends," RH raised its fourth-quarter and full-year guidance. The company now anticipates fourth-quarter revenue growth in the range of 18% to 20% and full-year revenue growth between 6.8% to 7.2%. It had previously forecast revenue growth of 5% to 7% in fiscal 2024.

"We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of the most prolific product transformation and platform expansion in the history of our industry," Friedman said.

Is RH stock a buy, sell or hold?

RH shares had a slow start to 2024 but started picking up steam mid-summer. The retail stock is now up more than 49% for the year to date. And Wall Street is bullish on the former member of the Berkshire Hathaway equity portfolio.

According to S&P Global Market Intelligence, the consensus recommendation among analysts it tracks is a Buy.

However, analysts' price targets have failed to keep up with the recent surge in RH's share price. Indeed, analysts' average price target of $400.64 represents a notable discount to current trading levels. This could prompt price-target hikes following the consumer discretionary stock's post-earnings pop.

Financial services firm Wedbush is one of those that raised its target price on RH after earnings, to $500 from $430, while also maintaining its Outperform rating (equivalent to a Buy).

Wedbush analyst Seth Basham believes the upwardly revised price target, which is based on his expectation that RH should trade at 25 times Jefferies' fiscal 2026 earnings-per-share estimate of $20.04, is appropriate "given the sharply accelerating growth trends, the visible medium-term growth drivers, and the long-term potential."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.