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RH (RH - Free Report) is scheduled to report third-quarter fiscal 2021 (ended Oct 30, 2021) results on Dec 8, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 28.9%. Markedly, the company beat earnings expectations in each of the last four quarters, with the average being 16.4%. The metric also increased 73% from the year-ago level. Also, its net revenues topped expectations by 1.7% and grew 39% year over year.

Trend in Estimate Revisions

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has moved downward to $6.69 from $6.70 over the past 30 days. The estimated figure indicates an increase of 7.9% from $6.20 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $986 million, suggesting 16.7% growth from the year-ago reported figure of $844.8 million.

RH Price and EPS Surprise

RH price-eps-surprise | RH Quote

Factors to Note

Strong demand buoyed by solid momentum in the housing market, given the migration of consumers to larger suburban and second homes, is expected to reflect on RH’s earnings and revenues for the fiscal third quarter. This is likely to result in substantial square footage growth, thereby driving accelerated furniture and furnishings demand. Additionally, historically low-interest rates, a record stock market, reopening of several large parts of the economy and elevated home spending may have added to the tailwinds.

The company has been working on various strategies to elevate and enhance the RH brand image. Also, it has been transforming the entire business into a digital platform via The World of RH — a portal presenting the company’s products, places, services and spaces. Its digital experience — including RH Interiors, Modern, Outdoor, Baby & Child plus Teen — has been significantly adding strength to the company as it generates strong online revenues, while Source Books drives traffic to Galleries and websites.

Meanwhile, RH has been working on cost-saving initiatives such as redesigning the supply chain, reducing inventory, improving product margins and so on. Management expects these initiatives to be reflected on fiscal third-quarter earnings and margin expansion. Also, greater pricing power is expected to have boosted gross margins, while SG&A expenses are likely to have remained under control as the company limited advertising due to supply chain constraints.

Although the economy has been rebounding from COVID-19 impacts, retailers are still grappling with the effects of the same. Disruption across the global supply chain owing to the pandemic is anticipated to have been a cause of concern. Also, rising raw material costs may have been a risk.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for RH this time around. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of +1.65%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: RH currently carries a Zacks Rank #4 (Sell).