Will Digital Transformation Strategy Boost RH’s Q2 Earnings?

Will Digital Transformation Strategy Boost RH’s Q2 Earnings?

RH RH is scheduled to report second-quarter fiscal 2020 (ended Aug 1, 2020) results on Sep 9, after market close.

In the last reported quarter, this leading luxury home furnishing retailer’s earnings surpassed the Zacks Consensus Estimate by 58.8%. Markedly, the company beat earnings expectations in each of the last four quarters, with the average being 26.6%. However, the metric fell 35.5% from the year-ago level. Also, it lagged revenue expectation by 0.9% and fell 19.3% year over year.

Trend in Estimate Revisions

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has moved 5.3% upward to $3.36 over the past 30 days. The estimated figure indicates an increase of 5% from $3.20 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $683.6 million, suggesting a 3.2% decline from the year-ago reported figure of $706.51 million.

RH Price and EPS Surprise RH Price and EPS Surprise

RH price-eps-surprise | RH Quote


Factors to Note

Although the economy has started rebounding from the COVID-19 impacts, retailers are still grappling with the effect of the same. Owing to reduced inventory receipts and disruption across the global supply chain, it expects revenue improvement to lag demand growth by approximately 10-12 points in the fiscal second quarter.

That said, the company has been working on various strategies to elevate and reimage the RH brand. 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 revenues online, while its Source Books drives traffic to Galleries and websites.

This apart, strengthening housing market prospects might have contributed to the company’s top line in the to-be-reported quarter.

Meanwhile, RH has been working on cost-saving initiatives such as redesigning the supply chain, reducing inventory, improving product margins and so on. Management continues to expect these initiatives to be reflected in fiscal second-quarter earnings and margins expansion despite soft revenues.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for RH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of +13.47%. 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 #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks Worth a Look

Here are a few other stocks in the Zacks Retail-Wholesale sector, which according to our model have the right combination of elements to beat estimates in their respective quarters to be reported.

Casey’s General Stores, Inc. CASY has an Earnings ESP of +4.79% and a Zacks Rank #2.

Darden Restaurants, Inc. DRI has an Earnings ESP of +67.17% and a Zacks Rank #2.

Chipotle Mexican Grill, Inc. CMG has an Earnings ESP of +2.31% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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