RH Earnings: Stalled Housing Market Leads to Continued Friction for Demand

No-moat RH continues to face a housing market plagued by limited inventory, high interest rates, and declining affordability. Although sales were expected to fall in the back half of the year, an increasingly promotional home furnishing industry is pressuring profits for retailers more than anticipated. In line with our forecast, RH’s third-quarter sales contracted 14% to $751 million, following a 14% decline in the year-ago period. We believe that the recent slowdown is a function of the economic environment rather than flawed merchandising, and that the outlined opportunity set (design studios, international expansion, housing, and more) should offer RH the ability to capture 8% average sales growth over the longer term. Already the firm’s outlook implies that material declines are in the rearview mirror, with the fourth quarter aiming for flat year-over-year sales performance.