RH shares are down 10% in premarket: this is why

By:
on Jun 30, 2022
  • RH blames macro headwinds as it lowers its full-year guidance for revenue.
  • Wells Fargo analyst Zachary Fadem says the downside risk is still limited.
  • RH shares are currently down roughly 60% versus the start of the year 2022.

RH (NYSE: RH) shares are down 10% in premarket after the company formerly known as Restoration Hardware blamed macro headwinds as it lowered its full-year guidance for revenue.

RH leaves Q2 guidance unchanged

The furniture stores company says lower luxury home sales and rising mortgage rates will hurt demand in the balance of 2022. It now expects up to a 5.0% decline in revenue this year versus flat to a 2.0% gain it had forecast earlier this month.

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RH expects operating margin (adjusted) to stand between 21% and 22% in FY22. Its outlook for the second quarter, however, remained unchanged on “faster backlog relief”. The stock is down 60% for the year.

The update arrives only weeks after the California-based company reported market-beating results for its fiscal Q1.

Wells Fargo analyst reacts to the news

RH recently authorised an additional $2.0 billion in stock buyback. Commenting on its lowered outlook, Zachary Fadem – Senior Equity Analyst at Wells Fargo, wrote:

With demand indicators shifting incrementally negative, setting expectations real time makes sense. We expect shares to trade lower, but balance sheet optionality, share repurchases, and attractive dynamics ultimately limit downside risk.

He reiterated his “overweight” rating on the stock but lowered his price objective to $300, which still translates to a close to 40% upside from here.

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