Why RH Stock Cratered Today
How did RH's profit margins for Q1 2024 compare to the same quarter in the previous year?
RH's profit margins for Q1 2024 were lower compared to the same quarter in the previous year. The company's operating margin in Q1 2024 was 7.5%, down from 13.4% in the same quarter of the previous year. This decline in profit margins was due to an increase in the cost of goods sold and higher operating expenses.
What were the reported net revenues of RH for the fiscal first quarter of 2024?
The reported net revenues of RH for the fiscal first quarter of 2024 were $727 million.
What factors contributed to RH's stock price dropping by 18% on the day of the report?
Several factors contributed to RH's stock price dropping by 18% on the day of the report:
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Disappointing profit margins: RH's Q1 cost of goods sold was up compared to the prior-year quarter, even though its revenue was down. Its operating expenses were also up year over year, leading to an operating margin of just 7.5% compared with 13.4% in the same quarter of last year. This resulted in a lower profit than investors expected for RH.
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Challenging housing market: Management stated that they are "investing aggressively" in the business during "the worst housing market in 30 years." This statement likely caused concern among investors, as a weak housing market can negatively impact the demand for luxury furniture.
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High fixed costs: RH's stores are usually quite large and are intended to showcase the luxury flavor of its offerings. This gives the business high fixed costs, and when sales slump, as they are now, so too does profitability.
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Uncertainty about the future: RH may indeed be well positioned for when housing sales rebound, particularly when a rebound happens at the higher end of the real estate market. However, it's unclear when that will happen exactly. Therefore, investors seem content with avoiding the uncertainty surrounding RH stock right now.
These factors combined led to a drop in investor confidence, resulting in the 18% decline in RH's stock price on the day of the report.