Analyst Note| Jaime M. Katz, CFA |
We plan to increase our $385 fair value estimate for no-moat RH by a mid-single-digit rate after incorporating third-quarter results that modestly outpaced our forecast. However, with a 10% jump post report, we still view shares as rich at current levels. In the third quarter, sales growth of 19% (to $1 billion) was above our 16% forecast rise, but more impressively, the adjusted operating margin of 27.7% was 70 basis points ahead of our projection. Better gross margin results made up for all of this outperformance, at 50.2% and around 100 basis points better than we anticipated--despite facing the inflation, logistics, and supply chain woes that have plagued multiple industries. Given the still-solid demand heading into the fourth quarter, RH raised the low end of its 2021 sales outlook, now calling for 32%-33% growth (31%-32% prior), implying a mid-teen sales pace in the coming period. The operating margin outlook was adjusted to 25.3%-25.5%, taking the low end of prior guidance up by 40 basis points.