Wedbush: Unlike Many Retail Peers, RH Is 'Thriving'

Many home furnishing retailers are struggling, but RH RH stands out as "thriving," according to Wedbush.

The Analyst

Wedbush's Seth Basham initiated coverage of RH with an Outperform rating and $145 price target.

The Thesis

RH stands out among its home furnishing retail group peers by offering a highly differentiated experience, Basham said in a note. Specifically, the company is able to attract shoppers to its stores by offering food and beverage options along with free design services, which warrants the status as being the largest national ultra-premium furniture and decoration retailer.

Basham said RH's store is "the nucleus" of the overall experience as items on display in stores sell 50 to 150 percent better than if it's only offered online or in categories. Encouragingly, the direct channel is "highly synergistic" and showcases 90 percent of merchandise not shown in legacy galleries and fulfills 97 percent of orders placed online and in stores.

Meanwhile, management's transformation of its properties from legacy to next generation galleries remains ongoing with 18 out of 65 stores completed, the analyst wrote. The company is also working to transform its supply chain for better efficiency as distribution and delivery likely costs at least $250 million.

RH's management guided towards 8 to 12 percent revenue growth and 15 to 20 percent EPS growth. Basham said these estimates are likely conservative if the company is successful in expanding internationally and gaining new exposure to secondary U.S. markets.

Price Action

Shares of RH were trading higher by more than 4.6 percent Tuesday to $114.18.

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