RH (NYSE:RH) stock fell 0.12% (As on June 3, 11:42:56 AM UTC-4, Source: Google Finance) after the company beaten the market’s expectations for the first quarter of FY 22. Gross margin increased 480 basis points in the quarter to 52.1%. This was driven by a 390 basis point increase in product margins and the firm’s resistance to promote the business as demand trends began to slow. While the first quarter was strong, the company is seeing softening demand trends and as a result, is revising its second quarter and fiscal 2022 guidance. The results now reflect those of the leading luxury brands as first quarter adjusted operating margin reached 24.7% versus 22.6% a year ago. The results are inclusive of investments related to the opening of RH San Francisco and the RH Guesthouse, the development of RH International, and the rollout of the RH In-Your-Home, which led to approximately 200 of the 270 basis points of base SG&A deleverage in the quarter. The company is now forecasting SG&A as a percentage of revenue to peak in the second and third quarters as it return to mailing Source Books after a two-year hiatus.
RH in the first quarter of FY 22 has reported the adjusted earnings per share of $7.78, beating the analysts’ estimates for the adjusted earnings per share of $5.38. The company had reported the adjusted revenue growth of 11 percent to $957 million in the first quarter of FY 22, beating the analysts’ estimates for revenue of $924.81 million.
Additionally, the company generated $107 million of free cash flow in Q1, ending the quarter with net debt of $166 million, $2.24 billion of cash on our balance sheet, and trailing 12 months adjusted EBITDA of $1.13 billion. The company spent $481 million in cash to repurchase $180 million of the outstanding affordable notes, terminate all of the 3.4 million outstanding warrants, and unwind the remaining bond hedges. Following these transactions, the company has $101 million of convertible notes outstanding.
Second quarter net revenue is expected to be in the range of (1%) to (3%), versus up 39% last year, with adjusted operating margin in the range of 23.0% to 23.5%, versus 26.6% a year ago.
Fiscal 2022 net revenue growth is expected to be in the range of 0% to 2%, versus up 32% last year, with adjusted operating margin in the range of 23.0% to 24.0%, versus 25.6% a year ago.