RH tumbles premarket after home furnishings firm posts wider-than-expected Q1 loss

Investing.com -- Shares in RH (NYSE:RH) slumped in premarket trading on Friday after the high-end furniture retailer posted a wider-than-anticipated first-quarter loss and warned of "challenging" conditions over the remainder of its current financial year.

California-based RH, which sells luxury home furnishings, has been hit by a slowdown in the U.S. real estate market during a time of elevated borrowing costs that have pushed up mortgage rates. Although demand is expected to expand in the coming quarters, the business warned of headwinds to its operating environment until interest rates ease and the housing market begins to rebound.

"We do expect the constantly changing outlook regarding monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025," Chief Executive Gary Friedman told analysts in a post-results call.

The statement comes after the Federal Reserve signaled earlier in the week that it expects to slash interest rates down from more than two-decade highs just once this year, as policymakers fretted over the prospect of sticky inflationary pressures. In March, the central bank had forecast three cuts.

Despite the elevated rate outlook, RH reiterated its guidance for annual revenue growth of 8% to 10% and a 12% to 14% uptick in demand. Analysts at TD Cowen flagged in a note that the projections imply a "significant acceleration" both demand and pre-tax profit margin in the second half of the 12-month fiscal period.

"Ultimately, while we believe it will be feasible to achieve the demand guide, we acknowledge it will be challenging, especially if books are delayed, lead times are long, or fewer products make their way into galleries," the TDCowen analysts said.

In RH's fiscal first quarter ended on May 4, earnings per share came in at a loss of $0.40, down from a profit of $2.21 in the corresponding timeframe last year and deeper than estimates for a loss of $0.12. Net revenues of $727 million, however, topped consensus estimates of $725.15 million.