Why RH Stock Skyrocketed 50.3% in September

Markets Motley Fool

What happened

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Shares of RH (NYSE: RH) climbed 50.3% in September, according to data from S&P Global Market Intelligence, after the company formerly known as Restoration Hardware announced better-than-expected fiscal second-quarter results.

The home-furnishings specialist's stock skyrocketed more than 45% on Sept. 7 alone, which was the first trading day after its quarterly report. In that report, RH confirmed that adjusted revenue had climbed 14% year over year to $619 million, and translated to 48% growth in adjusted earnings per share to $0.65. By comparison, RH's latest guidance had called for significantly lower revenue in the range of $595 million to $610 million and adjusted net income per share in the range of $0.38 to $0.43.

So what

Perhaps most important, RH's relative outperformance came amid what company chairman and CEO Gary Friedman described as "the most uncertain stages of our transformation." Last year, RH made a bold strategic decision to transform its business from a promotional to a membership model, while simultaneously redesigning its supply chain network and streamlining its inventory facilities.

"While 2016 was a year of transformation and transition," Friedman added, "2017 will be a year of execution, architecture, and cash at RH. Our efforts are focused on executing our new business model, architecting a new operating platform, and maximizing cash flow by increasing revenue and earnings, and reducing inventory and capital investments."

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Now what

RH also increased its full fiscal-year guidance to call for adjusted revenue of $2.42 billion to $2.46 billion (up from $2.40 billion to $2.45 billion previously) and adjusted diluted earnings per share of $2.43 to $2.67 (up from $1.67 to $1.94 previously).

All things considered, there was nothing not to like about this stellar quarter from RH. And while last month's resulting pop might seem extreme, it's not hard to argue that it was merited given the gravity of its guidance increase, as well as the fact that RH stock still trades well below its 52-week-high set in mid-July. Assuming RH can sustain this momentum, I see no reason its shares can't continue to follow suit.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.