Shorts Get Squeezed as RH Stock Jumps 25% After Significant Guidance Increase

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What happened?

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Shares of RH (NYSE: RH), a luxury retailer in the home furnishings market, were up 25.6% as of 12:08 p.m. EST Thursday after the company raised third-quarter and full-year guidance.

So what

RH, which sells furniture, lighting, outdoor and garden products through its retail galleries and website, now expects its adjusted net revenues for its fiscal Q3 to be roughly $592.5 million, 8% higher than the prior year and above the prior $575 million to $590 million guidance range. Adjusted earnings per share for the third-quarter are expected to land between $1.02 to $1.04, despite a $0.05 per share negative impact from Hurricanes Harvey and Irma.

RH's new earnings guidance is a massive jump from the prior range of $0.68 to $0.80 per share. Management also bumped up full-year guidance; net income is expected to check in between $82 million and $87 million, compared to the previous forecast range of $70 million to $77 million, with a slight decline in capital expenditures to boot. 

Now what

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"Over the past 18 months, we transformed our business from a promotional to a membership model that is enhancing our brand, streamlining our operations, and improving the customer experience. Simultaneously we began the redesign of our supply chain network, rationalizing our product offer, and transitioning inventory into fewer facilities, creating a more capital efficient model," said CEO Gary Friedman, in a press release.

While it's true that RH's aggressive share buybacks are boosting its earnings per share, it's also true that the company is improving its performance in many aspects. Part of Thursday's jump can be explained by a short squeeze, but it's the furniture retailer's effective turnaround steps that have given investors reason to be optimistic.

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