Why the HR stock fell 14% last month

What happened

Shares of HR (HR 1.83%) slipped last month as the high-end home furnishings retailer formerly known as Restoration Hardware was swept away by a market selloff following the Federal Reserve’s interest rate hike, then slumped again fell due to weak retail revenue from its peers such as Target added to concerns about a weakened consumer and cost-raising inflation.

Headwinds were strong enough to thwart some positive news, including Berkshire Hathawaythe increase in the capital of RH and a stock market rebound at the end of the month.

Image source: HR.

According to data from S&P Global Market Intelligence, the stock ended May down 14%. But the recovery was not enough to erase earlier losses:

HR chart

HR data by YCharts

So what

There hasn’t been much direct news on RH, but as a high-end consumer discretionary stock, it can be a bit of an indicator for the broader economy, and investors seem to be treating it as such. . Stocks fell sharply in early May when the Federal Reserve raised benchmark interest rates by half a point, the first time since 2000, and signaled it could continue raising rates at that pace when of its next meetings.

The move sank the entire market and hit HR hard, as higher rates make it harder for the company to borrow and more expensive for customers who choose to finance their purchases. It should also slow the economy, which tends to hit high-end discretionary businesses like HR first.

The stock saw a rally on May 17, when Berkshire Hathaway revealed that it had increased its stake in RH, as had Lone Pine Capital. Why Berkshire bought more RH in the first quarter was unclear, but RH’s share price discount likely made it more attractive.

However, the next day the stock plunged on weak results from Target as investors feared a bloodbath in the retail sector. The stock continued to fall, before rebounding in the last week of May as the general market gained and rival Williams Sonoma delivered strong results in the first quarter.

Now what

RH announced its first quarter results on June 2 and the company easily beat estimates, although the stock gained only modestly. Revenue rose 11% to $957 million, ahead of expectations at $924.8 million, and adjusted earnings per share jumped 59% to $7.78, beating consensus at 5.40 dollars.

However, guidance was weak, with the company expecting revenue to decline 1% to 3% in the current quarter and adjusted operating margin to fall from 26.6% to a range of 23% to 23. .5%. For the full year, he expects revenue to rise just 2% and the adjusted operating margin to decline from 25.6% to a range of 23% to 24%, indicating that earnings per share should decline for the year.

Although RH still looks like a good long-term stock, especially at the current price, it’s clear that 2022 will be a tough year.

About Robert Wright

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