-=RH (RH) reported earnings on Wed 4 Dec 19 (a/h)

RH beats by $0.48, reports revs in-line; increases long-term targets

Reports Q3 (Oct) earnings of $2.73 per share, excluding non-recurring items, $0.48 better than the S&P Capital IQ Consensus of $2.25; revenues rose 6.3% year/year to $676.7 mln vs the $676.54 mln S&P Capital IQ Consensus.

• The Company's adjusted net income and adjusted diluted EPS benefited by $5.5M and $0.24, respectively, in the third quarter due to a lower tax rate of 13.7% versus the previous estimate based on a normalized tax rate of 21%.

We are projecting to generate free cash flow in the range of $350 to $360 million for 2019 and expect a ratio of net debt to trailing twelve month adjusted EBITDA of approximately 1.7 times at year end.

Regarding trade with China, we do not expect the current tariffs to impair our ability to achieve stated financial goals and the impact from the increased tariffs is embedded in our guidance for the year. We continue to receive pricing accommodations from vendors and have implemented price increases where necessary with little to no impact to our business.

We believe our Company remains undervalued and we will continue to evaluate share repurchases.

We expect our operating margin to expand at least 200 basis points in fiscal 2020 and now see a clear path to a 20% operating margin over the next several years. We expect to open five new Galleries and one Guesthouse in fiscal 2020. We also plan to open a minimum of 7 new Galleries in fiscal 2021.

We are increasing our long-term targets to:

• Net revenue growth of 8% to 12%
• Adjusted operating margins in the high teens to low twenties
• Adjusted net income growth of 15% to 20%
• Return on invested capital (ROIC) in excess of 50%