Upscale retailers RH and Lululemon Athletica reported better-than-expected earnings late Tuesday but sales that slightly missed expectations. RH stock fell sharply Wednesday, while LULU stock jumped.
Premium-furniture chain RH gave a weaker-than-expected full-year sales forecast. And the company warned about the impact of inflation on consumer spending and said that Russia's invasion of Ukraine had weighed on demand in the current quarter.
"I don't think anybody really understands how high prices are going to go, everywhere, in restaurants, in cars, in everything," CEO Gary Friedman said during RH's earnings conference call on Tuesday. "And I think it's going to outrun the consumer and I think we're going to be in some tricky space."
However, Lululemon's rally continued into Wednesday, after the yoga-wear maker and retailer gave a bullish outlook and announced a new buyback program.
Both RH stock and LULU stock clocked solid gains in regular trade on Tuesday. The two companies reported as Wall Street tries to gauge consumers' appetite for spending, amid worries that rising prices could start to bite into demand.
Meanwhile, a tight labor market and Covid, from the omicron surge to China's recent lockdowns, have added other complications to product sourcing, pricing and sales. Some analysts point to a still-solid housing market for RH, but waning demand for at-home fitness for Lululemon.
RH Earnings
RH earned $5.66 per share in the fourth quarter, a 12% gain. That beat estimates for $5.59.
Revenue rose 11% to $902 million, missing estimates for $931 million.
RH forecast fiscal 2022 net sales growth of between 5% and 7%. Wall Street had forecast around 10%. The company forecast first-quarter sales growth of 7% to 8%, compared to Wall Street's expectation for gains of around 6%.
"While first quarter sales and margin trends remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed," CEO Gary Friedman said in a statement.
RH also announced a three-for-1 stock split. The company said the split would likely be executed in the spring, and was appropriate given the stock's rise since its IPO in 2012.
RH stock tumbled 13.3% on Wednesday.
On Tuesday, shares jumped 5% to 385.69, briefly clearing its 50-day line.
Shares of the luxury furniture chain have fallen 37% this year, after the pandemic spurred a home-renovation boom for higher-income workers stuck indoors or seeking to upgrade their homes.
Cowen analysts, in a research note last month, attributed the decline to shaky credit-card data, worries about rising interest rates, and wobbling markets and their impact on RH's wealthy customers who have more money wrapped up in investments. And they noted the absence of a "near-term catalyst to shift the narrative."
However, they said the company's full-year outlook, the launch of its new RH Contemporary furniture collection, a new catalog and its first store in Europe would represent new turns in that storyline. RH, unlike other retailers in an online universe, has embraced lavish physical stores and massive print catalogs to sell its furniture collections.
Kinked Supply Lines
RH in December said snarls in the world's supply chains led the company to delay the launch of that furniture line, as well as several store openings and the mailing of its fall catalog.
Pandemic-related shutdowns across the world over the past two years, combined with a surge in U.S. demand for goods, have led to hiccups in the flow of products and ocean shipping containers, pushing transportation costs higher and backing up warehouses and ports. Production and shipping restrictions in China and Vietnam have made the difficulties more acute for companies like RH.
RH sourced some 72% of its products from Asia overall during its fiscal 2020, with 35% from China, based on dollar volume of purchases, RH said in its most recent annual report.
"It's a mess, OK, the worst we've ever seen," Friedman said of RH's supply-chain troubles in December. "So, it's a time to improvise, adapt, overcome."
RH stock has a 63 Composite Rating. Its EPS Rating is 95.
Lululemon Earnings
Revenue increased 23% to $2.129 billion. That was a bit shy of estimates for $2.135 billion. Lululemon earned $3.37 per share, beating forecasts for $3.27.
Same-store sales climbed 32%, above estimates for a 23.6% gain.
Lululemon forecast full fiscal-year revenue of between $7.49 billion to $7.615 billion. Wall Street forecast $7.239 billion.
For the first quarter, Lululemon said it expected $1.525 billion to $1.55 billion in revenue. That was also above expectations for around $1.4 billion.
The company's board also authorized a $1 billion stock buyback program.
Lululemon stock rallied 9.6% to 376.92 on Wednesday, up 17% so far this week. Shares are still down slightly so far this year.
During its earnings call on Wednesday, Lululemon executives said growth in athletic apparel was still outpacing growth in apparel overall, and said more customers were focused on mental and physical health due to the pandemic.
Those results came despite omicron-related challenges. William-Blair analysts said in a research note this month that Lululemon's e-commerce infrastructure was "limited in its ability to offset omicron-related store traffic declines during peak holiday weeks." That was primarily due to occupancy limits and reduced staffing and operating hours.
Traffic bounced back in January, they said. But product selection, they said, "appeared a bit stale."
Lulu's Supply Chain Stretched, Too
William Blair analysts said that supply-chain issues remained the biggest "wild card" for Lululemon this year, given that the company didn't intend to raise prices across the board. In 2020, 45% of Lululemon's fabrics came from Taiwan, and 18% from China.
However, the analysts expected the pressure on that supply chain to ease after the first quarter. Spring-season clothing, they said, had helped drive a sales rebound in the first quarter so far.
Management for Lululemon, during the company's earnings call on Tuesday, said supply-chain-related delays persisted, particularly as it related to ocean freight. They said they planned "modest selective price increases over the course of the year."
Lululemon in 2020 bought Mirror, a company that makes a mirror that displays workout classes and fitness data. However, as the economy reopened, management in December noted that 2021 was a "challenging year for digital fitness." But it noted that Mirror made up less than 3% of 2021 sales.
The company in recent days has made other departures beyond its core clothing offerings. Lululemon this month launched its own running shoe, called Blissfeel, geared toward women customers. Lululemon will launch other shoes this year. It plans to launch footwear targeted toward men next year.
