It has been about a month since the last earnings report for Restoration Hardware (RH). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Restoration Hardware due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

RH Q2 Earnings & Revenues Beat Estimates, Margins Rise Y/Y

RH reported stellar second-quarter fiscal 2020 (ended Aug 1, 2020) results on the back of strong demand and solid margins. Both adjusted earnings and revenues handily beat the Zacks Consensus Estimate, as well as grew on a year-over-year basis.

RH witnessed a 16% increase in demand for the fiscal second quarter. For August, the same was up 47% year over year. It further increased to 44% in the beginning of September.

Earnings, Revenue & Margin Discussion

Adjusted earnings of $4.90 per share impressively surpassed the consensus mark of $3.44 by 42.4% and increased a whopping 53.1% from the year-ago level.

Net revenues of $709.3 million grew 0.4% year over year. Adjusting for recall accrual, net revenues increased 0.5% from the prior year to $709.7 million. The figure surpassed the consensus mark of $695 million by 2.1%.

Adjusted gross margin expanded 550 basis points (bps) to 47.5% for the quarter. Adjusted SG&A contracted 140 bps owing to lower advertising and compensation costs, partially offset by an approximate 40 bps drag from incremental COVID-related expenses.

Adjusted operating margin increased a notable 690 bps year over year to a record 21.8%. Adjusted EBITDA also surged 38.9% year over year to $185.8 million for the quarter.

Store Update & Balance