According to Wedbush analysts, furniture store RH Inc. may have become too high-class for its “core aspirational luxury consumer” in recent years. This is because it has raised prices too much, among other things.
On Monday, though, those experts said the company was “back on track.” They said this because of new furniture lines and stores that should help sales grow, even if the housing market stays tight.
Because of this, Wedbush changed its rating on the stock from neutral to outperform, which is the firm’s most similar to a buy rating. It also raised its price target from $310 to $430. RH RH -2.16% shares were still down 2.2% on Monday.
Wedbush investors wrote in a note on Monday that RH “lost its way during the pandemic, inhibiting new product and store development to focus on product supply while also raising prices too quickly.”
“Those mistakes have been fixed,” they said. “RH has released more new products in the last two years than it normally does in six years. The products are on trend, have low prices, and are of good quality, creating an attractive value proposition for its core aspirational luxury customers who had gone elsewhere.”
According to the analysts, people were interested in new goods like RH’s reeded furniture, which is in the style that was popular in the 1920s and 1930s during the Art Deco period. Analysts said that RH may have been hesitant to sell this type of furniture because of “image concerns,” but the chain is also doing well with “motion furniture” like reclining sofas.
“Given the success that other well-known high-end furniture brands, like Bernhardt, have had with motion furniture, we wouldn’t be surprised if more companies started making it,” they wrote.
Analysts also said that opening new stores (RH calls them “galleries”) in cities like Paris, London, and Milan over the next 18 months could help sales grow next year and in 2026. Analysts think that sales will grow by 14.4% next year, which is more than both their own earlier predictions and Wall Street’s total predictions.
Even so far this year (2024), the ride has been bumpy. However, the Wedbush analysts said, “We believe the momentum that began this summer is building, with high inventory growth driven by new products to meet this accelerating demand.”
They said that RH has released 92 full furniture collections and more than 90 minor collections in the last two years. High interest rates and rising home prices have made it impossible for many people to buy a home, which is a big reason why people want to buy furniture. Some experts think that the furniture industry might start to recover with smaller items and that customers might just need to get used to paying more for things.
Still, RH stock went up last month after executives said there was good interest. Wedbush analysts also said that demand for RH could rise even if the home market doesn’t get better.
They wrote, “With exciting new products still coming out in stores and distribution centres through early 2025 and a strong pipeline of products through at least early 2026, product momentum should not be underestimated.”
“Building on the double-digit demand growth that RH saw in July and August, we think that demand growth could speed up to at least the mid-teens over the next year when we take into account the new stores and the products that are coming out,” they said.
RH stock has gone up 19% so far this year.
