Reverse shares fall 10% after slamming forecast

The furniture retailer RH slumped after slamming its forecast for the second time in less than a month, blaming soaring mortgage rates and shrinking sales of luxury homes.

The shares fell 10% at 7: 57 a.m. Thursday in premarket trading in New York. The stock had fallen 56% this year through Wednesday s close.

Over the past couple of quarters, investors have been attracted to Chief Executive Officer Gary Friedman's propensity for dire commentary about the US economy. In a statement Wednesday, he said that demand would continue to slow down throughout the year due to the slowing of the housing market and future interest-rate increases. Sales for the year ending January are now forecast to drop as much as 5%, RH said. The retailer predicted revenue for the fiscal year would be flat to up 2% just four weeks ago. With about a month left to go in the second quarter, the company left its outlook unchanged for the current period, suggesting that the brunt of the slowdown will be felt later in 2022.

Barclays Capital analyst Adrienne Yih wrote a note to clients in an update showing how quickly the demand environment has changed even from earnings in early June. She says patient investors should still buy shares but notes that the near-term visibility is diminishing on luxury mountain. RH, formerly known as Restoration Hardware, has yet to repurchase any shares since it announced a $2 billion buyback authorization on June 2.

The Corte Madera, California-based company sells almost 70% of its sales from furniture, and it also sells items like lighting, textiles and home decor. Morgan Stanley analyst Simeon Gutman wrote in a research note that RH is a big ticket discretionary business, which is exposed to both recession and reversion risk in the category Home Furnishings.

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