RH (RH) shares rose more than 20% during Monday's session after the company announced a temporary furlough of 2,300 employees and a salary reduction for executives. In addition, RH expects to reduce capital expenditures by $130 million and expenses by $150 million in fiscal year 2020. These efforts could help improve short-term liquidity and eliminate the need for the company to go to the market for capital.
Analysts remain confident in RH's ability to weather the storm. Wells Fargo reiterated its Overweight rating and issued a price target of $130 per share on March 31, saying that the company's real estate transformation, luxury positioning, and global aspirations make it an intriguing retail growth story. While trends will likely worsen before they improve, the analyst sees an attractive long-term entry point for patient investors.
During the fourth quarter, RH reported unexpectedly lower revenue due to the elimination of its holiday assortment that created unforeseen collateral damage to its core business thanks to slower foot traffic and website visitors. At the same time, it experienced higher-than-normal backorders due to an 18% reduction in inventories year over year. First quarter financial results could provide a clearer picture.
From a technical standpoint, RH stock experienced a death cross as the short-term 50-day moving average crossed below the long-term 200-day moving average last week. The relative strength index (RSI) remains somewhat oversold with a reading of 37.79, while the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that the recent uptick could have some momentum.
Traders should watch for a rebound toward reaction highs of around $120.00 over the coming sessions. If the stock breaks out from these levels, traders could see a move toward the 200-day moving average near $171.00. If the stock moves lower, traders could see a retest of trendline support near $90.00 or a retest of lows of around $80.00. The death cross is a bearish indicator, but the RSI and MACD turned bullish.
The author holds no position in the stock(s) mentioned except through passively managed index funds.