Following less than hoped for fourth quarter results RH turned the tables on analysts and reported first quarter results that beat on both earnings and sales. In addition to its strong performance CEO Gary Friedman gave a positive outlook for the rest of 2019. RH surged at the open and maintained most of its gains, up 18% in mid-afternoon trading. Short sellers have been trimming their exposure to the company in 2019, covering 2.0 million of their shares shorted, a decline of -28%. Most of the short covering occurred after RHâ€™s stock price fell almost $29/share on March 29th and short sellers began taking profits.
RH continues to be the third largest short in the Homefurnishing Retail Sector behind William- Sonoma Inc (WSM) at $1.08 billion and Bed bath & Beyond Inc (BBBY) at $727 million of short interest. Much like the overall Retailing Sector, short interest in the Homefurnishing Sub-Sector topped out on late February\early March and declined through the second quarter. Short interest declined in the Homefurnishing Retail Sector at a greater rate, -$956 million or -23.6%, than the overall Retailing Sector, -17.1 billion or -16.4%.
2019 Retail Sector Short Interest
2019 Homefurnishing Retail SectorRH short sellers were up $163 million in year-to-date mark-to-market gains before todayâ€™s price move. The 18% spike cost short sellers $67 million in mark-to-market losses, eating away over half of their profits. They are now up only $76 million for the year, +9.52%.
We are seeing continued RH short covering today, continuing their two and half month trend. If RHâ€™s stock price continues to rally, short covering may accelerate, and a full-blown short squeeze may occur as short sellers rush to close out their positions while there are still profits to cash in.
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Managing Director Predictive Analytics, S3 Partners, LLC
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