Restoration Hardware (NYSE: RH)
On Thursday December 10, 2015 shares of Restoration Hardware, a high-end retailer of home furnishings, decor and tableware, reported third quarter earnings that saw revenues grow quarter-over-quarter. At first glance, the numbers were interpreted as stellar, and shares initially jumped in after market trading. However, after the earnings report was announced and digested by investors, it showed that the revenue numbers and earnings had missed analysts expectations. This is a growing theme in American retailer’s struggles during the most recent earnings quarter. Companies are struggling to meet expectations while cutting costs and coming up with new inventive ideas to maximize their internal investments.
Earnings Results
Shares closed at $87.59, down -$0.61(0.69%) in the regular trading session on Thursday, but were even lower after the earnings were announced and digested by investors and traders. RH ended closing at $86.48, down -$1.11 (-1.27%). Part of the struggle this quarter was blamed on two new concepts the company rolled out which was labeled RH Modern and RH Teen; new segments within the corporation designed for a newly profiled consumer.
RH earned .65 cents a share, 2 cents above analysts’ expectations and up 33% from the prior year. But revenue, which rose 10% over last year to $532.4 million, was below analysts’ consensus estimate of $540 million. Comparable brand revenue grew 7%, a deceleration from 16% growth in Q2 and 15% in Q1. IBD
CEO Comments
As is typical when a company reports mixed-earnings figures such as RH did, CEO’s are usually quick to try to “caress” or “soften” the hard-line facts and figures from the quarter’s performance.
“During the third quarter, we grew our adjusted operating margin by 180 basis points and adjusted net income by 37%, both ahead of our expectations, further demonstrating the disruptive nature of the RH brand and the power of our multi-channel platform,” Restoration Hardware CEO Gary Friedman said in a statement. “When we step back and consider the positive response to our two new businesses – RH Modern and RH Teen, the outperformance in all of our next generation Design Galleries, and the exciting new real estate and businesses we have in the pipeline for 2016 and beyond, we could not be more confident in our long term goal of reaching $4 billion to $5 billion in North American revenues, mid-teens operating margins, significant free cash flow and industry-leading return on invested capital,” Investing.com
RH Technicals
In the accompanying daily price chart going back to the late part of 2014, please note the horizontal price channel that the shares have been trending in. After last week’s earnings release and the aftermarket response, shares will open for Friday’s trading in the red arrow circled zone shown on the chart. It will be interesting to see if investors find value in the stock and find it a bargain in a difficult retail environment for earnings. Short sellers may look to take advantage of disappointed analysts’ expectations and try to drive the shares lower.
Company Profile
Restoration Hardware Holdings, Inc., together with its subsidiaries, engages in the retail of home furnishings. Its product categories include furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and childrens furnishings. The company sells its products through its stores and catalogs, as well as through its Websites, such as restorationhardware.com, rh.com, and rhbabyandchild.com. As of January 31, 2015, the company operated 67 retail stores consisting of 57 Legacy Galleries, 7 larger format Galleries, and 3 Baby & Child Galleries, as well as 17 outlet stores in the United States and Canada. The company was founded in 1979 and is headquartered in Corte Madera, California. YahooFinance
