Restoration Hardware Q4 Earnings in Line - Analyst Blog

Restoration Hardware Holdings, Inc. RH posted fourth-quarter fiscal 2013 adjusted earnings of 83 cents a share, which surged 38% year over year, coming in line with the Zacks Consensus Estimate. Results were impacted by an extra week in the previous year's fourth quarter.

Taking one-time items, earnings per share rose a whopping 182.3% to 65 cents from a loss of 79 cents last year.

Net revenues for the quarter advanced 18% to $471.7 million. However, excluding the effect of an extra week in the previous-year quarter, revenues rose 26%. Net sales fell short of the Zacks Consensus Estimate of $496 million.

Restoration Hardware's comparable brand revenue growth, including direct revenues, went up 24%, compared to 29% last year. Further, comparable store sales (comps) for the quarter soared 17%, compared to 26% last year. The company's direct revenues came in at $228.9 million at the end of the fourth quarter, up 22% year on year.

The company's adjusted operating income for the quarter increased 41% to $58.3 million, with the margin expanding 200 basis points (bps) to 12.4%. Also, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $66 million, 35% above the prior-year figure.

Fiscal 2013

For full-year 2013, adjusted earnings per share surged 76% to $1.71, cruising ahead of the Zacks Consensus Estimate of 75 cents. Taking one-time items, reported earnings per share came in at 45 cents, compared to a loss of $1.36 per share last year.

Net revenues for the year escalated 30% to $1.6 billion, coming in line with the Zacks Consensus Estimate. However, excluding the impact of the extra week in fiscal 2012, revenues scaled up 33% year over year.   

Also, comparable brand revenue growth, including direct revenues, climbed 31%, as against a 28% increase last year. Comps for the fiscal year increased 27%, following a 28% rise last year. Finally, direct revenues of the company advanced 33% to $732.6 million.

Adjusted EBITDA for the year was $148.6 million, up 25% year on year.

Restoration Hardware delivered an impressive year, where it continuously captured market share and outperformed its anticipations by not only meeting its annual financial targets but also exceeding them. Results benefited primarily from the company's strong brand and its multi-network operations.

Store update

By the end of fiscal 2013, the company operated 70 retail outlets, including 62 galleries, 3 baby and child galleries, 5 full line design galleries and 17 outlet stores all over U.S. and Canada.

Balance Sheet

The company gracefully ended the year with cash and cash equivalents of $13,389 million, merchandise inventories of $453,845 million and its total current assets at $613,815 million. Also, the company's total shareholders' equity came in at $545,272 million.

Outlook and Conclusion

Going forward, the company plans to maintain its focus on 2 key strategies, i.e., transformation of its retail outlets and expansion of its offer. Restoration Hardware's expansion offer will become prominent from its Spring 2014 Source Books.

As for the transformation of outlets, in fiscal 2014, the company plans to introduce new Galleries in Greenwich, Los Angeles and also plans to open its first next generation Full Line Design Gallery in Atlanta in the same year. Further, it plans to increase the size of its best performing outlet, i.e., its New York Gallery, by adding 2 more levels to it. The company has already finalized lease contracts for 5 of its next generation Full Line Design Galleries and is in the process of doing the same for 25 more.

The company believes that post its real estate transformation in North America, it will record annual sales of $4 – $5 billion, generate operating margins in the mid-teens and produce noteworthy free cash flow.

For fiscal 2014, the company envisions net revenues to range from $1.825 – $1.86 billion and it anticipates adjusted earnings per share to lie in the band of $2.14 – $2.22 for the same period. The current Zacks Consensus Estimate for fiscal 2014 is pegged at $2.18, thereby lying within the company's predicted range. Also, for the first quarter of fiscal 2014, the company forecasts net sales of $345 – $350 million, whereas it expects adjusted earnings to range from 9 – 11 cents per share.

Other Stocks to Consider

Currently, Restoration Hardware carries a Zacks Rank #3 (Hold). However, other better-ranked stocks in the retail sector include Foot Locker, Inc. FL, Bon-Ton Stores Inc. BONT and Rite Aid Corporation RAD, all sporting a Zacks Rank #2 (Buy).