Goldman Cuts Target On Restoration Hardware From $45 To $37 Following Earnings

Restoration Hardware Holdings Inc RH shares plunged 14 percent in after-hours trading, following the company’s earnings report and outlook reduction. Goldman Sachs’ Matthew J. Fassler maintained a Natural rating for the company, while slashing its price target from $45 to $37.

Adding Complexity To Adversity

“RH is coping with limited visibility as its decision to respond to adversity (a tough backdrop, supply chain issues in its Modern rollout) with complexity (Grey Card, changed promotional cadence) is contributing to intensifying earnings pressure,” analyst Matthew Fassler commented.

The company is undertaking several initiatives to address sales issues, while also tackling inventory overages with aggressive clearance and trying to cope with the consequences of longer selling cycles under the Grey Card regime. Near-term margin contraction is worsened by the deferring recognition of Grey Card fees, Fassler pointed out.

The EPS estimates for FY16, FY17 and FY18 have been reduced from $2.57 to $1.65, from $2.95 to $2.35 and from $3.35 to $2.65, respectively, to reflect “softer sales and lower gross margin from promotions, offset by modest accretion from the Waterworks deal (closed May 27),” the analyst said.

Restoration Hardware could recapture some of the impact of clearance and Modern accommodations, and book into income membership fees amortized over 12 months, Fassler added.