Restoration Hardware Beats Q2 Earnings, Revenues Falter - Analyst Blog

Restoration Hardware Holdings Inc. (RH) posted second-quarter fiscal 2014 adjusted earnings of 67 cents a share that comfortably beat the Zacks Consensus Estimate of 64 cents while rising 37% year over year. Taking one-time items, GAAP earnings came in at 66 cents a share, as against a loss of 46 cents in the prior-year quarter.
 

 

However, shares of this home furnishing retailer fell 5.1% in the after-market trading session yesterday as the company trimmed its sales forecast for the fiscal. Sales are now expected to be in the range of $1.85 billion–$1.87 billion as compared with $1.86–$1.89 billion band projected earlier.

Moving ahead, net revenues grew 14% to $433.8 million but fell short of the Zacks Consensus Estimate of $454 million. Delay in mailing 2014 Source Books affected revenues.

Restoration Hardware's comparable brand revenue, including direct revenues, went up 13% year over year. Further, the company's direct revenues came in at $211.8 million, up 19% year on year.

Gross profit escalated 21% to $167.9 million with the gross margin expanding 230 basis points (bps) to 38.7% due to the company's subdued promotional activity in the quarter. The company's adjusted operating income soared 43% to $48.9 million, while margin expanded 240 bps to 11.3%.

Store update

At the end of the second quarter, the company operated 68 retail outlets, including 59 galleries, 3 Baby and Child galleries, 6 full-line design galleries and 17 outlet stores all over the U.S. and Canada.

Balance Sheet

Restoration Hardware, which competes with Haverty Furniture Companies Inc. (HVT) and Kirkland's Inc. (KIRK), ended the quarter with cash and cash equivalents of $181.5 million, merchandise inventories of $547.1 million and total shareholders' equity of $614.3 million.

Going forward, Capex is expected to hover around $115–$125 million for the fiscal. The company plans to continue focusing on transforming its retail outlets and expanding its product portfolio, with the latter initiative taking a leading edge from its 2014 Source Books.

Outlook

Despite slashing sales forecast, management upgraded its earnings outlook for fiscal 2014. Adjusted earnings per share is expected to be in the band of $2.29–$2.33 per share, up from $2.24–$2.30 projected earlier. The current Zacks Consensus Estimate for fiscal 2014 stands at $2.30 a share, within the company's guided range.

Also, Restoration Hardware initiated guidance for the third quarter of fiscal 2014, wherein it expects revenues to be within $475–$485 million and adjusted earnings in the band of 46–48 cents per share. The current Zacks Consensus Estimate for third-quarter fiscal 2014 is pegged at 42 cents per share, which may be revised upward.  

Other Stock to Consider

Currently, Restoration Hardware carries a Zacks Rank #2 (Buy). A better-ranked stock in the same sector is Mattress Firm Holding Corp. (MFRM), which sports a Zacks Rank#1 (Strong Buy).

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