Restoration Earnings At Risk, Street Warns

Buckingham Research Group’s Kelly Halsor downgraded the rating for Restoration Hardware Holdings Inc RH from Neutral to Underperform, while reducing the price target from $33 to $30. The analyst citied continued supply chain issues as the reason for the revisions.

“[The] worst of the supply chain issues may still be ahead of us,” analyst Kelly Halsor commented, adding that the 1H16 EPS estimates could come down further after the company reports its 4Q15 earnings. The EPS estimate for FY16 has been reduced from $2.75 to $2.33 to reflect deteriorating comps and OPM in 1H16.

Supply Chain Issues

Channel checks have revealed that the supply chain issues at Modern have continued into 1Q and the company is yet to fully understand the extent of the problem. Halor expects the worst of the impact on sales and margin to be felt in 1H16.

Uncertainty around the impact of the company’s new Grey Card, a part of its membership strategy, enhances the risk. “We see risk of dislocation in RH's trade business, which we est. represents ~20% of sales (though with referral biz, likely larger) given the nature of the model discourages customers from using interior designers,” the analyst wrote.

Halor expressed concern regarding the company’s decision to completely stop its traditional promotions.