Is There Light At The End Of The Tunnel For Restoration Hardware?

Shares of Restoration Hardware Holdings Inc RH plunged more than 16 percent as weak fourth-quarter outlook overshadowed the third-quarter top- and bottom-line beat from the furniture retailer.

Deutsche Bank said the current scenario sets up the question of positioning into 2017, given the 15 percent share drop and a much easier compare in 2017 with several potential tailwinds.

“We in fact believe RH is trying to set up 2017 to have as few moving parts as possible,” analyst Adam Sindler wrote in a note.

Bullish, Bearish Perspectives

Bulls are likely to focus on leverage of Grey Card and potential upside to Deutsche Bank’s modest approximate 10 to 15 bps estimate for shipping and occupancy leverage. Sindler said though revenues remain a wild card, comps could at least be “optically better.”

On the other hand, bears will point out volatility and low visibility. Bears may state the company’s outlook for sales and EPS growth in each quarter of 2017 as overly bullish given the current macro backdrop where high end furnishings are lagging.

“This uncertainty could allow bears to re-press shorts once the near-term trading is settled as longer-term investors remain on the sidelines,” Sindler continued.

Analyst's Conclusions

As such, the analyst is reiterating his Hold rating on the stock until the visibility improves and gains traction. Sindler also slashed the price target to $35 from $40.

At last check, shares of Restoration Hardware had fallen 15.93 percent on the day to $32.78.