PreMarket Prep Stock Of The Day: Restoration Hardware

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Of the many sectors that have come under pressure since the COVID-19 pandemic began, one that has been potentially impacted the most is retail, for two reasons. 

First of all, with a majority of the world's population being on a lockdown or quarantine, consumers are only making essential trips out of their home for food and other necessities

More importantly, with many employees laid off or simply not working, they will be dealing with monetary restraints due to a drop in disposable income.

With less money coming in, consumers are bound to curb their spending habits. 

Which retailers will survive the crisis is impossible to predict. All investors can do is monitor an issue's price action and earnings reports.

One such issue is Restoration Hardware Holdings, Inc RH, which reported fourth-quarter earnings after the close Monday. 

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RH Report Mixed On Year-Over-Year Basis

The furniture retailer reported fourth-quarter adjusted EPS of $3.73, up from $3 year-over-year. Sales were down from $670.89 million to $665 million over the same time period. As expected in these turbulent times, the company did not issue first-quarter guidance.

RH's Long-Term Price Action

Once the darling of the retail sector, the issue was higher by over 200% from its May 2019 low to its February peak at $256.27.

Just as the market collapsed as of late, so did shares of Restoration Hardware. In fact, its swoon in March took the issue beyond its May 2019 low, falling to $73.14 before mounting a vicious rebound.

RH Price Action Of Late 

As the broad market began to recover last week, so did shares of Restoration Hardware. Although the rebound was significant, reaching $121.90 Monday, it was muted compared to the rebound in the broad market.

While the S&P 500 Index recouped roughly one-third of its losses from it all-time-high and attempting to improve, this issue has only recouped only 26% of its peak price and is sitting $17 below that level. 

The stock was trading down 11.07% at $104.94 at the time of publication Tuesday. 

RH Moving Forward

Restoration Hardware's status as a high-end retailer puts the company in a precarious position. When the COVID-19 crisis subsidies or comes to an end, how much will the consumers affected adjust their spending habits? 

On the bright side, those who were well-positioned before the crisis have a better chance of returning to their prior spending ways. But investors should consider the potential lasting effect of the pandemic — and whether consumer behavior could change for the long term.

Photo courtesy of Restoration Hardware.