Restoration Hardware Up to Strong Buy - Analyst Blog

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On Jul 9, 2014, Zacks Investment Research upgraded furniture and accessories retailer Restoration Hardware Holdings, Inc. ( RH ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The company recently posted spectacular first-quarter fiscal 2014 earnings of 18 cents a share, which grew threefold year over year while comfortably beating the Zacks Consensus Estimate of 10 cents and exceeding the company's guidance of 9-11 cents a share.

The bottom line was driven by a robust 22% surge in the company's net revenues of $366.3 million. Net sales not only surpassed the Zacks Consensus Estimate of $346.0 million, but also came ahead of the company's predicted range of $345-$350 million.

Shares of this home furnishings retailer surged 21.3% since the earnings release. Moreover, Restoration Hardware has witnessed rising earnings estimates over the last 30 days, as the Zacks Consensus Estimate for fiscal 2014 and 2015 increased 7.2% and 2.9% to $2.37 and $2.86 per share, respectively. This reflects that investors have become constructive on the stock's performance.

Further, management seems highly impressed with the company's first-quarter performance despite eliminating the mailing of the "Fall 2013" Source Book. The solid results coupled with its leading position in the home furnishings industry and multi-network business model make Restoration Hardware confident of its future prospects.

This was well reflected in the company's encouraging outlook for fiscal 2014. It now expects net revenues in the range of $1.86-$1.89 billion, compared with $1.825-$1.86 billion predicted earlier. Moreover, it anticipates adjusted earnings per share in the band of $2.24-$2.30, up from $2.14-$2.22 per share projected previously.

Going forward, the company plans to maintain its focus on transforming its retail outlets and expanding its product portfolio. In fiscal 2014, the company plans to introduce new Galleries in Greenwich and Los Angeles.

The company believes that subsequent to its real estate transformation in North America, it will record annual sales of $4-$5 billion, generating operating margins in the mid-teens and producing adequate free cash flow.

Also, most recently, Restoration Hardware announced the pricing of 0% convertible senior notes (maturing on Jun 15, 2019) worth $300 million. The company has offered initial buyers a 13-day option to buy another $50 million worth of notes on the same terms and conditions for a potential offering size of up to $350 million.

The company is likely to use the proceeds to fund business initiatives including the continual upgrade of its real estate platform, repayment of higher interest borrowings from its existing credit line, and further improvement of its balance sheet in the next five years.

Following this announcement, the retailer's shares have moved northwards by 3.6%.

Other Stocks to Consider

Other home furnishings retailers with a favorable Zacks Rank include Kirkland's Inc. ( KIRK ), Tempur Sealy International Inc. ( TPX ) and Williams-Sonoma Inc. ( WSM ). All these stocks carry a Zacks Rank #2 (Buy).


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TEMPUR SEALY (TPX): Free Stock Analysis Report

KIRKLANDS INC (KIRK): Free Stock Analysis Report

RESTORATION HDW (RH): Free Stock Analysis Report

WILLIAMS-SONOMA (WSM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: TPX , KIRK , RH , WSM

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