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Restoration Hardware Beats on Q3 Earnings, Ups FY15 View

Restoration Hardware Holdings, Inc.RH continued its bull run in the third-quarter of fiscal 2015 by surpassing the Zacks Consensus Estimate for the seventh consecutive quarter. Adjusted earnings per share also increased 32.7% year over year in the quarter to 65 cents and came a couple of cents ahead of the consensus mark.

Restoration Hardware Holdings Inc. (RH) - BNRI EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

GAAP earnings in the reported quarter came in at 49 cents per share compared with 47 cents earned in the prior-year quarter.

Quarter in Detail

Despite the earnings beat, shares of this home furnishing retailer declined 1.3% during aftermarket trading session yesterday, as the company's top-line performance raised apprehension. Though revenues increased 9.8% to $532.4 million, the figure lagged the Zacks Consensus Estimate of $540 million, marking the first miss in the last five quarters. The revenue miss can be largely attributed to a sharp decline in sales at the Comparable brand.

Restoration Hardware's comparable brand revenues, including direct revenues, went up 7% year over year compared with 22% in the prior-year quarter. Further, the company's direct and store revenues came in at $250.9 million and $281.6 million, advancing 4% and 16% year over year, respectively.

Meanwhile, adjusted operating income jumped 36% to $50 million from the year-ago quarter while adjusted operating margin expanded 180 basis points to 9.4%.

The company launched two new businesses - RH Modern and RH Teen - in the quarter under review. Management is satisfied with the initial results of these launches. RH Modern is focused on manufacturing luxury furniture with a modern twist. On the other hand, RH Teen is dealing in superior quality furniture, linens, lightning and decor for teens. Apart from this, the company has adopted various initiatives like product category expansion, stores transformation and multi-channel platform, and infrastructure enhancement to drive growth.

Store Update

At the end of third-quarter 2015, Restoration Hardware operated 68 retail outlets, including 54 legacy galleries, 6 large format galleries, 3 next generation design galleries and 5 Baby & Child galleries. The company also has 18 outlets across the U.S. and Canada.

Balance Sheet

Restoration Hardware, which shares the retail-home furnishing space with Mattress Firm Holding Corp. MFRM , ended the quarter with cash and cash equivalents of $227 million, merchandise inventories of $760.9 million, convertible senior notes (net) of $294.7 million due in 2019 and 217.8 million due in 2020, and total shareholders' equity of $839.3 million.

Outlook

Management raised its outlook for fiscal 2015 citing an anticipated improvement in its performance owing to the launch of RH Modern and RH Teen. Management now expects net revenues in the range of $2.17-$2.18 billion for fiscal 2015, up from the previous forecast of $2.158-$2.178 billion. Capital expenditures are projected in the range of $140 million to $160 million.

Adjusted earnings per share are now expected between $3.11 and $3.16 for fiscal 2015, up from $3.06 and $3.16 projected earlier. Currently, the Zacks Consensus Estimate is pegged at $3.18 per share, which might witness a correction in the coming days.

For the fourth quarter of fiscal 2015, the company expects net revenues in the range of $708 million to $718 million compared with $583 million reported in the prior fiscal. Adjusted earnings per share are likely to be between $1.37 and $1.42 compared with $1.02 reported in the fourth quarter of fiscal 2014. The Zacks Consensus Estimate for the fourth quarter is currently pegged at $1.41 per share, which is near the high-end of the company's guided range.

Zacks Rank & Stocks to Consider

Restoration Hardware currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Tempur Sealy International Inc. TPX and Hanesbrands Inc. HBI . Both the stocks hold a Zacks Rank #2 (Buy).

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TEMPUR SEALY (TPX): Free Stock Analysis Report

HANESBRANDS INC (HBI): Free Stock Analysis Report

RESTORATION HDW (RH): Free Stock Analysis Report

MATTRESS FIRM (MFRM): 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 Nasdaq, Inc.


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

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