Restoration Hardware: Higher Margins Ahead?

2:56 pm ET, 06 Dec 2017

RH home furnishings

Restoration Hardware (NYSE: RH) reported third-quarter results that were roughly in line with its November update, calling for sales of $592 million and EPS of $1.03, above the company’s initial take in September. Sales of $592 million and EPS of $1.04 were supported by store sales growth of 12% and a direct-to-consumer sales rise of 3%, with same-store sales ticking up 6% on top of a 6% decline in the year-ago period

The Firm’s change to its business model has likely placed it on track to reach higher operating margins than previously assumed (10% versus 8.5% prior).

Gross margin performance in the quarter was solid, expanding 460 basis points to 36.9% after contracting 440 basis points in third-quarter 2016, lapping the SKU rationalization that was undertaken in 2016. 

The SG&A ratio was a bit better than we anticipated, at 28.8%, ticking down a modest 20 basis points, but still inflated from 2015 levels as the Company reinvests in improving the supply chain. 

While we expect healthy operating margin gains in 2018, with RH returning to more normalized levels, we expect gains to moderate thereafter, with operating margins reaching about 10% over our long-term outlook.

Over the last year, RH has returned +183.00%. This return is higher than Services Sector (10.92%), Home Furnishing Stores Industry (25.02%), S&P 500 (19.27%) returns.

Restoration Hardware Holdings Inc. (RH) Stock Guide

Updated at: 12:30 pm ET, 18 Sep 2020

Before we start: if you're looking for RH stock price, you can quickly find it out by visiting Finny and typing "RH quote". If you're looking for a quick scoop on RH stock (chart, price target, market cap, news and buy or sell analysis), go to Finny and look for "RH". You'll get all this info in one place. Or you can just type "RH news" to get the latest stock news.

Looking to buy or sell Restoration Hardware Holdings Inc. (RH)? Interested in getting the full scoop on RH, including earnings and dividends, stock forecast, buy or sell analysis and key stats? If so, you came to the right place.

In this RH stock guide, we'll address key questions about RH, above and beyond what you can find on Yahoo Finance, Zacks, MarketWatch or Morningstar.

Here is what you'll be able to find in this guide:

Earnings and Dividends: earnings, earnings date, dividend rate and dividend yield;
Analyst Predictions: stock forecast and analyst ratings;
Analysis: Finny Score and buy or sell analysis;
Key Stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio, industry, sector, and number of employees.

And here is the list of questions we'll answer:
1. What are RH earnings?
2. What is RH stock forecast (i.e., prediction)?
3. RH buy or sell? What is RH Finny Score?
4. What are the reasons to buy RH? Why should I buy RH stock?
5. What are the reasons to sell RH? Why should I sell RH stock?
6. What are RH key stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

So let's start. Scroll down to the question that interests you the most.

Earnings and Dividends

1. What are RH earnings?

RH trailing 12-month earnings per share (EPS) is $7.93.

Analyst Predictions

2. What is RH stock forecast (i.e., prediction)?

Based on RH analyst price targets, RH stock forecast is $289.69 (for a year from now). That means the average analyst price target for RH stock is $289.69. The prediction is based on 21 analyst estimates.

The low price target for RH is $117.00, while the high price target is $365.00.

RH analyst rating is Hold.

Analysis

3. RH buy or sell? What is RH Finny Score?

#{finnyScore:0}Our quantitative analysis shows 0 reasons to buy and 12 reasons to sell RH, resulting in Finny Score of 0.

4. What are the reasons to buy RH? Why should I buy RH stock?

Here are the reasons to buy RH stock:

  • The firm is focused on its retail transformation in North America. As new product lines are introduced into the larger footprint, sales to new demographic segments could rise faster than we anticipate.
  • With locations currently only in the U.S. and Canada, longer-term international opportunities could provide significant location and revenue growth and rising brand awareness globally.
  • Around half of revenue is generated through direct-to-consumer channels. This helps minimize the expense of a brick-and-mortar footprint and maximize operating margins.
  • On May 27, 2016, the company acquired a controlling interest in Design Investors WW Acquisition Company which owns the business, operating under the name “Waterworks“, for $119.9 million. RH owns over 90% of the total equity interest in Waterworks. Notably, Waterworks is the only complete bath and kitchen business offering fittings, fixtures, furniture, furnishings, accessories, lighting, hardware and surfaces under one brand in the market.
  • In 2016, the company transformed its business from a promotional to a membership model (RH Members Program), which is expected to enhance its brand, streamline operations and enhance customer experience. The membership model has eliminated the frantic buying patterns and associated returns, exchanges and canceled orders. This is expected to contribute to improved financial performance through higher conversion of demand into revenues, improved margins and lower costs.
  • RH pursues an aggressive share repurchase strategy. The company repurchased 20.2 million shares of common stock in fiscal 2017 at an average price of $49.46.
  • RH’s products primarily focus on home furnishings products and thus demand for its products is related to the performance of the broader housing market. Positives like an improving economy, modest wage growth, low unemployment levels, solid consumer confidence and a tight supply situation raise optimism about the housing sector’s performance. As such, demand for RH’s products should increase as well, driving revenues.

5. What are the reasons to sell RH? Why should I sell RH stock?

Let's look at the reasons to sell RH stock (i.e., the bear case):

  • Low customer switching costs, along with the proliferation of e-commerce and mass-merchant competitors, could pressure long-term margin expansion. The rise of high-end discounters like One Kings Lane could disproportionately affect RH's market share.
  • Weakness in the housing markets could weigh on top- and bottom-line growth as new homeowners represent a meaningful portion of home-related purchases.
  • Increased promotional activity has created a challenging environment for nearly all types of retailers, including home furnishing retailers, and could persist longer than we forecast.
  • RH’s business highly depends on global trade. In fiscal 2016, the company sourced approximately 88% of its merchandise from outside the U.S., including 78% from Asia, the majority of which originated from China. Thus, any economic or regulatory changes in the foreign countries will affect RH’s business.
  • The home furnishings sector is highly competitive. RH competes with interior design trade and specialty stores, antique dealers, national and regional home furnishing retailers and department stores. In addition, the company competes with mail order catalogs and online retailers focused on home furnishings.
  • RH’s valuation looks a bit stretched when compared to the industry average. Looking at the company’s price-to-earnings (P/E) ratio, the company is currently trading at 29.5, higher than the industry’s average of 22.3.
  • RH stock price ($375.99) is close to the 52-week high ($406.29). Perhaps now is a good time to sell? See RH price chart.
  • RH quarterly revenue growth was -19.30%, lower than the industry and sector average revenue growth (0.81% and 0.78%, respectively). See RH revenue growth chart.
  • RH profitability is declining. The YoY profit margin change was -0.16 percentage points. See RH profitability chart.
  • RH forward P/E ratio is 24.90, which is high compared to its industry peers’ P/E ratios. See RH forward P/E ratio chart.
  • RH Price/Book ratio is 343.24, which is high compared to its industry peers’ P/B ratios. See RH forward Price/Book ratio chart.
  • RH Price/Sales ratio is 2.60, which is high compared to its industry peers’ P/S ratios. See RH forward Price/Sales ratio chart.
  • RH PEG ratio (P/E adjusted for growth) is 2.12, which is high compared to its industry peers’ PEG ratios. See RH PEG chart.
  • RH average analyst price target ($289.69) is below its current price ($375.99). See RH price target chart.
  • RH short share of float is 30.55%. The stock is much more frequently shorted than the average industry, sector or S&P 500 stock. See RH short share of float chart.
  • RH short interest (days to cover the shorts) ratio is 9.14. The stock garners more short interest than the average industry, sector or S&P 500 stock. See RH short interest ratio chart.
  • RH cash to debt ratio is 0.01, lower than the average industry (0.16) and sector (0.13) cash to debt ratio. See RH cash to debt chart.
  • RH Enterprise Value/Revenue multiple is 3.25, which is high compared to its industry peers’ Enterprise Value/Revenue multiples. See RH Enterprise Value/Revenue chart.

Key Stats

6. What are RH key stats : revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

Let's look at the key statistics for RH:

Metrics RH
Price $374.25
Average Price Target / Upside $289.69 / -22.59%
Average Analyst Rating Hold
Forward Dividend Yield 0.00%
Industry Specialty Retail
Sector Consumer Cyclical
Number of Employees 5,200
Market Cap $6.58B
Forward P/E Ratio 24.90
Price/Book Ratio 2.6
Revenue (TTM) $2.53B
YoY Quarterly Revenue Growth -19.30%
Profit Margin 7.17%

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