Restoration Hardware (RH, Financial) once again came out with impressive numbers for the second quarter. Its continuous efforts to produce innovative products, make significant upgrades to its brands and business model and test new concepts and methodologies are proving to be profit accretive for the company. Also, the early results from its new source books for fiscal 2014 contributed meaningfully for the quarter. Its adjusted operating profit margin improved by 240 basis points and increased 11.9% from 8.9% in the same quarter last year. In addition, its bottom-line performance was much better this quarter, rising about 40% and topping the analysts’ estimates on the same.
The Corte Madera, California-based company for the second-quarter reported revenue of $433.8 million, an increase of 14% from revenue of $382.1 million in the same quarter a year earlier. However it failed to meet the analysts’ estimates of $454 million in revenue for the quarter. Its net profit for the quarter came in at $27.7 million or earnings of $0.67 per share as compared to $19.8 million or earnings of $0.49 per share in the same quarter last year. This also exceeded analysts’ estimates of $0.64 earnings per share for the quarter.
Strong outlook
Looking ahead, Restoration Hardware provided a soft guidance for the third-quarter. It expects revenue for the third-quarter in the range of $475 million to $485 million while the analysts on the other side forecast revenue of $488 million for the third quarter. It expects its adjusted net profit for the third quarter in the range of $19 million or earnings of $0.46 per share to $20 million or earnings of $0.48 per share. It also updated its full-year guidance. Restoration Hardware now sees its full-year revenue of $1.85 billion to $1.87 billion while its adjusted net income is anticipated to range between $94.9 million and $96.7 million for the full year. Also, its adjusted earnings per share are estimated to be in range of $2.29 to $2.33 per share for the full year.
The home furnishing retailer is aggressively practicing new concepts and methodologies. It is also increasing its product assortment and constructing depth and dominance in each of its businesses. It is additionally grouping its books by lifestyle and authority in order to improve category awareness and enhance product margin. Moreover, it is refreshing its stores with new products. The company has completed the first phase of its world-class floor set and remains on track to execute a complete reset. It has also altered its display format for its gallery and added various fast-moving items like Maxwell sofa and fresh destroyed leather. This innovative and strategic move should drive its performance in the second-half as well as in the long run.
New introductions in the cards
Restoration Hardware is also expected to roll over new rug assortments and rug fixtures in all of its galleries that should certainly support its new source book RH Rugs. The company has recently launched an approximately 300-page rug book that has about 3,500 handcraft styles by famous rug designer Ben Soleimani that should positively help the company gain traction in this scrappy market. Meanwhile, the home furnishing retailer is also concentrating on enlarging its assortments across furniture, lighting, textiles, small space and baby and child. The company is making a healthy progress in creating a collection of curated home furnishing under one brand that brightens its growth prospects going forward.
Furthermore, the company continues to upgrade and enhance its execution as the year progresses. These smart strategic moves should help the company compete better with its rivals in the highly uneven market. It has comparatively superior furnishing and home furniture products that should better leverage its growth going forward. It is focusing on various marketing and promotional activities that should supplement its performance in the second-half and deliver good results for the company in the long run.
Apart from this, the company should benefit from the rebound of the housing market. The housing market is expected to grow at a healthy pace coupled with improvements in prices going forward. According to a report by the National Association of Realtors, the rising sales for housing are due to tight inventories. The median existing home price has appreciated around 11.5% to approximately $197,000 this year. In addition, home price growth is expected to little improve from new home construction this year. The median price has increased over 6% to $209,000 and is forecasted to reach about $219,000 by next year due to favorable market conditions.
Conclusion
Restoration Hardware looks pretty good stock with plenty of upside potential. The company is executing various growth drivers that should accelerate its performance and enhance its growth in the long run. Moreover, the analysts have estimated CAGR of 29.84%, greater than average industry CAGR of 12.75% for the next five years that indicate remarkable growth prospects for the company in the short as well as long-run. The company is currently trading at the trailing P/E of 47.60 and forward P/E of 25.18 that clearly denotes fair and sound valuation for the company.
