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- New RH Modern concept.
- Benefit of diverging from its classic style to modern concept.
- Exceptional results for the first quarter and impressive operating results are coming for the next quarter.
Restoration Hardware Holdings Inc (RH) announced earlier this month that it would diverge from its classic style to include the new minimalist, modern concept that will roll out this autumn.
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Analysts and price overview
RH has been the subject of a number of recent research reports after this announcement. The company has a consensus rating of “buy” for 12 out of 13 brokers covering restoration hardware. The highest target is $118 and the lowest is $91 according to Thomson/First Call. The 12-month mean target is $107.75, which means upside potential of 7.76% over the current price.
BB&T Capital Markets upgraded the upscale home furnishings retailer to buy from hold with a price target of 120, implying an upside potential of 25% from current levels; it also raised its full-year diluted earnings forecast for the company to $3.20 from $3.15, far above current consensus estimates for $3.11 a share and believes management's guidance for the latter half of the year is conservative.
Benefits of new RH modern concept
The company is promoting its new modern concept with the goal to put into the market a new and fresh aesthetic that will redefine the way to sell modern furnishings. It will diversify the company's design aesthetic and in turn, it will attract new customers that may not have previously responded to RH's more classic style, and this will boost the revenue and the company's stock price. Of course the introduction of another new concept later this fall will drive continued healthy comparable brand revenue gains.
RH knows how to benefit because they will push the new concept on massive retail spaces and catalogs with hundreds of pages that attract many customers unlike retailers who have shifted online. RH is focusing more on their colossal catalogs than on e-commerce, because they think the furniture business isn’t quite like, say, selling a tablet or laundry detergent. They think the customer wants to touch and feel the products before buying them, and bigger stores give them more chances to let shoppers do that.
There is a clear sign of strength within the company because current return on equity exceeded its ROE from the same quarter one year prior and more than this, still comparing the last performances to the ones the company had a year ago, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust.
The debt-to-equity ratio is somewhat low, less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
The company reported adjusted diluted EPS increased by 28% to $0.23; for the quarter, beating the consensus estimate of $0.20 by $0.03. More than this it also had net revenues increased 15% on top of a 22% increase last year.
Looking forward
To aim this ambitious plan, management is making significant investments in its new store format to appeal to consumers with a “modern aesthetic.”
Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
Restoration Hardware rofile
Restoration Hardware Holdings is a holding company. The company, together with its subsidiaries, is a luxury home furnishings retailer that offers merchandise assortments across a number of categories, These products are sold through the company’s stores, catalogs and websites.
