Happy Monday to you all! Hope everyone had a relaxing weekend! I moved into a new apartment a month ago, so this weekend included home set up projects. We’re aiming for a “Restoration Hardware chic” decor (a purely aspirational theme at this point, sadly). So I already had the company on my mind this morning when I saw it pop up on my market trending lists.
I’ve mentioned before on the blog that I love Restoration Hardware (RH), both as a store and as an investment. They make high quality, luxury items, and are not at risk of falling out of fashion with the next trend change. On top of that, they have solid financials.
Restoration Hardware reported its second quarter earnings last week, and results were slightly disappointing. Revenue was lower than analyst expectations, at $434M vs. the $454M that was expected. Revenue growth had slowed as well, as comparable sales increased 13% year over year. While 13% is nothing to sneeze at in the home retail space, it is slower than the 20% to 30% comparable growth the company has seen over the last two years.
Due to the revenue figures RH is down about 5%. But what is RH’s (hopefully temporary) loss can be your gain. I will likely use the current drop in price to buy RH now, for three reasons:
1. Restoration Hardware almost always drops in price after earnings only to come back up once the dust settles. The stock is up almost 15% year to date even though it’s seen multiple large price swings, often due to earnings announcements.
2. Net income growth was actually fantastic. Net income beat both the prior year and analyst expectations, at $27M vs. a loss of $18M a year ago and expectations of $26M. This shows me that the company can translate revenue into strong bottom line results, which ultimately means more cash for expansion.
3. Speaking of expansion cash, the company plans to expand its presence big time. In addition to retail stores, RH has been opening galleries, a museum/furniture store/luxury shopping and lifestyle experience. (For example, their Boston gallery is a 40,000 square foot space in the old Museum of Natural History; check out features here.) The CEO said the company has two new galleries opening soon, and is now negotiating for 30 additional locations, up from 25 currently.
And these stores aren’t just a pretty spot to browse; they’re effective. Sales at the galleries continue to top projections of $850 in sales per square foot of selling space (even more impressive in such a large store), with some markets seeing more than $2,000 per square foot.
Overall, I think Restoration Hardware has more growth ahead, and now could be a great time to buy at a slightly discounted price. Then maybe one day I can use my profits to actually make a furniture purchase there.