On Friday, Telsey Advisory Group adjusted its outlook on Restoration Hardware (NYSE:RH (NYSE:RH)) shares, reducing the price target to $290 from the previous $320, while maintaining a Market Perform rating on the stock. The adjustment follows Restoration Hardware's first-quarter earnings for fiscal 2024, which presented mixed results.
The company's revenue and operating margin aligned with its own guidance; however, earnings per share (EPS) fell short, recording a loss of $0.40 compared to the FactSet consensus estimate of a $0.13 loss.
The shortfall in EPS was attributed to a lower-than-anticipated operating margin and an increase in interest expenses. Restoration Hardware observed a positive turn in customer demand during the quarter, noting a 3% increase, albeit below their mid-single-digit expectations. This was attributed to the prevailing high interest rate environment.
For the second quarter of 2024, Restoration Hardware has set a revenue growth target of 3-4%, which is conservative compared to the FactSet projection of 7.4%. Additionally, the company is aiming for an operating margin between 11% and 12%, significantly lower than the FactSet expectation of 17.2%.
Despite the subdued luxury housing market, the firm anticipates a 9-10% increase in demand, driven by new product launches and broader distribution of its Sourcebooks, leading the company to uphold its annual guidance.
The analyst from Telsey expressed a cautious optimism regarding Restoration Hardware's improving demand and return to revenue growth for the year. However, this sentiment is tempered by the ongoing investments, particularly international expansions which may take additional years to mature, and the potential risks to the company's 2024 outlook if the anticipated 12-14% demand growth does not materialize.
The new price target of $290 is based on applying an unchanged price-to-earnings (P/E) multiple of approximately 22.5 times to the revised 2025 EPS estimate of $12.85, which was decreased from the prior estimate of $14.25.
In other recent news, Restoration Hardware experienced a reduction in its price target from $300 to $275 by Baird, which maintained a neutral stance on the company. This adjustment followed the company's first-quarter earnings before interest and taxes (EBIT) falling approximately 7% short of consensus estimates, despite revenues meeting expectations.
The company's CEO, Gary Friedman, expressed caution about the macroeconomic and housing environment but noted positive customer engagement with significant product transformation.
Recent developments also include Restoration Hardware's reaffirmation of its fiscal year 2024 outlook, indicating anticipated performance increases later in the year. Despite concerns about the company's ability to achieve a substantial ramp-up in the second half of the fiscal year due to second-quarter guidance not meeting analysts' expectations, the company expects demand to rise by 9-10% in the second quarter.
Restoration Hardware reported first-quarter revenues of $727 million for fiscal 2024 and outlined growth strategies such as expansion plans and the launch of new collections.
The company also anticipates the shifting monetary policy to impact the housing market into 2025 but remains optimistic about business trends. Key initiatives include expanding the Waterworks brand, opening new Design Galleries, and venturing into bespoke experiences like luxury hotels and private jets.
InvestingPro Insights
In light of Restoration Hardware's recent fiscal performance and market dynamics, InvestingPro offers a more granular perspective. With a current Market Cap of approximately $5.08 billion and a P/E Ratio standing at 43.21, the company trades at a high earnings multiple, as reflected in the adjusted P/E Ratio for the last twelve months as of Q4 2024 at 35.47. This could be indicative of investor confidence in the company's future growth, supported by the fact that management has been actively buying back shares, as one of the InvestingPro Tips suggests.
Despite a decline in revenue growth of -15.63% over the last twelve months as of Q4 2024, Restoration Hardware remains profitable with a Gross Profit Margin of 45.86%. This resilience is further underscored by an Operating Income Margin of 12.73%, aligning closely with the company's Q2 2024 operating margin target. Moreover, analysts predict the company will be profitable this year, which may reassure investors looking at the long-term potential of Restoration Hardware.
Investors should note that while the stock price has experienced volatility, with a 1 Month Price Total Return of -4.69%, the company has delivered a strong return over the last five years. Additionally, it's worth mentioning that Restoration Hardware does not pay a dividend, which might be a consideration for income-focused investors. For those interested in deeper analysis, there are 7 additional InvestingPro Tips available, which can be accessed with a subscription. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to gain further insights into Restoration Hardware's financial health and stock performance.
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