24-Feb-16 16:11 ET
Restoration Hardware guides Q4 well below consensus (51.92 +0.66)
Sees Q4 adj. EPS $0.99 vs $1.39 Capital IQ Consensus Estimate; revs +11% to $647 mln vs $710.85 mln Capital IQ Consensus; comp brand rev +9% vs. ests near +19%.
There are three key factors that had a negative effect on our fourth quarter results, along with several positive developments that give us tremendous confidence in our long-term growth strategy.
- “First, our demand sales/written orders were up a strong 21% in the fourth quarter on top of up 26% last year. Our delivered revenue, however, was up only 11% in the quarter on top of up 24% last year, representing a shortfall to our plan. While the initial response to RH Modern has been outstanding, we are experiencing shipping delays as certain vendors are struggling to ramp up production of this new product line. We expect the majority of the demand/written orders to turn into revenues in the first and second quarter, and anticipate our vendors will be substantially caught up by the end of the first half. Additionally, we believe the poor in-stocks also suppressed orders, and we expect demand to build as our in-stocks improve.
- Second, we continue to see underperformance in markets affected by energy, oil, or currency fluctuations. The Canada, Texas and Miami markets were a drag of 2 points to total Company revenues in the first half, then accelerated to a 4 point drag in the third quarter, and continued as a 4 point drag in the fourth quarter despite increased promotional efforts, including reduced shipping charges to incentivize our Canadian customers. These results tell us the conditions remain weak in these markets and in aggregate they are trending 20 points below the rest of the Company. Looking forward, we will begin to cycle the underperformance, and the negative drag should be mitigated.
- Third, our attempt to drive incremental revenue through increased promotional activity in the fourth quarter was less successful than in prior periods, signaling a further pullback by the high-end consumer. Our sense is the increased volatility in the US stock markets, especially the extreme conditions in January, which is historically our biggest month of the quarter for furniture sales, contributed to our performance. Historically, our business has a correlation to large movements in stock prices as we believe asset valuations influence our customers’ buying patterns.”
Courtesy of Briefing.com
Restoration Hardware (RH) has had a bad 3 months, coming down from $106.49 to $37.00 so far today.
NASDAQ tells me their earnings for FY16 were going to be $3.14 and FY17 at $3.79.
With guidance for the quarter 40 cents lower and the next quarter in doubt I would take 60 cents off FY16. That takes us to $2.54.
There is a gap fill that may start the bounce at $34.31. Following that is support at $33.54 with a candlestick tail at 32.02.
So the buy area is $34.31 and $32.02.
Your stop price should just under $32.00.
The heavy green line you see in the chart above is 50 % retracement from a bottom at $32.02. Whether the bounce is from $34.31 or $32.02 the target of $42.04 is worthwhile.