Just last week I wrote on our sister site TheStreet.com that I thought Restoration Hardware (RH) would miss the quarter. Looks like I was right! After the close, the company missed the quarter and management took a chain saw to guidance. In the after hours, the stock fell 19%.
Restoration Hardware reported a first quarter loss of $0.05, $0.10 worse than the consensus estimate of a profit of $0.05. Comp store sales were 4% vs. analyst estimates of 5.4% and from 15% for the same period last year. Revenue rose 7.8% to $455 million, beating the $452.27 million consensus.
While the first quarter was slightly disappointing, it got worse. Management cut second quarter earnings to between $0.28 and $0.33. Analysts were at $0.80. Second quarter revenue is likely to fall somewhere between $505 million and $520 million. Investors were looking for revenue of $531 million.
And to top it all off, management said estimates for the entire year were just too high. The company is looking for revenue growth of just 1-3%, or about $2.15 billion vs. estimates of low-mid-single digit growth, which works out to about $2.2 billion. Earnings for the year are expected to be $1.60 to $1.80, down from $2.66.
This disaster wasn't particularly difficult to see.The stock is down over 54% this year, so it's no secret the company has been struggling. I just wonder why the investment community couldn't figure it out earlier.
Management gave a laundry list of excuses why the company couldn't make its previous guidance. Weakness in the oil patch, the strong dollar, a slowdown in spending by the high-end consumer and supply chain issues are totally mucking up the works.
First, I doubt there is enough weakness in the oil patch. Out of the 86 company-owned stores, only 15% of the store base is in oil-rich states. Second, I don't think the new, larger flagship stores are working. Total retail sales are growing in line or below comp-store sales. It seems to me customers visited the stores once, but are not returning.
Third, the company is experiencing a loss of operating leverage. Expenses are rising and gross margins are falling. That's not a way to run a retailer. And finally, I don't buy the excuse that high-end buyers have abandoned the furniture business. Ethan Allen (ETH) has been doing fine. In fact, the stock is just four points from a 10-year high. If anything, I'd say high-end buyers are at ETH.
I would continue to avoid shares of Restoration Hardware. The company has too many problems, and it's in desperate need of renovation.