Restoration Hardware Can Be a Smart Investment

Restoration Hardware (RH) has recently released financial results for the second quarter. It is benefiting from its new range of products, categories and businesses. It is aggressively scaling these new products across its multichannel platforms that should enhance its brand performance going forward.

The Corte Madera, California-based company posted revenue of $433.8 million an increase of 10% from $395.8 million in the same quarter a year ago. Also, its net income rose 53% to $27.3 million or earnings of $0.66 per share as compared to net loss of $17.8 million or loss of $0.46 per share in the same period last year. The analysts had been modeling earnings of $0.64 per share on the revenue of $453.6 million.

The way ahead

Looking forward, Restoration Hardware is focusing on various potential strategies that should drive its growth in the future. It is expanding its product offer, transforming of its retail stores and continues to enhance its multi-channel platform and operating infrastructure. It is planning to open a new, larger Full Line Design Gallery on Melrose Avenue in Los Angeles.

Also, it is launching its first next generation Full Line Design Gallery in Atlanta by the end of the year. It has signed around eight next generation full line design galleries. It is at present busy with negotiation of these galleries for more than 30 additional locations. It continues to transform its Full Line Design galleries with better source, price, present and deliver products across multi-channel platform. It remains on track to innovate its product and making significant changes to its brand and business model, testing new products and methodologies and refining its execution. These moves should enhance its performance in the future.

In addition, the company is rolling out new rug fixtures. It is placing the new rug assortment in all of its galleries in order to support its new Source Book RH rugs. It has recently launched a nearly 300-page run book with more than 3,500 handcrafted styles by much-admired rug designer Ben Soleimani. The company expects these RH rugs to become disruptive in this highly fragmented market. Additionally, it is enlarging its assortments across furniture, lightings, small spaces and baby and child. It has one of the largest collections of curated home furnishings.

Valuation

Restoration Hardware looks like a pretty good investment avenue with these strategies that should boost its performance in the future. The analysts estimate its earnings to grow at CAGR of 29.03%, higher than average industry CAGR 12.84%, for the next five years. Also, the stock offers attractive short-term return. Its earnings are expected to grow 37.40% this year and 27.20% by next year.

Moreover, the stock shares cheap valuation. It is trading at the trailing P/E of 54.03 and forward P/E of 32.11. It has PEG ratio of 1.41 that continues to support its growth in the long run. Its profit and operating profit margins are 4.28% and 12.14% respectively, while its ROE stands at 10.90% for trailing 12 months. Its balance sheet carries total cash of $157.13 million and has total debt of $281.01 million. Restoration Hardware has operating cash flow of $34.31 million and levered free cash flow of $19.28 million.

See the rest here:
Restoration Hardware Can Be a Smart Investment