Restoration Hardware Upped to Strong Buy – Analyst Blog

On Jun 28, 2014, Zacks Investment Research upgraded Restoration Hardware Holdings, Inc. ( RH ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Restoration Hardware has witnessed rising earnings estimates over the last 30 days following spectacular first quarter fiscal 2014 results. Moreover, this home furnishings retailer has delivered positive earnings surprises in the trailing four quarters with an average beat of 37.0%. The long-term expected earnings growth rate for this stock is 28.6%.

The company's earnings of 18 cents per share grew threefold year over year while comfortably beating the Zacks Consensus Estimate of 10 cents and exceeding the company's own guidance of 9-11 cents a share. The bottom line was driven by a robust 22% surge in the company's net revenues of $366.3 million. Net sales not only surpassed the Zacks Consensus Estimate of $346.0 million, but also came ahead of the company's predicted range of $345-$350 million.

Further, management seems highly impressed with the company's first-quarter performance despite eliminating the mailing of "Fall 2013" Source Book. The solid results coupled with its leading position in the home furnishings industry and multi-network business model make Restoration Hardware confident about its future prospects.

This was well reflected in the company's encouraging outlook for fiscal 2014. It now expects net revenues to range from $1.86-$1.89 billion, compared with $1.825-$1.86 billion predicted earlier. Moreover, it anticipates adjusted earnings per share to lie in the band of $2.24-$2.30, up from $2.14-$2.22 per share forecasted previously.

The Zacks Consensus Estimate for fiscal 2014 and 2015 increased 7.7% and 2.5% to $2.38 and $2.85 per share, respectively.

Going forward, the company also plans to maintain its focus on transforming its retail outlets and expanding its product portfolio, with the latter taking a leading edge from its 2014 Source Books. In fiscal 2014, the company plans to introduce new Galleries in Greenwich, and Los Angeles.

The company believes that subsequent to its real estate transformation in North America, it will record annual sales of $4-$5 billion, generating operating margins in the mid-teens and producing adequate free cash flow.

On the trading front, shares of this retailer hit a 52-week high of $93.54 per share before closing a notch below at $92.37 per share on the last trading day. Also, stock price has gained 37.2% on the index year to date.

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Restoration Hardware Upped to Strong Buy - Analyst Blog