3 Retail Stocks Suffer As Restoration Hardware Slumps

Market runs on sentiment and any unprecedented event in a particular sector has a rippling effect on others with a clear reflection on major indices that bear the brunt. The case is more or less the same for specific sectors that often see good or bad performance by one player influencing the performance of others. Yesterday, the major indices – Dow Jones Industrial Average, NASDAQ and S&P 500 shed 19.86, 16.03, and 3.64 points, respectively. A host of reasons may have guided the entire trading session. But for now we are concentrating on one stock Restoration Hardware Holdings, Inc. (NYSE:RH) that has made investors jittery.

Restoration Hardware’s Flop Show

Shares of this luxury home furnishing company nosedived 21.2% yesterday following dismal first-quarter fiscal 2016 performance and lackluster guidance.

The day before yesterday, Restoration Hardware posted adjusted loss per share of 5 cents while the Zacks Consensus Estimate was earnings of 5 cents. Also, the company slipped to a loss from the year-ago earnings of 23 cents per share. This was the second straight quarter in which the company missed the Zacks Consensus Estimate.

Though revenues increased 7.8% to $455.5 million, the figure lagged the Zacks Consensus Estimate of $459 million. This is the third consecutive revenue miss for this Zacks Rank #4 (Sell) company. (Read more: Restoration Hardware Incurs Loss in Q1, Stock Plunges)

RESTORATION HDW Price, Consensus and EPS Surprise

RESTORATION HDW Price, Consensus and EPS Surprise | RESTORATION HDW Quote

What Affected Restoration Hardware’s Performance?

The subdued fiscal first-quarter performance was largely due to short-term operational problems. Restoration Hardware launched a new line of modern furniture last fall which is undergoing production delays resulting in increased cost and lower revenues. The company’s new paid membership program, which marks a shift from the discount-offering promotional model, is also hurting revenues. In addition, market headwinds such as volatility in the energy market, unfavorable currency translations and an overall slowdown in the luxury consumer market are also impacting the company’s top and bottom lines. These issues are unlikely to be resolved any time soon. In fact, management does not expect any improvement before the fourth quarter of 2016 or early 2017.

Retail Stocks Hurt by Restoration Hardware’s Slump

Had the impact of Restoration Hardware’s weak results remained confined at its own stock level, it would have pinched less. But the company’s sluggish performance took a toll on other retail stocks, as investors remained on tenterhooks.

Following disappointment at Restoration Hardware, shares of Williams-Sonoma Inc. (NYSE:WSM) , a multi-channel specialty retailer of various products for home, dropped 5.5% yesterday. Last month, this Zacks Rank #3 (Hold) company came up with first-quarter fiscal 2016 adjusted earnings of 53 cents a share that surpassed the Zacks Consensus Estimate of 50 cents.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) also felt the heat as it shares tumbled 3.4%. This Zacks Rank #4 retailer is scheduled to report first-quarter fiscal 2016 results on Jun 22. This seller of a range of domestics merchandise and home furnishings had posted better-than-expected results for fourth-quarter fiscal 2015. Quarterly earnings had fared better than the Zacks Consensus Estimate by 6.1%.

Shares of Pier 1 Imports, Inc. (NYSE:PIR) , which is engaged in the retail sale of decorative accessories, furniture, candles and housewares, plunged 8%. This Zacks Rank #3 company delivered fourth-quarter fiscal 2016 earnings of 23 cents that beat the Zacks Consensus Estimate by a couple of cents. The company is slated to release first-quarter fiscal 2017 results on Jun 29.

Were Investors too Hasty?

The dull performance of Restoration Hardware has rung an alarm for Bed Bath & Beyond and Pier 1 Imports which are about to report their quarterly results this month. Investors have punished these stocks without even having an inkling of their results, with Restoration Hardware pressing the panic button.