Restoration Hardware Hits New Low On Dull Q1, Weak View

Shares of Restoration Hardware Holdings, Inc. (NYSE:RH) hit a 52-week low of $28.83 on Jun 9. Shares of the luxury home furnishing company plummeted around 21% since it reported dismal first quarter 2016 results and lowered its full-year sales and earnings outlook on Jun 8.

Dismal Q1 Results

The company recorded a loss of 5 cents per share in the first quarter of 2016. With this, it missed the Zacks Consensus Estimate which called for earnings of 5 cents, by a massive 200%. It also failed to meet the earnings guidance of 4 cents to 6 cents. The loss per share was in stark contrast to the prior-year earnings of 23 cents per share.

Even its top line results were bleak, as revenues of $455.5 million missed the consensus estimate of $459 million by 0.75%. Revenues grew 8% during the quarter. Comparable brand revenue increased 4% during the quarter, falling short of 11% in the previous quarter and 15% in the prior-year quarter.

Adjusted operating margin of 0.2% fell 420 basis points in the quarter.

What is Hurting Restoration Hardware?

Most of the problems leading to the disappointing first quarter were short term operational problems, but were damaging enough for the company to lose over 64% year to date.

Restoration Hardware launched a new line of modern furniture last fall by the name of RH Modern, which is undergoing production delays and product shortages. The company is also making massive investments to improve the customer experience. These headwinds are raising costs and hurting margins.

Meanwhile, the shift in business strategy from a promotional to a membership model is resulting in a longer selling cycle, which is also hurting revenues and profits.

Moreover, Restoration Hardware continues to face weakness in markets which are exposed to energy prices or currency fluctuations. There is also an overall slowdown in the luxury consumer market.

Lowered Outlook

This Zacks Rank #4 (Sell) company lowered its outlook for fiscal 2016. It said that the headwinds discussed above are expected to have a combined negative impact of 90 cents to $1.00 on fiscal 2016 adjusted diluted EPS and $16 million to $17 million on the revenue outlook. Adjusted diluted EPS is expected to be in the range of $1.60 to $1.80 in fiscal 2016. Net revenue growth is expected in the range of 1% to 3% in fiscal 2016, which compares unfavorably with the previous expectation in the low-to-mid, single-digit range.

Other Stocks to Consider

A couple of better-ranked stocks in the Home Furnishings sector include Ethan Allen Interiors Inc. (NYSE:ETH) and Fortune Brands Home & Security, Inc. (NYSE:FBHS) , both with a Zacks Rank #2 (Buy). In the broader construction sector, Installed Building Products, Inc. (NYSE:IBP) can be considered, which sports a Zacks Rank #1 (Strong Buy).