On Thursday, Telsey Advisory Group adjusted its share price target for Restoration Hardware (NYSE:RH (NYSE:RH)), a luxury home furnishings retailer, from the previous $285.00 to a new target of $335.00. The firm retained its Market Perform rating on the stock.
The adjustment follows Restoration Hardware's fourth-quarter earnings for fiscal year 2023, which fell short of both the analyst's projections and the company's own guidance. Despite these results, Telsey noted positive demand trends anticipated to begin in the first quarter of 2024 and carry through the year, with expected annual growth of 12%-14%.
Restoration Hardware's new product launches and an increase in the circulation of its Sourcebooks are credited for the anticipated improvement in demand. Consequently, the company's revenue outlook for 2024 is set between 8%-10% on a 52-week basis, or 6%-8% on a reported basis, surpassing the FactSet consensus estimate of 6.4%.
However, the company's operating margin outlook for 2024 is projected to be between 13%-14%, which is below the FactSet consensus of 15%. This is attributed to a higher advertising spend and approximately 200 basis points of pressure from investments in international stores.
Telsey remains cautious due to the ongoing international investments that are expected to impact financials for another couple of years. Nevertheless, the firm has raised its 12-month price target to reflect an increased price-to-earnings (P/E) multiple of approximately 22.5 times, up from 20 times. This is based on Telsey's revised 2025 earnings per share (EPS) estimate of $14.85, an increase from the previous estimate of $14.55.
InvestingPro Insights
Amid the recent adjustments in price targets and earnings expectations for Restoration Hardware, real-time data from InvestingPro provides a more detailed financial landscape of the company. With a market capitalization of $5.22 billion and a trailing P/E ratio of 27.93, Restoration Hardware is navigating through a challenging period marked by a revenue decline of 17.67% over the last twelve months as of Q3 2024. Despite this, the company maintains a healthy gross profit margin of 46.92%, signifying its ability to retain a substantial portion of sales as gross profit.
InvestingPro Tips suggest that while analysts anticipate a sales decline and a drop in net income for the current year, they also predict that the company will remain profitable. This aligns with the company's performance over the last twelve months, which has been profitable. Moreover, Restoration Hardware has exhibited a strong return over the last five years, although it does not pay a dividend to shareholders. These insights could be crucial for investors considering the company's stock, especially given its volatile price movements.
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