On Thursday, Telsey Advisory Group adjusted its price target for Restoration Hardware (NYSE:RH (NYSE:RH)), bringing it down to $320 from the previous $335, while maintaining a Market Perform rating on the stock. The adjustment follows a 19% decline in the company's shares since the fourth-quarter report in late March.
Concerns have been raised that the 2024 guidance, which anticipates demand growth of 12%-14%, may be overly optimistic given the current challenges in the housing market, including persistently high mortgage rates and a year-over-year decline in furniture demand.
Despite these challenges, there is a glimmer of hope as luxury home sales have shown a 2% increase year-over-year in the first quarter of 2024, the first uptick since 2021. This could signal a future rise in furniture sales, which typically follow six to nine months after a home sale. Analysts suggest that while there is a risk Restoration Hardware may moderate its 2024 outlook, this possibility appears to be reflected in the stock's current valuation.
The company's first-quarter earnings per share (EPS) estimate has been revised to $0.07 from a previous estimate of ($0.22), compared to the FactSet consensus of ($0.14), with estimates ranging from $0.49 to ($0.41). Revenue is expected to decline by 2.0% to $724 million, closely aligning with the FactSet projection of a 1.9% decrease and the company's guidance of a low single-digit decline.
The operating margin assumption for Restoration Hardware has been increased to 7.1% from 6.4%, which is slightly above the FactSet consensus of 7.0% and within the company's guidance of 6%-7%. This revision comes after the delay in mailing the RH Modern Sourcebook, which was initially scheduled for late April or early May but was only unveiled last week.
Restoration Hardware has instead concentrated its marketing efforts on promoting its outdoor collection and late Spring/early Summer clearance events during the crucial sales period of April and May. The delay in the sourcebook mailing is anticipated to shift some marketing expenses from the first quarter to the second quarter of 2024.
In recent news, Restoration Hardware has been subject to several analyst adjustments and strategic developments. TD Cowen reaffirmed a Buy rating for the company, highlighting the importance of the company's gallery transformation strategy and the launch of its revamped Modern collection.
Similarly, Loop Capital increased its price target for Restoration Hardware to $350, maintaining a Hold rating due to potential growth from the company's strategic initiatives and the anticipated recovery in the U.S. housing market.
Baird maintained a Neutral rating but increased the share price target to $300. The analyst noted an "exceptional" initial response to Restoration Hardware's Outdoor collection and expected demand growth throughout FY24, supported by new product introductions and brand-building initiatives.
InvestingPro Insights
As Restoration Hardware (NYSE:RH) navigates the turbulent waters of the housing and luxury markets, investors are closely monitoring its performance metrics. According to InvestingPro Data, the company's market capitalization stands at a sturdy $5.18 billion, with a forward P/E ratio of 36.18, indicating investors' expectations of future earnings growth despite the recent share price decline. Notably, the company's gross profit margin remains robust at 45.86%, underscoring its ability to maintain profitability in a challenging environment.
Aligning with the article's narrative, two InvestingPro Tips are particularly pertinent: Restoration Hardware's aggressive share buyback strategy and its high shareholder yield. These actions demonstrate management's confidence in the company's value proposition and its commitment to delivering shareholder returns. Additionally, with analysts predicting profitability for the current year and the company having been profitable over the last twelve months, there is a foundation for cautious optimism.
For those seeking a more comprehensive analysis, InvestingPro offers additional insights and tips to navigate the investment landscape surrounding Restoration Hardware. Interested readers can unlock these valuable resources and receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription with the coupon code PRONEWS24.
Investors should note that while past performance, such as the company's strong return over the last decade, can inform expectations, it is the forward-looking indicators that will guide their decisions in the current market scenario. With 13 analysts having revised their earnings downwards for the upcoming period, a balanced view is essential, and InvestingPro provides numerous additional tips to help in forming a comprehensive investment strategy.
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