Restoration Hardware (RH) is surging after reporting fourth quarter results and proving solid guidance for the first quarter and fiscal 2018 last night.
RH serves the very high end of the home furnishing market.
Fourth quarter results were in-line with the company's guidance from last month. On February 23, RH preannounced Q4 EPS of $0.68 versus $0.60-0.70 guidance on revenue of $587 million versus $562-592 million guidance.
While fourth quarter results were at the high end of guidance, they were still down year-over-year. Comparable brand revenues declined 18% compared to a 9% increase last year. For the year, comparable brand revenue fell 7% as the company transitioned to a membership model.
More importantly, first quarter earnings guidance was in-line with estimates while revenue guidance was well above expectations. Looking at this year, RH expects to earn ~$2/share with revenue up 10% at the midpoint of guidance.
CEO Gary Friedman: "While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture, and cash flow at RH. Our focus will be on executing our new business model, architecting a new back-end operating platform, and maximizing cash flow. While our investment strategy will always maintain a long-term view, we believe we can improve working capital and returns by having a more disciplined approach to capital allocation. Accordingly, we plan to reduce our new Gallery opening cadence to a range of 3 to 5 per year, which is expected to drive high-quality sustainable growth, while lowering capital requirements and execution risk over the course of our real estate transformation. We remain confident in reaching our long term goal of $4 to $5 billion in North American revenues, mid-teens operating margins, significant free cash flow, and industry-leading returns on invested capital."
The stock is up 17% at an eleven month high this morning as roughly half of the 36 million share float (the stock available to trade) is sold short.
RH trades with an enterprise value ~10x EBITDA estimates for this year, a slight premium to Ethan Allen (ETH).