Will Restoration Hardware's Earnings Match Those of Its Peers?

Home Depot, Lowe's, and Lumber Liquidators have all produced very strong quarterly earnings and guidance, but will Restoration Hardware follow suit?

Mar 10, 2014 at 5:37PM

Home-improvement retail companies have consistently reported better-than-expected earnings despite a harsh winter and a sluggish overall retail environment. Already, Home Depot (NYSE:HD), Lowe's (NYSE:LOW), and Lumber Liquidators (NYSE:LL) have demonstrated such strength. As a result, investors should be very optimistic leading into the quarterly results of Restoration Hardware (NYSE:RH), which might be the most promising of the bunch.

Strong earnings thus far
Home Depot's comparable sales increased 4.4% in the fourth quarter, and now the company is guiding for growth of almost 5% throughout 2014. Furthermore, after having its operating margin increase in each of the last five years, Home Depot is once more guiding for improved efficiency, a 70 basis point improvement to its 11.6% operating margin in 2014.

Lowe's too showed that it is clicking on all cylinders, as comparable sales increased 3.9% in its fourth quarter. Like Home Depot, Lowe's is guiding for total revenue growth of 5% in 2014.

Combined, Home Depot and Lowe's own the majority of the home-improvement space, having produced revenue in excess of $132 billion in the last 12 months. But then, there are a slew of smaller and faster-growing companies like Lumber Liquidators, which also reported strong earnings.

Lumber Liquidators is a smaller home-improvement retailer with $1 billion in annual revenue, and during its last quarter grew 22.7%. The hardwood-flooring specialist saw comparable sales growth of 15.6%, which was driven by an 8.6% increase in customer invoices, a reflection of volume.

Like its peers, Lumber Liquidators saw a boost in margins and looking ahead is expecting such improvements to continue. Overall, the strength of these three companies paints a bullish picture for current and prospective investors.

One left to report
Looking ahead, Restoration Hardware is the only large home-improvement retailer that has yet to report earnings. The company is expected to report on April 14, and if its peers are any indication, then its report will likely be strong and above expectations.

With that said, Restoration Hardware is much different than its peers, as its business revolves around luxury home improvement and an ever-evolving catalog of designs that keep consumers up-to-date on all the latest trends.

Of the four retailers, Restoration's growth has been without question the most impressive -- expected to be 32% for full-year 2013 -- and all of which came from existing stores. Essentially, Restoration's 25%-plus comparable-store sales growth is what makes it so impressive, as the company has been able to maintain such growth without yet expanding, meaning continued growth is very likely once the company begins to roll out new stores.

Albeit, Restoration Hardware has only been a public company since November 2012, and since then, it has exceeded earnings expectations in each quarter since its IPO. Furthermore, the stock is very cheap: It's expected to earn nearly $1.6 billion in 2013, and the company has a market cap of $2.5 billion.

Lumber Liquidators is growing slower, produced less in annual sales, yet trades with a market cap of $3 billion. This is a rather large disconnect and implies that if Restoration performs well with earnings, like all of its peers, then it could soar considerably higher. And at the very least, its growth and room for store expansion make it a good long-term value investment.

Final thoughts
Home Depot and Lowe's are kind of the Jacks of all trades, offering everything within the industry, and are a good reflection of macro strength within the space. Lumber Liquidators and Restoration Hardware are specialty retailers within home improvement, focusing on floors and luxury retail, respectively, with room to grow significantly larger.

While Lowe's and Home Depot make great investments due to growth, hefty dividends, and generous buyback programs, Restoration Hardware looks like the best investment of the two smaller specialty retailers due to its growth and valuation. As a result, headed into earnings, Restoration Hardware likely presents a strong investment opportunity for long-term investors.

It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Brian Nichols owns Restoration Hardware. The Motley Fool recommends Home Depot and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information