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

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.

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