What: Shares of Restoration Hardware Holdings, Inc. (NYSE:RH) were getting mishandled today, tumbling on another disappointing earnings report. As of 11:45 a.m. EDT, the stock was down 21.2%.
So what: The upscale home furnishings retailer posted a surprise loss of $0.05 per share during the seasonally slow first quarter against expectations of a $0.05 per share profit, and down from $0.23 earnings per share last year. Despite the loss, revenue grew 8%, and comparable sales were up 4%, though expectations were slightly higher. Management blamed weakness among luxury buyers due to low oil prices and weak Latin American currencies, and it also admitted self-inflicted wounds such as supply chain problems with its RH Modern line.
CEO Gary Friedman said, "Our near term business performance is being pressured by continued headwinds in the markets impacted by energy and currency." Still, he expected performance to improve, saying, "While there is uncertainty regarding the headwinds impacting revenues, we expect many of the cost and margin related issues to be short term in nature."
Now what: The near-term weakness forced Restoration Hardware to lower its full-year EPS guidance by $0.90-$1.00. The retailer now sees full-year EPS of just $1.60-$1.80, well below the analyst consensus at $2.66.
Restoration Hardware stock has fallen sharply in the past year, losing more than 70% of its value since November because of macroeconomic headwinds and costs from several strategic shifts, including launching RH Modern, converting to next-generation Design galleries, and moving from a promotional to a membership selling model with the RH Grey Card.
It's unclear yet if these big bets will pay off, but CEO Friedman has already proven himself to have his finger on the pulse of the luxury market with his earlier turnaround of Restoration Hardware. If the company can solve its supply chain headaches and the luxury market improves, the stock's recent slide may be an excellent buying opportunity. While it's too early to say RH's tough times are over, I'd expect the company to eventually emerge from this funk.