Please ensure Javascript is enabled for purposes of website accessibility

Why Restoration Hardware Holdings Stock Plunged Today

By Steve Symington - Sep 5, 2018 at 2:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The home decor leader handily beat earnings estimates but fell short on the top line. Here's what investors need to know.

What happened

Shares of Restoration Hardware Holdings Inc. (RH 1.34%) were down 11% as of 1:45 p.m. EDT Wednesday after the home furnishings and decor retailer announced mixed quarterly results relative to expectations.

More specifically, RH's revenue climbed 4.1% year over year to $640.8 million, translating to adjusted net income of $67.4 million, or $2.49 per diluted share, up from $0.65 per share in the same year-ago period. By comparison, RH's guidance called for significantly lower earnings per share in the range of $1.70 to $1.77. But analysts, on average, were also modeling higher revenue of $660 million.

A beautifully decorated room with Restoration Hardware products


So what

"As articulated since the beginning of the year, we continue to manage the business with a bias for earnings versus revenue growth," explained RH chairman and CEO Gary Friedman. "We will restrain ourselves from chasing low quality sales at the expense of profitability, and instead focus on optimizing our new business model while building an operating platform that will enable us to compete and win over the long-term."

Friedman added that the company's decision to prioritize the bottom line has made it clear that the "earnings power of our new model is proving to be greater than previously anticipated and will be further amplified when we pivot back to growth in fiscal 2019."

Now what

As such, Restoration Hardware raised its fiscal 2018 earnings guidance to call for adjusted net income per share of $7.35 to $7.75, marking a 15% increase from both ends of its previous range. At the same time, however, the company also reduced its top-line guidance slightly to call for full-year adjusted revenue of $2.4898 billion to $2.521 billion.

In the end, it seems RH is exactly where it wants to be given its stellar earnings growth and planned shift back to focusing on revenue growth in the coming year. But until it can show more concrete signs of both top- and bottom-line growth, and with the stock already having tripled over the past year leading into this report, it seems the market isn't willing to give it the benefit of the doubt just yet.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

RH Stock Quote
$307.56 (1.34%) $4.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.