It's been a tough round of earnings this season in the retail world, and I suspect that tomorrow's results from Restoration Hardware (NASDAQ:RSTO) won't be much different from those of its peers. With its focus on houseware products, I won't be surprised if it takes a pretty hard hit. How much of an impact are the analysts expecting the housing crisis to have on Restoration Hardware, and how prepared is the company to withstand these troubling times?

What analysts say:

  • Buy, sell, or waffle? Of the 11 analysts following the company, five recommend a buy, and six are comfortable holding tight on the couch. A quick peek at our Motley Fool CAPS community displays a bearish outlook, with investors offering just one out of five stars.
  • Revenue. Analysts expect sales of $183.9 million, only 2.6% higher than a year ago.
  • Earnings. Expected losses are $0.20 a share. Quite a reversal from a year ago, when earnings were $0.01.

What management says:
Restoration Hardware expects revenues of $183 million to $185 million and a loss of $0.19-$0.21 a share. Management, citing cited lower-than-expected revenues and a need for promotional pricing, has already issued a warning that quarterly results won't meet original expectations. But management is also expressing optimism about the future -- results are expected to improve starting in the second half of the fiscal year as a result of cost-saving initiatives and the introduction of Restoration Hardware Trade, a direct-sales division; the Restoration Hardware Bed & Bath catalog; and a redesigned website.

What management does:
The merchandise hasn't flowed freely, and the red ink has been pretty abundant for quite some time. The gross margin had been expanding, but it fell during the past two quarters. No doubt, the housing slowdown has affected results. Yet as a seller of high-end merchandise, the company should have been somewhat buffered.

Metric

4/29/06

7/29/06

10/28/06

2/3/07

5/5/07

Gross Margin

34.6%

35.3%

35.3%

35.2%

34.7%

Operating Margin

0.8%

1.5%

1.9%

2.1%

0.8%

Net Margin

(5.2%)

(4.5%)

(4.5%)

0.5%

(0.8%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Given the warning, the results won't be a surprise. The focus instead will be on management's plan to turn things around. Management appears to be already getting to work, having announced a reorganization plan a few weeks ago. But if improvement doesn't come in the near future, investors will grow tired of hearing the promising speeches and will soon give up on the wait.

The market for its high-end goods isn't very large, and we've already seen the same story of woe from fellow retailer Williams-Sonoma (NYSE:WSM) during its most recent quarter. Retailer Pier 1 Imports  (NYSE:PIR), which has long been waiting for results to turn around, could provide a not-so-pleasant preview of what's to come for Restoration Hardware. I think this debt-laden company will have a hard time getting itself back on track, especially while it's fighting for its share in a pretty unfavorable market.

Check out Restoration Hardware's past:

Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at [email protected]. He doesn't have any positions in the companies mentioned. The Fool has a disclosure policy.