The housing bust in the mid-2000s brought a number of industry players to their knees, and among them was home-furnishings retailer Restoration Hardware (RH 4.60%). After going private for several years, Restoration Hardware returned to the ranks of public companies in 2012, and since then, investors have been rewarded for their dedication.
Coming into Thursday afternoon's fiscal first-quarter report, Restoration Hardware investors had high hopes that the company's growth pace would continue, and bullish shareholders weren't disappointed with its results. Let's take a closer look at how Restoration Hardware continued to restore confidence among its longtime investors with its latest report.
Restoration Hardware builds on its growth foundation
Restoration Hardware's fiscal first-quarter results were quite impressive, with the retailer posting record numbers in a variety of key areas. Net revenue climbed 15%, to $422.4 million, slowing from its 22% pace last year, but nevertheless keeping up plenty of positive momentum.
On the bottom line, Restoration Hardware's growth was even faster, with a 38% rise in adjusted net income, to $9.8 million. Adjusted earnings came in at $0.23 per share, up $0.05 from last year and beating expectations for $0.20 per share.
A closer look at the report reveals even more strength for Restoration Hardware. Growth in comparable-brand sales came in at 15%, adding to last year's 18% comps growth, and providing more evidence of the retailer's upward trend. Restoration Hardware has gotten more of its growth from its direct-sales channels, with sales up 18% compared to 13% growth in store-based revenue.
Nevertheless, Restoration Hardware gets about half its overall revenue from each source, maintaining a balanced approach to serving its customers. Increases in operating margins also helped to boost the bottom line for the home-furnishings retailer, as Restoration Hardware managed to limit its growth in overhead expenses to 14% on an adjusted basis.
CEO Gary Friedman applauded the results, pointing to just how far the company has exceeded expectations recently. The big jump in net income "further demonstrat[ed] the disruptive nature of the RH brand and the power of our multi-channel business model," in Friedman's words. He also believes that the company can keep outperforming its industry peers.
The next phase of Restoration Hardware's success
Specifically, Friedman pointed to the initial success of its next generation of Design Gallery retail locations as a driver of future growth. Early results from its RH Atlanta gallery have been positive, and with new businesses coming on line at that location, Friedman thinks it could beat company expectations. With four more Design Galleries scheduled to open in Chicago, Denver, Austin, and Tampa this year, Restoration Hardware is truly treating fiscal 2015 as a year of transition for the retailer.
Restoration Hardware's optimism shone through in its future business outlook. For the fiscal second quarter, Restoration Hardware expects sales of $495 million to $505 million, and adjusted earnings of $0.80 to $0.84 per share, which were actually below what most investors were looking for from the retailer. Yet for the full fiscal year, the company boosted its overall outlook on revenue to $2.146 billion to $2.176 billion, with adjusted earnings of $3.02 to $3.15 per share. That bottom-line range is toward the upper end of the $3.04 per share consensus projection for earnings among investors.
Restoration Hardware investors weren't entirely sure how to react to the news, with shares initially climbing in the first 30 minutes of after-hours trading following the announcement before giving up those gains later in the session. In the long run, what's more important than momentary changes in earnings projections is whether Restoration Hardware can keep growing beyond the rate at which investors already expect the home-furnishings retailer to increase sales and income.
With the stock already trading at more than 30 times current fiscal-year earnings projections, Restoration Hardware has precious little margin for error -- and any shortfall in its future results could send the stock diving, at least in the short run.