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Restoration Hardware Stock Jumps Despite Rough Quarter

By Timothy Green - Mar 30, 2016 at 12:30PM

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The furniture retailer has run into some major headwinds, but with the stock down so much already this year, the bad news may have already been priced in.

Image source: Restoration Hardware.

What: Shares of furniture retailer Restoration Hardware (RH -2.65%) jumped on Wednesday following the company's fourth-quarter earnings report. While profits declined, sales grew slower than the company anticipated, and the outlook was negatively affected by issues with the RH Modern collection, investors pushed the stock higher regardless. Shares of Restoration Hardware were up as much as 11.5%, settling to a 5% gain by 11 a.m. ET.

So what: There was quite a bit of bad news in Restoration Hardware's earnings report, but the stock has been decimated over the past few months, down nearly 50% year to date, so the company's issues may have already been priced into the stock.

RH Chart

RH data by YCharts.

Restoration Hardware reported quarterly revenue of $647.2 million, up 11% year over year, but well short of its original guidance range of $708 million to $718 million. In February, the company pre-announced its disappointing results, causing the stock to take a dive. The company blamed production and shipping delays related to RH Modern, underperformance in markets affected by oil prices, and poor performance of increased promotional activity.

Non-GAAP EPS came in at $0.98, down from $1.02 during the prior-year period. On a GAAP basis, EPS of $0.79 was down 22.5% year over year. While non-GAAP operating income grew compared to the same period last year, higher interest expense drove down non-GAAP earnings.

Now what: Restoration Hardware expects issues with RH Modern to continue into fiscal 2016, reducing revenue by $15 million and non-GAAP EPS by $0.22 for the year. For the first quarter, the company expects revenue between $452 million and $456 million, with adjusted EPS in the range of $0.04 to $0.06. For the full year, low- to mid-single-digit revenue is expected, with non-GAAP EPS expected to be flat to slightly down.

Despite all of this bad news, the jump in the stock price following earnings may be a sign that the stock fell too far, too fast. Much of the bad news was pre-announced, and CEO Gary Friedman did provide some optimistic commentary. "While there is certainly a fair amount of bad news in the quarter, we believe the good news greatly outweighs the bad when you put it into the context of our long-term growth strategy. Despite the headwinds, our two key value driving strategies -- the expansion of our product offer and the transformation of our real estate -- are working exceptionally well. The strong response to RH Modern, both in retail and direct, indicates this can quickly become a billion-dollar-plus brand."

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