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Why Restoration Hardware Holdings Inc. Gained 10% in March

By Jeremy Bowman - Apr 7, 2016 at 5:17PM

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It's been an ugly year for the home furnishings retailer, but analysts see the issues as temporary. Here's why.

Image Source: Restoration Hardware

What: Shares of Restoration Hardware Holdings, (RH 4.53%) finished 10% higher last month, according to data from S&P Global Market Intelligence, as after gains following the retailer's fourth-quarter earnings report.

So what: Restoration Hardware stock had plummeted following a preliminary earnings report in February that said earnings would be well short of projections due in part to supply chain problems with its new RH Modern line and consumer anxiety relating to the stock market pullback and oil and currency woes.

Year-to-date, Restoration Hardware shares are still down nearly 50%, but the stock's plunge set up an opportunity for recovery. Restoration shares begin gaining in the run up to the company's earnings report on March 29. As it indicated in its preliminary report, the company's earnings were badly below expectations, and its outlook was similarly disappointing. For the full year, the company expects EPS growth to be flat to slightly down from the year before, and for revenues to grow in the low to mid-single digit range. Still, analysts by and large stuck with the stock, saying that many of the problems were "transitional," relating to its build-out of the RH Modern brand.

Now what: Demand for Restoration Hardware's furnishings remains strong. Written orders in the fourth quarter were up 21%, though actual revenues only increased 11%, indicating the problem is clearly on the supply side. CEO Gary Friedman noted, "The initial response to RH Modern has been outstanding, but we are experiencing shipping delays as certain vendors are struggling to ramp up production of this new product line." He added that he expected production problems to be mostly eliminated by the end of the first half.

Though 2016 may be a difficult year for Restoration Hardware, demand is still solid and the recent pullback presents a buying opportunity if the company can get its supply chain in order. 

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