It's back to the drawing board for Restoration Hardware (NASDAQ:RSTO). The home-decor retailer warned of a dreadful showing over the holidays, and sure enough, same store-sales dipped by 7.4% over the nine-week period. Overall sales, meanwhile, came in essentially flat with last year's showing.
For part of the fiscal shortcoming, the company faults back orders, unfulfilled special orders, and in-transit orders that had been shipped but not yet delivered. However, even those items wouldn't have turned the tide of negative comps at the store level. It couldn't have come at a worse time, either, for this is the chain's money quarter. Restoration Hardware has historically lost money through the first three quarters, only to turn a profit in the final period. However, that one winning quarter often isn't enough. The company managed a profit in 2004, but before that, it hadn't closed out a year in the black since 1998.
Those who were hoping that 2004 would be the start of a favorable trend are seeing red again. Restoration Hardware is now looking to earn between $0.21 and $0.24 a share in the fourth quarter. It won't be enough to overcome the $0.28-per-share loss that the company posted through the first three quarters of 2005.
Decking out homes isn't an easy gig from a retail perspective. Rivals such as Pier 1 (NYSE:PIR) and Bombay (NYSE:BBA) have had their wild mood swings. Pottery Barn parent Williams-Sonoma (NYSE:WSM) has proved to be a more consistent market leader, though it, too, has let out a hiccup every now and then.
The upside here -- for those looking to scoop up Restoration Hardware after it opened 12% lower this morning -- is that the unusual number of back orders and late deliveries should help get 2006 off to a better-than-average start. Then again, if the best that Restoration Hardware investors can hope for is that the company backs into a profit for just the second year on this side of the millennium, maybe that money would be better put to use in a turnaround situation that may actually stick around for a while.
Longtime Fool contributor Rick Munarriz has been burned by Restoration Hardware before, but he is not an investor in the stock. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
