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Bull of the Day: Restoration Hardware (RH)

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Restoration Hardware (RH - Free Report) , a Zacks Rank #1 (Strong Buy) is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby and child products. The Company's business is integrated across its multiple channels of distribution, consists of its stores, catalogs and Websites. Restoration Hardware Holdings, Inc. is based in Corte Madera, California.

Recent Earnings Results

Management recently reported Q217 earnings where they easily beat both the Zacks consensus earnings and revenue estimates.  On a year over year basis the company saw gains in GAAP net revenues +13%, adjusted net revenues +14%, comparable brand revenues +7%, adjusted net income +10.1%, and adjusted diluted earnings per share +27.3%.

Positive Catalysts

The company’s core business continues to gain momentum due to their strong RH members program, and streamlined business structure.  Further, management was able to reduce inventories (by almost 25%), generate increased free cash flows, and improve their supply chain.  

During the second quarter, the company repurchased 12.4 million shares at a cost of $700 million cutting the total share count from 33.5 million to 21.1 million.  

Increased Guidance

Management raised their 2017 revenue forecast from a range of $2.4-2.45 billion to a range of $2.42 billion to $2.46 billion. Further, the company increased adjusted EPS guidance from $1.67-1.94 to $2.43-2.67.

Management’s Take

According to Gary Friedman, Chairman and CEO, “I am pleased to report strong second quarter results as we move past the most uncertain stages of our transformation. In 2016, we made the brave decision to transform our business from a promotional to a membership model that we believe will enhance our brand, streamline our operations, and dramatically improve our customer experience. We also began the redesign of our supply chain network, rationalizing our product offer, and transitioning inventory into fewer facilities, which will create a significantly more efficient capital model. 2016 was also the first full year of many new business initiatives such as RH Modern, RH Teen, RH Hospitality, the redesign of our RH Interiors Source Book, the expansion of RH Interior Design Services, and the addition of Waterworks to our platform. All of these investments are expected to contribute to growth in 2017 and beyond, and create long term value for our shareholders over time.”

Price and Earnings Consensus Graph

As you can see in the graph below, the stock price jumped up after the earnings announcement and the future earnings estimates are trending upwards.


Restoration Hardware Holdings Inc. Price and Consensus

Restoration Hardware Holdings Inc. Price and Consensus | Restoration Hardware Holdings Inc. Quote

Increasing Estimates

Due to the strong earnings results and increased future earnings and revenue guidance estimates for Q3 17, Q4 17, FY 17 and FY 18 have all seen positive upwards revisions; Q3 17 rose from $0.35 to $0.70, Q4 17 was elevated from $1.30 to $1.37, FY 17 jumped up from $1.97 to $2.41, and FY 18 increased from $2.83 to $3.42.

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