For several years, Restoration Hardware (RH - Snapshot Report) was a market darling thanks to their charismatic CEO, Gary
Friedman, and their fresh approach to the upscale furniture market. It didnt hurt that the stock went from the $30s in early 2013 to just over $100 in
late 2015, cementing the company as a popular choice for investors in what had been a pretty stale corner of the stock world.
But as great has things had been for RH over the past few years, the last six months have been equally as terrible. The stock has plunged from triple digit
territory to around $25/share, including a loss of roughly 68% in six months time. And while this is obviously a horrendous stretch, the recent earnings
report and analyst reaction to it suggests that RH might not be out of the woods just yet.
Recent Earnings & Analyst Take
In Restoration Hardwares latest earnings report, the company posted another big miss when compared to earnings expectations as they saw a loss of five
cents a share compared to expectations of a five cent per share profit. And while this was pretty bad news on its own, the company also slashed its
expectations for both the current quarter and the current year.
Slashed is barely even aggressive enough of a word to describe how much management cut guidance for the coming time periods, as adjusted EPS looks to be
between 28 cents and 33 cents and the consensus estimate was calling for an 80 cent profit before the report. Similarly, full year expectations were
expected to be about $2.65/share before the report and now management is calling for earnings between $1.60-$1.80/share instead (see our full take on the RH Earnings Report).
And with these kinds of cuts to expectations, it shouldnt be a surprise to note that analysts have universally been cutting their estimates too, including
six in the past week for the current quarter, and seven in the past week for the full year. Clearly, analysts are expecting more pain ahead for RH shares
and that is why we have a Zacks Rank #5 (Strong Sell) on the stock right now, and are urging investors to stay away from this company until estimates come
back on track for this once beloved furniture retailer.
Given this poor outlook, investors should look elsewhere in this corner of the market for now. One choice that stands out as a promising pick is Ethan
Allen Interiors (ETH - Snapshot Report) , a stock that currently has a Zacks Rank #2 (Buy).
And not only does ETH have a buy rating, but it also has a VGM Score of A, which includes A grades for both value and momentum, while it has been
seeing rising earnings estimates as of late too. This makes it a much better, and safer, choice when compared to RH and should thus be the preferred option
in the home furnishing market for investors this summer.
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