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Bear of the Day: Restoration Hardware (RH)

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For several years, Restoration Hardware (RH - Free Report) was a market darling thanks to their charismatic CEO, Gary Friedman, and their fresh approach to the upscale furniture market. It didn’t 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 Hardware’s 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 shouldn’t 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.

Better Options

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 - Free 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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