Restoration Hardware Holdings In-Line EPS Despite Sales Miss


Fourth-quarter (January) adjusted EPS of $0.83, 38% same-week growth, were equal to consensus, and within management’s $0.82-$0.85 guidance. A revenue shortfall was offset by SG&A favorability.

Revenues of $472 million, 26% same-week growth, were below the $491 million consensus and the $490 million-$500 million guidance. The 17% comp-store sales gain trailed the 23.5% consensus; direct-channel revenues increased slightly over 30% on a same-week basis. Management attributed the revenue shortfall to the compressed holiday season, widespread adverse weather in December and January, and a decision to cut holiday gift book circulation by 20%-30% that hurt revenues more than expected.

Gross margin declined 20 basis points to 37.1% (equal to consensus), reflecting a moderate mix-driven decline in merchandise margins (the smallest decline of the year) and deleverage of nonstore occupancy costs, which more than offset salesdriven leverage of store occupancy costs and leverage of shipping/transportation costs. Management indicated that the promotional cadence was similar year-overyear. The SG&A expense rate declined 220 basis points to 24.7%, reflecting advertising savings resulting from the consolidation of sourcebook mailings, leverage of corporate employment costs, and expense control.

The company provided a number of important updates regarding merchandising/newness, its latest sourcebook strategy (designed to have greater impact with larger books mailed once per year), real estate (including a fine-tuned future gallery prototype that is slightly smaller and expected to be more productive per square foot), and supply chain/fulfillment capabilities. In addition, the company announced the hiring of a chief development officer (Doug Diemoz), who will oversee new-business development and future international growth.

Management established full-year 2014 EPS guidance of $2.14-$2.22 (25%-30% growth), which encompasses the incoming $2.17 consensus. Guidance assumes revenues of $1.825 billion-$1.860 billion (18%-20% growth), which is somewhat below the incoming consensus in the $1.877 billion-$1.894 billion range.


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