Restoration Hardware’s Stock Slides 36% Amid Profit, Expansion Concerns
Shares of upscale housewares retailer Restoration Hardware closed down 36% on Friday, after analysts raised concerns that the company’s aggressive expansion plans and wildly successful furniture sale could mean lower-than-expected earnings for the next three quarters.
The company’s first-ever sale of leather and mission-style furniture generated significant numbers, with one analyst pegging revenue up 68% to $55 million compared with a year ago, but with a margin that probably will mean far lower profit.
Those margin pressures could last into the second quarter, said Shelly Hale, a retail analyst with NationsBanc Montgomery Securities in San Francisco. Restoration quickly sold out of sale merchandise, but gave customers the option of placing furniture orders at the sale price, in effect extending the sale into the second quarter when the last ordered pieces will ship.
Wall Street also worried about the company’s 16 stores set to open in the third quarter this year. Until now, the most Restoration opened in a single quarter was nine stores. The chain, based in Corte Madera, Calif., was founded in 1980.
“Although the concept remains intact and we continue to believe Restoration Hardware is a uniquely positioned branded retailer of high-quality home furnishings, management is now, more than ever, in a ‘show-me’ position,” Hale wrote in her report downgrading the stock from “buy” to “hold.”
Hale also expressed concern that the company’s search for a new chief administrative officer probably will conclude in the second quarter rather than in the first.
Goldman, Sachs & Co. also downgraded the company’s stock to “market perform.”
Restoration’s stock closed at $15.63, down $8.75 in heavy trading on Nasdaq. Friday’s activity gave the company its biggest one-day sell-off since it went public in June at $19 a share.
Hale predicted a 7-cent loss per share in the first quarter instead of the 4-cent loss she had earlier forecast.
Analysts said Restoration’s difficulties did not signal problems in the housewares business, which includes such companies as Cost Plus Inc. and Williams-Sonoma Inc.’s Pottery Barn.
“It speaks to the youngness of the company and that they’re still working out some of the kinks in terms of being a national chain,” said one analyst who follows Restoration.
Restoration Hardware, known for the brilliant merchandising of founder Stephen Gordon, has 65 stores throughout North America that sell an eclectic mix of home furnishings, decorative housewares and oddball items selected as reminders of Gordon’s--and many customers’--youth.
