Last quarter, the stock of Restoration Hardware crashed after it announced dreadful earnings, which however were somewhat redeemed after the company came up with the most original of excuses: in an exercise of absurd reflexivity, RH blamed its own falling stock price on its poor results: “Historically, our business has a correlation to large movements in stock prices as we believe asset valuations influence our customers’ buying patterns.” It also blamed various other things, all of which boiled down to one simple thing: the consumer is simply not spending.
Then moments ago, RH reported its Q1 earnings which this time were not quite as terrible, with revenue of $455.5MM, inside the forecast range, and above $452.8MM consensus, although the EPS loss of 5 cents missed estimate of 5 cents.
However, the reason why the stock is crashing right now is due to the company’s guidance. This is what it said:
The Company’s results for fiscal 2016 will be impacted by certain short term operational items including costs associated with RH Modern production delays and investments to elevate the customer experience, timing issues related to the transition from a promotional to a membership model, and a more aggressive approach to rationalizing its SKU count and optimizing inventory. These factors are negatively impacting the Company’s fiscal 2016 adjusted diluted EPS outlook by approximately $0.90 to $1.00.
As a result, the company slashed guidance and instead of the consensus estimate of $0.80 in Q2, now expected to generate only $0.28-$0.33 in the quarter, while revenues will grow only 1-3%, well below the previous estimate of up 5%. To wit:
The Company is providing the following outlook for the second quarter of fiscal 2016 (including an approximate $2 million to $3 million net revenue and approximately $0.30 adjusted diluted EPS reduction per the short term operational items described above; these negative factors are partially offset by the addition of Waterworks during the second quarter of fiscal 2016):
- Net revenues in the range of $505 million to $520 million
- Adjusted net income in the range of $11.5 million to $13.5 million
- Adjusted diluted EPS in the range of $0.28 to $0.33
- Income tax rate of approximately 39%
- Diluted shares outstanding of approximately 41 million
The Company is lowering its outlook for fiscal year 2016 (including an approximate $16 million to $17 million net revenue and $0.90 to $1.00 adjusted diluted EPS reduction per the short term operational items described above; these negative factors are partially offset by the addition of Waterworks during the second quarter of fiscal 2016):
- Net revenues growth in the range of 1% to 3%
- Adjusted diluted EPS in the range of $1.60 to $1.80
- Capital expenditures in the range of $180 million to $210 million
The problem, just like last quarter, is that the dramatic drop in guidance has little to do with the company’s (once again) sliding stock price, or any of the excuses listed above, and everything to do with the US consumer, who contrary to Wall Street expectations, simply refuses to come out of his shell and spend.
If RH is a proxy for the rest of the retail sector, we expect a barrage of earnings warning to hit the tape over the coming weeks as we approach the end of the quarter.
Meanwhile, the stock is doing what it did so well this time last quarter: plunging.
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