Restoration Hardware Outpaces Competitors

Generally, home-furnishing stores perform well in tandem with the housing market as buyers look for new furniture with which to fill their dwellings. While the housing market appears to be slowing down a bit at the moment, there is no sign of stagnation among several home-furnishing chains.

Restoration Hardware , a company with a solid history of beating analyst expectations, has once again released figures that beat the Street. The company is easily outpacing competitors such as Pier 1 Imports and Williams-Sonoma . What's behind these strong results?

Huge growth
Restoration Hardware hit it out of the park for its first-quarter report, displaying huge earnings growth and strong execution. The company bent last year's $161,000 net loss into a $1.8 million profit. Excluding items, the company's earnings of $0.18 per share tripled year over year, blowing away the $0.11 analyst consensus. Revenue of $366 million rose 22% from a year ago, also comfortably beating calls for revenue of $347 million. 

According to management, the company is in the early stages of a multiyear transformation project, which, once completed, is expected to deliver between $4 billion and $5 billion in annual sales. That's an ambitious project to say the least, considering that this year's revenue is expected to be in the range of $1.86 billion to $1.89 billion. With only 69 stores in its chain, the company is looking to expand its store footprint as well as make existing locations bigger.

Let's take a look at some of the growth drivers going forward. First of all, the company raised its full-year outlook, now expecting earnings in the range of $2.24-$2.30 per share versus a previous $2.14-$2.22 per share, which is a significant difference. Revenue is expected to grow between 20% and 22%, with adjusted net income rising 33%-37%.

The company will continue focusing on its two main growth drivers, namely its real estate transformation and the expansion of its product offerings. This year, Restoration Hardware will be opening new locations in Los Angeles and Atlanta and will also be expanding its New York gallery. In total, the company is looking to open about 30 new locations in the coming years.

Outperforming the industry
According to CEO Gary Friedman, Restoration Hardware is outperforming the industry. Looking at results from some competitors, this does indeed seem to be the case. Pier 1 Imports, a prime competitor, is also undergoing a transformation of its business; this does not yet seem to be paying off as much as Restoration's efforts.

Revenue for its most recent report rose by 3.9%, lagging Restoration by far, and net income fell to $42.6 million from $61.7 million last year. Of course, the weather was partly to blame for the disappointing results. But in order to boost sales, the company has been investing aggressively in its e-commerce channels, which are expected to deliver some 10% of overall sales by 2016.

Williams-Sonoma, a more established competitor, is also having trouble keeping up with Restoration Hardware's formidable earnings growth, although the company is also doing well.

For its first-quarter report, revenue grew by 9.7%, while earnings were up around 20%, beating expectations. Its newer brands such as West Elm saw particularly strong growth, with West Elm's comp-store sales up 18.8%, while its more established Williams-Sonoma concept still grew comps by a healthy 6%. According to management, the focus on its direct channel and e-commerce approach is paying off, with the direct channel now contributing half of overall sales. While this is indeed a strong performance, it's still lagging behind Restoration Hardware.

The Foolish takeaway
Restoration Hardware, a retailer of luxury home furnishings, delivered yet another quarter of impressive growth. The company has a strong track record of beating expectations, and with a raised outlook, growth doesn't seem to be slowing down. Easily outpacing other competitors in the industry, the company looks like a good bet for those looking for above-average growth in a housing-related industry.

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