Restoration Hardware (RH) earnings release review for the 1st quarter of their 2021 fiscal year
Category: Stock Market and Restoration Hardware (RH)
Date: 10 June 2021 Stock Price of Restoration Hardware (RH): $611.33 Market Capital of RH: $12.9 billion We take a look at the 1st quarter earnings report of their 2021 fiscal year of Restoration Hardware (RH) a curator of design, taste and style in the luxury lifestyle market. For the quarter the group reported revenues of $860.8 million and net income of $130.7 million.
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Same store sales exceeded our expectations and increased 19.4% and total sales increased 26.5% as our team capitalized on robust consumer demand and the successful execution of our strategic growth initiatives. - Norm Miller, Conn’s Chairman and Chief Executive Officer."
More About Restoration Hardware
RH (NYSE: RH) is a curator of design, taste and style in the luxury lifestyle market. The Company offers its collections through its retail galleries across North America, the Company’s multiple Source Books, and online at RH.com,
Overview of Restoration Hardware 1st quarter 2021 earnings report
FIRST QUARTER 2021 HIGHLIGHTS
- Q1 TOTAL COMPANY DEMAND +101% VS. Q1 LY
- Q1 RH CORE DEMAND +109% VS. Q1 LY
- Q1 TOTAL COMPANY NET REVENUES INCREASED 78% TO $860.8M VS. $482.9M LY
- Q1 GAAP GROSS MARGIN INCREASED 600 BASIS POINTS TO 47.3% VS. 41.3% LY
- Q1 ADJUSTED GROSS MARGIN INCREASED 550 BASIS POINTS TO 47.3% VS. 41.8% Q1
- GAAP OPERATING MARGIN INCREASED 1,450 BASIS POINTS TO 21.8% VS. 7.3% LY
- Q1 ADJUSTED OPERATING MARGIN INCREASED 1,260 BASIS POINTS TO 22.6% VS. 10.0% LY
- Q1 GAAP NET INCOME OF $130.7M VS. NET LOSS OF $(3.2)M LY
- Q1 ADJUSTED NET INCOME INCREASED 375% TO $142.3M VS. $29.9M LY
- Q1 GAAP DILUTED EPS OF $4.19 VS. DILUTED LOSS OF $(0.17) LY
- Q1 ADJUSTED DILUTED EPS INCREASED 285% TO $4.89 VS. $1.27 LY
- Q1 FREE CASH FLOW OF $136M VS. $(36)M LY penses related to fiscal year 2020.
Restoration Hardware management commentary on their 1st quarter 2021 earnings
TO OUR PEOPLE, PARTNERS, AND SHAREHOLDERS
Fiscal 2021 is off to a strong start, with revenues up 78% in the first quarter versus down 19% a year ago. Total Company demand increased 101% in Q1 and RH Core demand increased 109%, the strongest demand trends in our industry. We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin increasing 1,260 basis points in the first quarter to 22.6% versus 10.0% a year ago. Adjusted net income increased 375% and adjusted diluted EPS increased 285% to $4.89 per share versus $1.27 last year. We generated $228 million of adjusted EBITDA in the quarter and $136 million of free cash flow. Q1 ended with total net debt of $382 million and trailing twelve months adjusted EBITDA of $896 million. Our expectation is to be net debt free by the end of this fiscal year.
INCREASE IN FISCAL 2021 OUTLOOK
Based on current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%. We now expect adjusted operating margin in the range of 23.5% to 24.3%, an increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points, with ROIC in excess of 60%. As it relates to the second quarter, we expect revenue growth in the range of 35% to 37% and adjusted operating margin in the range of 25.9% to 26.1%. While fiscal 2021 will surely be a tale of two halves, there are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021 with growth reaccelerating in fiscal 2022 and beyond. These include a strong housing and renovation market, both with pent up demand and a long tail, a record stock market, low interest rates and the reopening of several large parts of our economy. Additionally, the un-masking of the general public could lead to a Roaring Twenties type of consumer exuberance. Town & Country captured that feeling perfectly on the recent cover of their magazine, titled, “Remember Fun? Get Ready for the Comeback!”.
Fiscal 2021 is off to a strong start, with revenues up 78% in the first quarter versus down 19% a year ago. Total Company demand increased 101% in Q1 and RH Core demand increased 109%, the strongest demand trends in our industry. We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin increasing 1,260 basis points in the first quarter to 22.6% versus 10.0% a year ago. Adjusted net income increased 375% and adjusted diluted EPS increased 285% to $4.89 per share versus $1.27 last year. We generated $228 million of adjusted EBITDA in the quarter and $136 million of free cash flow. Q1 ended with total net debt of $382 million and trailing twelve months adjusted EBITDA of $896 million. Our expectation is to be net debt free by the end of this fiscal year.
INCREASE IN FISCAL 2021 OUTLOOK
Based on current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%. We now expect adjusted operating margin in the range of 23.5% to 24.3%, an increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points, with ROIC in excess of 60%. As it relates to the second quarter, we expect revenue growth in the range of 35% to 37% and adjusted operating margin in the range of 25.9% to 26.1%. While fiscal 2021 will surely be a tale of two halves, there are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021 with growth reaccelerating in fiscal 2022 and beyond. These include a strong housing and renovation market, both with pent up demand and a long tail, a record stock market, low interest rates and the reopening of several large parts of our economy. Additionally, the un-masking of the general public could lead to a Roaring Twenties type of consumer exuberance. Town & Country captured that feeling perfectly on the recent cover of their magazine, titled, “Remember Fun? Get Ready for the Comeback!”.
Showroom and Facilities Update
The Company opened six new Conn’s HomePlus® showrooms during the first quarter of fiscal year 2022 and has opened one new Conn’s HomePlus® showroom during the second quarter of fiscal year 2022, bringing the total showroom count to 153 in 15 states. During fiscal year 2022, the Company plans to open a total of eleven to thirteen new showrooms in existing states, including the seven already opened, to leverage current infrastructure.
Liquidity and Capital Resources
As of April 30, 2021, the Company had $290.4 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $6.6 million of unrestricted cash available for use.
During the three months ended April 30, 2021, cash provided by operating activities of $130.8 million contributed to strengthening the Company's balance sheet and decreasing net debt as a percentage of the portfolio balance at April 30, 2021 to 39%, the lowest level in eight fiscal years.
On May 12, 2021, the Company completed the redemption of the 2019-A Asset Backed Notes at an aggregate redemption price of $41.1 million (which was equal to the entire outstanding principal balance plus accrued interest). We funded the redemption with cash on hand and borrowings under our revolving credit agreement.
The Company opened six new Conn’s HomePlus® showrooms during the first quarter of fiscal year 2022 and has opened one new Conn’s HomePlus® showroom during the second quarter of fiscal year 2022, bringing the total showroom count to 153 in 15 states. During fiscal year 2022, the Company plans to open a total of eleven to thirteen new showrooms in existing states, including the seven already opened, to leverage current infrastructure.
Liquidity and Capital Resources
As of April 30, 2021, the Company had $290.4 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $6.6 million of unrestricted cash available for use.
During the three months ended April 30, 2021, cash provided by operating activities of $130.8 million contributed to strengthening the Company's balance sheet and decreasing net debt as a percentage of the portfolio balance at April 30, 2021 to 39%, the lowest level in eight fiscal years.
On May 12, 2021, the Company completed the redemption of the 2019-A Asset Backed Notes at an aggregate redemption price of $41.1 million (which was equal to the entire outstanding principal balance plus accrued interest). We funded the redemption with cash on hand and borrowings under our revolving credit agreement.
Restoration Hardware (RH) stock price chart over the last 5 years
The image below shows the stock price history of Restoration Hardware over the last 5 years. And its been a very good time for RH stockholders with the stock price increasing by a whopping 1980% over a 5 year period.
The stock of RH is trading a lot closer to its 52 week high than it is to its 52 week low which to us is a clear indication that the short term sentiment and momentum of RH stock is very positive at this point in time.
The stock of RH is trading a lot closer to its 52 week high than it is to its 52 week low which to us is a clear indication that the short term sentiment and momentum of RH stock is very positive at this point in time.
Restoration Hardware (RH) latest stock valuation
So based on RH's 1st quarter 2021 earnings report what do we value their stock at? Based on their latest earnings report our valuation model provides a target price of $279.90 for the stock of Restoration Hardware
We therefore believe the stock of Restoration Hardware is overvalued at its current price of $611. We recommend that investors look to enter a stock at least 10% below our target price which in this case is $279.90. A good entry point into the stock of Restoration Hardware would therefore be at $251 or below.
We expect the stock of Restoration Hardware to pull back strongly after the strong run its had recently to levels closer to our target price in coming weeks and months.
We therefore believe the stock of Restoration Hardware is overvalued at its current price of $611. We recommend that investors look to enter a stock at least 10% below our target price which in this case is $279.90. A good entry point into the stock of Restoration Hardware would therefore be at $251 or below.
We expect the stock of Restoration Hardware to pull back strongly after the strong run its had recently to levels closer to our target price in coming weeks and months.
Next earnings release of Restoration Hardware (RH)
It is expected that Restoration Hardware will release their 2nd quarter 2021 earnings report in early September 2021
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