32% Short on Restoration Hardware ($RH) Primed for Epic Squeeze?
When's the last time you visited Restoration Hardware to look at a dining table for a starting price of $8,000 dollars...or chairs which sell for $500 a piece? Well this is the company that is reporting Earnings on Tuesday. Restoration Hardware is one of the most shorted stocks in the stock market to date, along side stocks like $TSLA and $STMP to name as a few. RH has Q2 2020 earnings on Tuesday 9/10/19 AMC. The company operates in the luxury home furnishing market, which has traditionally been a very boxy, no imagination, old retail approach to selling goods and services. RH has unique product development across its products, services, and businesses, go-to-market approach, supply chain, and its multi-channel infrastructure platform. It is redefining this very fragmented market. It has gained market share in the last few years, which is reflected in its superior sales growth compared to its industry peers.
Consensus EPS Estimate for Q2 2020 is $2.70 (+54.03% YoY)
Consensus Revenue Estimate for Q2 2020 is $697.73M (+8.89% YoY)
EPS revisions past 90 days include 16 upward and 0 downward
Revenue revisions past 90 days include 14 upward and 0 downward
The stock is up 67.59% for the QTR and 24.41% YTD. Look above, when is the last time you have seen a company with 16 earnings revisions and 14 revenue revisions all upward? If you have heard about their membership model or visited any of their 19 new galleries (massive stores in amazing buildings), for a truly innovative new retail experience, many complete with accompanying restaurants and bars, then you know they are only in the early innings. RH has a goal to have 60 to 70 new galleries in North America in the next few years. Their long-term N.A. goal is for a target of $4B to $5B in annual revenues with mid to high teen operating margins and ROIC over 50%. They believe they can grow revenues 8% -12% and EPS 15% to 20% per year for the next ten years. The company also has long-term global aspirations for $7B to $10B in revenue, because as they pointed out on Friday, 65% of the world’s billionaires live outside the US.
RH rolled out its new RH Beach House collection in late spring and has its RH Ski House collection set for release this fall along with new collections in RH Modern and RH Interiors. The next two galleries to open are RH San Francisco and RH Charlotte and are scheduled for Q1 2020. Last week the company also announced that the new China tariffs that went into effect on September 1st will have no impact on FY 19 or FY 20 results.
So, what to do now, we are going to “game theory”. The company recently presented on Friday 9/6/19 at the Goldman Sachs Global Retailing Conference. Be sure to look at these slides, RH has a great story to tell. So, do any of you really think after a raise and beat last quarter and a recent increase in guidance on 7/29/19 that now RH is going to miss earnings? No, we didn’t think so.
The consensus estimates are right within the company’s recently raised guidance. In our opinion, adjusted EPS are set to continue to grow much faster in 2020 and we also expect revenue and EPS estimates for 2021 to continue to rise. The IVs on RH this week are looking for a 12% move up or down, which if it happens would take the stock right back to its 2018 high of 164.49 or slightly higher. Look at the weekly chart on RH, this has been a steady climber since June.
I am personally bullish going into $RH earnings, currently do not hold any positions but will look to enter tomorrow morning. If you want to learn more about this trade and want to find a group that can help you trade better come join the Pineapple Family! 🍍