On Friday, CFRA made an adjustment to its financial outlook for Restoration Hardware (NYSE: RH (NYSE:RH)), increasing the stock's price target from $293.00 to $309.00, while the firm's rating remains at Hold. The new target represents a $16.00 increase and is based on 26.5 times the projected FY 26 earnings per share (EPS) of $11.67. This EPS estimate is a downward revision from the previous forecast, now $1.95 lower for FY 26 and $0.17 lower for FY 25, at $6.31.
The revised price target takes into account expectations for a rate cut, market expansion, and updates to the company's product offerings. Restoration Hardware's adjusted earnings per share for the second fiscal quarter (FQ2) came in at $1.69, a 57% decrease year over year, falling short of CFRA's estimate by $0.11. Revenue for the quarter was reported at $830 million, a 3.5% increase from the previous year and slightly above the consensus by less than 1%.
The company experienced a positive inflection in demand throughout the quarter, with a 7% increase and a stronger 10% rise in July. August continued the trend with a 12% demand increase, and the company also reported a positive turn in product margins. Despite these gains, the FQ2 gross margin declined by 230 basis points to 45.2%, compared to the 350-basis point decline in the first quarter.
Restoration Hardware's investments in selling, general, and administrative expenses (SG&A) rose by 22% year over year, accounting for 33.6% of revenue and pushing the earnings before interest and taxes (EBIT) margin to 11.7%, which was within the company's guidance but fell short of CFRA's expectations. The company has revised its revenue growth outlook downward from 9% to 6% and its EBIT margin from 13.5% to 11.5%.
CFRA's report also highlighted a significant year-over-year inventory increase of 24%, which could pressure margins in the upcoming quarters, particularly as promotional activity is expected to rise across the industry due to stretched consumer budgets. Given these factors, CFRA maintains its Hold rating on Restoration Hardware's shares.
In other recent news, Restoration Hardware has experienced significant developments. The company reported a surge in demand and revenue growth in its second quarter of 2024 earnings call, with revenue rising 3.6% year-over-year to $830 million and demand increasing by 7%. Despite these positive developments, Restoration Hardware revised its full-year 2024 sales and adjusted EBIT guidance downwards by approximately 3% and 17%, respectively, due to a slower-than-expected response to new product offerings.
KeyBanc Capital Markets maintained a Sector Weight rating on Restoration Hardware shares, acknowledging the company's progress in its product assortment refresh, expected to show benefits by 2025. However, concerns were raised regarding the near-term demand for the furniture industry, which could impact the company's performance.
TD Cowen increased the price target for Restoration Hardware from the previous $325.00 to $350.00, maintaining a Buy rating on the stock and expressing optimism about the company's future prospects. Additionally, Baird raised the stock price target for Restoration Hardware from $275 to $290, maintaining a neutral stance.
InvestingPro Insights
The latest data from InvestingPro provides a nuanced perspective on Restoration Hardware's financial health. With a market capitalization of $5.91 billion, the company is trading at a high earnings multiple, with a P/E ratio of 169.36. This is indicative of investor confidence in the company's future earnings potential, despite the high valuation. Analysts from InvestingPro also highlight that the company is expected to be profitable this year, which aligns with the positive demand inflection noted in the recent quarter.
However, the company operates with a significant debt burden and does not pay a dividend, which might be important considerations for income-focused investors. Additionally, the revenue growth for the last twelve months, as of Q2 2025, shows a slight decline of 4.25%. Yet, it's worth mentioning that the gross profit margin remains strong at 44.39%, suggesting that Restoration Hardware maintains a solid ability to control costs and generate earnings from its sales.
For those seeking a deeper analysis, there are additional InvestingPro Tips available, which can provide further insight into Restoration Hardware's financials and market position. These tips can be accessed through the InvestingPro platform, offering a comprehensive suite of tools and metrics for informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.