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RH, formerly Restoration Hardware, is making plans to go beyond its galleries of home furnishings, with hotels, a yacht, homes for sale and a lifestyle strategy in the works, but UBS analysts are concerned about whether the luxury retailer can pull it off.
RH Guesthouses will be the company’s entry into the hotel industry. RH Residences will be the foray into the North American housing market, with turnkey homes and condos. And RH3 is the yacht available to charter in the Caribbean and Mediterranean.
By summer 2021, the company plans to expand its footprint to Europe, first with RH Paris then RH London.
“This leads to our strategy of building the world’s first consumer-facing interior design, architecture, and landscape architecture services platform inside our galleries, again elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries,” wrote Gary Friedman, RH’s RH, -1.99% chief executive, in a letter that accompanied the company’s first-quarter earnings.
“This is a time to be defined by our vision, not by a virus.”
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RH reported a loss of $3.2 million, or 17 cents per share, after net income of $35.7 million, or $1.43 per share last year. Adjusted EPS totaled $1.27, ahead of the FactSet consensus for 93 cents. Revenue of $482.9 million was down from $598.4 million last year and below the $490 million FactSet consensus.
“Executing on all this is complicated, in our view,” wrote UBS analysts led by Michael Lasser. “The higher-end home furnishings market has plenty of alternatives. Plus, it’s easy to disappoint customers with so many touch points. There’s different infrastructures needed for the various concepts. We would find it easier to believe in this opportunity if RH’s core business was humming. It is not.”
UBS highlighted the soaring sales at Wayfair Inc. W, -2.23% , which has seen its stock climb nearly 200% over the past three months, and Williams-Sonoma Inc. WSM, -0.72% , which just posted better-than-expected first-quarter results.
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RH stock has skyrocketed 185.5% over the past year while the S&P 500 index SPX, -1.14% is up 12.5% over that period.
“RH’s restaurants and outlets businesses likely led to its underperformance,” UBS said. “Outside of this, its demand was down 11%. So now it looks to be just getting back what it lost during Q1 rather than seeing incremental volume.”
UBS rates RH stock neutral with a $250 price target.
Wedbush analysts are upbeat about the prospects for these new business drivers, which they say could yield $5 billion in revenue.
“Indeed, if RH is able to effectively amplify its brand services, residences and guesthouses and profitably capture market share in its newly defined $7 trillion-plus addressable market, much upside remains,” wrote analysts led by Seth Basham.
Wedbush rates RH stock outperform with a $280 price target.
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Cowen analysts are also optimistic, though they maintain their market perform stock rating. Cowen’s price target for RH is $260.
“We see significant runway for RH to gain further share through its revolutionized store transformations, expansion into new product categories/services, scalable infrastructure and robust direct offering,” Cowen said.
