Back in February, the stock of Restoration Hardware crashed after it announced dreadful quarterly earnings and slashed its guidance, however it somewhat redeemed itself after the company came up with the most original of excuses heard in a long time: in an exercise of absurd reflexivity, RH blamed its own falling stock price on its poor results: "Historically, our business has a correlation to large movements in stock prices as we believe asset valuations influence our customers’ buying patterns." It also blamed various other things, all of which boiled down to one simple thing: the consumer is simply not spending.
Then, three months later, with the stock having largely recouped most of its losses, RH again imploded when the company again guided materially lower, saying its earnings will be impacted by "certain short term operational items including costs associated with RH Modern production delays and investments to elevate the customer experience, timing issues related to the transition from a promotional to a membership model, and a more aggressive approach to rationalizing its SKU count and optimizing inventory." Note, the company did not in any way warn that the upcoming presidential elections are or even could be a risk factor.
So fast forward to today, with the company once again managing to recover its recent losses.... when the stock yet again crashed, plunging on - you guessed it - even more terrible guidance as follows:
- It slashed full year adj. EPS $1.19-$1.29, from its previous forecast just three months ago of $1.60-$1.80 Sept. 8
- It sees full year revenue of $2.11b-$2.14b, below Wall Street estimates of $2.17b
- Its 4Q EPS of 60c-70c is coming far lower than the $1.07 expected
- RH also slashed 4Q revenue, giving a range of $562m-$592m, far below the $639.9 million estimated.
- Finally, confirming not even it has faith in its own future, the company cut its Capex range to $180-190 million from $180-$210 million.
Sadly, this time the company did not even bother to come up with an original, entertaining and idiotic excuse why its customers aren't showing up, and instead of blaming the markets - which it couldn't since it is at daily record highs - blamed, what else, the presidential election, because apparently there are thousands if not millions of Americans who decided not to purchase a rug because, you see, "they just had to know who the next president will be first."
In the company's press release, CEO Gary Friedman had no shortage of excuses for underperforming, again.
“We are lowering our outlook for fiscal 2016 net revenues and adjusted EPS based on trends to-date during the fourth quarter. First, our business in November was below our expectations, which we largely attribute to consumer softness related to the US election and our Fall 2016 Source Books getting in homes later than planned. While our Fall 2016 Source Books began mailing in mid-September, the vast majority of the circulation is just getting in homes over the last few weeks versus our original expectations for the Books to be building earlier in the mailing cycle. This is resulting in a shift of sales that would have been booked in the fourth quarter into the first quarter of next year. In addition, sales of our Holiday Collection are trending lower than our expectations. We are taking a more aggressive approach to clear seasonal merchandise as well as taking deeper markdowns to accelerate our overall SKU rationalization efforts which are expected to result in lower product margins during the quarter. We are lowering our fiscal 2016 capital expenditures guidance to a range of $180 million to $190 million from our prior range of $180 to $210 million.”
“While we are clearly disappointed in our fourth quarter outlook, we believe we are making the necessary investments and changes to position our business for the long-term. As we look forward to fiscal 2017, we expect to anniversary the costs related to the launch of RH Modern; benefit from the deferral of membership revenue, plus capture additional revenue from new members and renewals; cycle our efforts to reduce inventories and rationalize our SKU count; and expect revenues to build from the mailing of our Fall 2016 Source Books and the second mailing of the RH Modern Source Book next Spring. We also expect incremental revenues from the 4 new Design Galleries opened in 2016, and the 6 new Design Galleries opening in 2017, 5 of which will have Cafes, Wine Vaults, and Coffee Bars similar to our successful hospitality experience at our Gallery at the 3Arts Club in Chicago. As we cycle these investments and changes, we expect sales to reaccelerate, operating margins to expand, and to generate free cash flow in 2017. At RH, we have demonstrated an ability to navigate through challenging periods before, and emerge an even stronger business and brand. We are confident that our choices will prove to be the right ones, driving long-term sustainable growth, improved returns on capital, and shareholder value.”
Having been badly burned in the past three quarters by the company's abysmal performance, will Wall Street give it the benefit of the doubt once again? Probably, but as of this moment the stock was down 20% as yet another moment of "price discovery" crushes so much pent up optimism.