Despite the unequivocally good economic news of low oil prices, Restoration Hardware's CEO just pre-warned of a massive miss in top- and bottom-line for Q4 thanks to "energy, oil, and currency fluctuations." This has sent the stock down over 20% after hours to its lowest since early 2013.
Here is why the headline scanning algos are puking:
- *RESTORATION HARDWARE 4Q ADJ. EPS 99C, EST. $1.40
- *RESTORATION HARDWARE 4Q NET REV. $647.2M, EST $710M
The firm's CEO explains the reasons for the collapse:
There are three key factors that had a negative effect on our fourth quarter results, along with several positive developments that give us tremendous confidence in our long-term growth strategy.
First, our demand sales/written orders were up a strong 21% in the fourth quarter on top of up 26% last year. Our delivered revenue, however, was up only 11% in the quarter on top of up 24% last year, representing a shortfall to our plan. While the initial response to RH Modern has been outstanding, we are experiencing shipping delays as certain vendors are struggling to ramp up production of this new product line. We expect the majority of the demand/written orders to turn into revenues in the first and second quarter, and anticipate our vendors will be substantially caught up by the end of the first half. Additionally, we believe the poor in-stocks also suppressed orders, and we expect demand to build as our in-stocks improve.
Second, we continue to see underperformance in markets affected by energy, oil, or currency fluctuations. The Canada, Texas and Miami markets were a drag of 2 points to total Company revenues in the first half, then accelerated to a 4 point drag in the third quarter, and continued as a 4 point drag in the fourth quarter despite increased promotional efforts, including reduced shipping charges to incentivize our Canadian customers. These results tell us the conditions remain weak in these markets and in aggregate they are trending 20 points below the rest of the Company. Looking forward, we will begin to cycle the underperformance, and the negative drag should be mitigated.
Third, our attempt to drive incremental revenue through increased promotional activity in the fourth quarter was less successful than in prior periods, signaling a further pullback by the high-end consumer. Our sense is the increased volatility in the US stock markets, especially the extreme conditions in January, which is historically our biggest month of the quarter for furniture sales, contributed to our performance.
But the punchline was this:
Historically, our business has a correlation to large movements in stock prices as we believe asset valuations influence our customers’ buying patterns.
In other words, the stock price is crashing, because earnings are terrible, because... the stock price is crashing.
Well, at the rate the stock is crashing after hours, RH may just forget any earnings in the coming quarter, which will in turn send the price crashing even further until ultimately there is nothing left of either the business or its market cap.