Restoration Hardware Holdings Inc (RH), Lumber Liquidators Holdings Inc (LL): Which Stock Is Best in the Home Improvement Space?

Here’s a recent trend worth noting: Shares of Restoration Hardware Holdings Inc (NYSE:RH) have fallen 9% in the last month, while Lumber Liquidators Holdings Inc (NYSE:LL) has risen 18.5%. Both stocks have seen one-year gains of 120%, but why have the two stocks separated as of late, and is this trend indicative of what may come next?

An Earnings Catalyst

While Lumber Liquidators Holdings Inc (NYSE:LL)’s one-month gains are large, more than 6% of its gains came on Wednesday after earnings. In the quarter, Lumber Liquidators Holdings Inc (NYSE:LL) posted a 22.2% rise in revenue year-over-year, to $257.1 million, beating expectations by $13.7 million. Moreover, its EPS of $0.73 beat the consensus by $0.13, as net income increased more than 67% over the prior year.

Lumber Liquidators Holdings Inc (NYSE:LL)’s quarter was solid. Not only were their headline numbers strong, but gross margins rose 400 basis points and comparable sales growth increased 14.9%. Overall, Lumber Liquidators Holdings Inc (NYSE:LL) has emerged as a home improvement contender, and a long-term threat to the likes of Home Depot and Lowes.

The Most Important Retail Metric

Restoration Hardware Holdings Inc (NYSE:RH)’s business model is similar to Lumber Liquidators Holdings Inc (NYSE:LL)’s, but there are differences. Restoration Hardware Holdings Inc (NYSE:RH) is a home improvement company, but is the Michael Kors Holdings Ltd (NYSE:KORS) of the space, meaning it’s mostly luxury home improvement. Due to the continued strength of the economy’s 1%, luxury improvements is growing rapid, and Restoration Hardware Holdings Inc (NYSE:RH) is living proof.

While Lumber Liquidators’ revenue growth was over 22%, its near 15% rise in comparable sales shows that much of Lumber Liquidators’ growth has been due to the expansion of new stores. Restoration Hardware Holdings Inc (NYSE:RH) has revenue growth of 38%, and comparable growth of 41%. This shows that all of Restoration Hardware Holdings Inc (NYSE:RH)’s growth is coming from its existing stores, not the inclusion of new stores. Such growth is unprecedented, and signals that Restoration Hardware still has many quarters of explosive existing store growth and can accelerate growth with the addition of new stores.

In retail, comparable sales is golden, and is the best metric for identifying strength. A retail company can easily expand its stores to boost revenue, but comparable expansion shows that more consumers are coming into existing stores, which also boosts margins. With that said, Lumber Liquidators’ comp growth is very strong, but is tiny relative to Restoration Hardware.