Restoration Hardware Holdings Inc (RH), Williams-Sonoma, Inc. (WSM): Restore Your Portfolio With This Company

What’s going on?

For Restoration Hardware Holdings Inc (NYSE:RH), this is the second time being a publicly traded company. The company went private for $175 million in 2008. Last November, its private equity owners took the company public at $23 per share and the stock has been a stellar performer ever since.

The stock continued its ascent last week when it rallied more than 16% after releasing its earnings report for the first quarter and raised its outlook for the second quarter. Comparable-store sales rose 41% and direct revenue rose 38%. This is on top of heady gains last year where comparable-store sales rose 26% and direct revenue rose 20%. Sales have risen at least 10% in 13 straight quarters. If analysts thought last year’s growth was impressive, the company looks to grow even faster this year.

What is the company doing to continue its growth pace?

According to chairman Emeritus Gary Friedman:

We are in the very beginning stages of our growth story. Our results today have been restricted by the fact that our assortment has been trapped in legacy real estate that was designed for an entirely different company.

In other words, the company is adjusting its new store formats to be completely different from before. The new real estate strategy will include becoming an anchor tenant at high-end shopping centers. The new stores will have a larger-format than its old stores and measure roughly 21,500 square feet. This is more than three times the size of the format for the old Restoration Hardware Holdings Inc (NYSE:RH) stores.

Restoration Hardware Holdings Inc (NYSE:RH) is also making other key strategic moves to keep growing. The company just poached a 30-year veteran from rival Williams-Sonoma, Inc. (NYSE:WSM) to be the chief merchandising officer for its new kitchen and tableware assortment business. This is the company’s efforts to break into this $25 billion market. Restoration Hardware Holdings Inc (NYSE:RH) is also opening an antiques section and opening an art gallery in New York to target the contemporary art market.

The result of all these efforts explains management’s bullish outlook going forward. Sales are now forecast to be $380 million for the second quarter compared to prior expectations of $351 million. Earnings per share for the second quarter are now expected to come in at $0.42 compared to $0.38 estimated previously. The outlook for the company going forward is indeed bullish.