Sears Holdings Corporation (SHLD), Williams-Sonoma, Inc. (WSM): Will Rising Rates Crush Restoration Hardware Holdings Inc (RH) Earnings?

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Restoration Hardware Holdings Inc (NYSE:RH) will release its quarterly report on Tuesday, and investors have optimistically bid up its shares lately, more than doubling in value since its IPO last fall. But with fears of a potential slowdown in the housing market, will Restoration Hardware earnings be able to follow suit and continue growing?

Restoration Hardware Holdings Inc (NYSE:RH)

Restoration Hardware Holdings Inc (NYSE:RH) has had a checkered past, having been hot during the housing boom but nearly succumbing to the housing bust before private equity firm Catterton Partners won a minor bidding war against Sears Holdings Corporation (NASDAQ:SHLD) to take the company private. Now, the home-furnishings retailer has rebounded by taking a different approach to the segment, focusing on more upscale products. Yet the question remains whether the company will prove vulnerable to another housing downturn if it comes. Let’s take an early look at what’s been happening with Restoration Hardware over the past quarter and what we’re likely to see in its report.

Stats on Restoration Hardware

Analyst EPS Estimate $0.43
Change From Year-Ago EPS (2.3%)
Revenue Estimate $377.6 million
Change From Year-Ago Revenue 29%
Earnings Beats in Past 4 Quarters 3*

Source: Yahoo! Finance.
*Out of three quarters since IPO.

Can Restoration Hardware earnings keep climbing?

Analysts have gotten increasingly optimistic about Restoration Hardware Holdings Inc (NYSE:RH) earnings in recent months, boosting their July quarter estimates by $0.04 per share and their full-year projections by double that amount. The stock has also made an impressive run, climbing 32% since early June.

The bulk of those gains came in the wake of the company’s first-quarter earnings report, which featured extraordinary growth rates. Comparable-store sales rose at a whopping 41% rate, led in part by a 38% jump in direct-sales that now make up almost half of its overall revenue. In essence, Restoration Hardware is using its stores as a showroom for its catalog and Internet offerings, focusing on making its best items available for immediate in-store purchase rather than trying to have everything available for bricks-and-mortar shoppers. By comparison, Williams-Sonoma, Inc. (NYSE:WSM)‘s Pottery Barn division, which is arguably Restoration Hardware Holdings Inc (NYSE:RH)’s most comparable competitor, saw only 7.6% gains in comps despite the strong housing environment boosting overall industry prospects.

But one thing holding back Restoration Hardware Holdings Inc (NYSE:RH)’s share price is the fact that private-equity investors are still looking for the exit door. In July, selling shareholders announced a secondary offering of stock. Insiders sold 8 million shares for $70 per share, with underwriters getting rights to another 1.2 million shares that led to a $644 million payday for those shareholders. The offering depressed share prices temporarily before they bounced back after the offering was complete.

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