Executive Summary

• Restoration Hardware reported 3Q16 adjusted EPS of $0.20, ahead of the $0.16 consensus estimate but down 69.2% year over year. Revenues rose by 3.1% from the year-ago quarter, to $549.3 million, also beating the consensus estimate, which called for revenues of $527.7 million.
• Comps, including direct revenues, declined by 6% year over year, compared with a 7% increase in the prior-year period and consensus of (12.8)%. Management attributed the decline to disruption related to the company’s transition from a promotional business model to a membership model, the timing of recognizing membership revenues related to the transition and efforts to reduce inventories.
• Restoration Hardware lowered its FY16 guidance, citing “consumer softness” related to the US election and a later-than-planned launch of its fall catalog, which has affected sales of its Holiday Collection. The company now expects adjusted EPS of $1.19–$1.29, versus previous guidance of $1.60–$1.80 and the $1.64 consensus estimate. Full-year revenues are now expected to be $2.11–$2.14 billion, which represents growth of 0%–1%, versus previous guidance of 1%–3%.