Restoration Hardware Shares Added To Goldman's 'Conviction Buy' List, Upgraded

Restoration Hardware Holdings Inc RH is “in the unique position of operating a potent franchise with low current expectations” as well as “idiosyncratic business drivers,” Goldman Sachs’ Matthew J. Fassler said in a report. He upgraded the rating on the company to Buy, while adding the stock to the Americas Conviction Buy List. The price target has been raised from $37 to $40.

Analyst Fassler believes Restoration Hardware has two ways in which it can create value:

1. Meeting current expectations and returning to growth in 2017
2. By deploying a “trading sales for profits” strategy, curtailing its capital spending plans and conserving cash

“Our enthusiasm is driven in part by CEO Gary Friedman’s strong track record as a merchant, with the potential to extend the core brand, and by the firm’s strong positioning for ecommerce, selling only its own brand, with 43% of its business from Direct,” Fassler commented.

Recovery Ahead

The analyst expects the company to begin recovery in Q4, backed by:

• The mailing of new books – This would be for the first time since Spring 2015, and would involve the implementation of member pricing in these books such that advertised prices are the same as actual pricing.
• Better in-stock for Modern – This is on track to reaching 90 percent, and includes the Modern product being available in all retail stores by the holiday season.

“In a sense, we expect RH to deliver the refresh to its vitality that the market originally expected a year ago, but which was derailed by its own struggles and macro headwinds,” the Goldman Sachs report stated.

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