RH Found 'Several Mistakes': Analyst Downgrades Stock After Friday's Proxy Filing

Shares of Restoration Hardware, or RH RH, experienced a significant drop of 7.53% on Monday, in response to the recent disclosures the home furniture company made on Feb. 3.

These disclosures shed light on several challenges that are expected to impact RH's performance in the near term.

The Analyst: Telsey Advisory Group (TAG) downgraded RH from Outperform to Market perform, but raised the price target from $310 to $330.

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RH updated its 2022 guidance range with the revenue decline now expected at the low-end of its prior range of (4.5%)-(3.5%), against TAG’s estimates of (4.1%).

The company also updated its operating margin at the high-end of its prior outlook of 21.5%-22.0%, against TAG’s estimates of 22.1%.

What’s worse, RH disclosed that it "found several mistakes" in its financial statements, which had an impact on GAAP basic and diluted EPS. The company has reviewed these errors and plans to make changes that will affect its adjusted EPS.

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Another factor affecting RH's market outlook, TAG noted, is the recent purchase of 3.7 million shares, which cost the company around $1 billion.

This share buyback is expected to offset the issuance of 4 million shares under the Corte Madera, California-based company's 2023 stock incentive plan. Despite these changes, TAG noted that RH is still considered a strong brand with potential for growth in the medium to long term.

TAG expects sales to decline in 2023 and for the operating margins to contract, leading to a lower EPS estimate for both 2022 and 2023.

Price Action: Shares of RH are trading 7.53% lower on Monday to $317.75, according to data from Benzinga Pro.