On Friday, Baird adjusted their outlook on Restoration Hardware (NYSE:RH (NYSE:RH)), raising the price target to $400 from the previous $300, while maintaining a neutral stance on the company's stock. The revision follows observations of an increasing demand trend, as indicated by monthly sales with December outperforming November and the third quarter.
This momentum is reflected in RH's impressive 37.66% price return over the past six months, with the stock currently trading at $381.38. According to InvestingPro analysis, RH is currently trading above its Fair Value, with 10+ additional exclusive insights available to subscribers.
The analyst noted that Restoration Hardware's adjusted EBIT fell short of expectations by approximately 3% due to softer gross margins. However, the demand for the company's products has been on the rise. This growth is attributed to the positive reception of RH's significant product evolution. The company maintains a solid gross margin of 44.39% and generates annual revenue of $3.05 billion. Get comprehensive financial analysis and valuation metrics with InvestingPro's detailed research report.
Despite the heightened inventory levels, CEO Gary Friedman has moderated expectations for margin recovery in the fiscal year 2025, signaling a strategic focus on gaining market share over margins. Nonetheless, the analyst anticipates that the demand will continue to be robust in FY25, bolstered by the release of new Interiors/Outdoor Sourcebooks in February and an increase in Gallery openings.
The report concludes with a cautious approach to the stock's current valuation, stating, "Net, a bullish top-line update, but with our FY25E/FY26E EPS relatively unchanged, we are hesitant to chase the stock at ~45x FY25E EPS." This reflects a balance between the positive sales trajectory and the unchanged earnings per share estimates for the upcoming fiscal years.
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