Please Exit Via IPO
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Restoration Hardware (NYSE: RH) is following that star, 'no matter how hopeless, no matter how far,' according to Gary Friedman, the retailer's former chairman and chief executive citing “The Impossible Dream” from the Broadway play Man of La Mancha (Friedman recently resigned from those roles due to a "personal relationship" with a fellow employee, according to an SEC filing. Carlos Alberini now serves as CEO, while Friedman remains on board as Creator and Curator.)
The luxurious home-furnishings company began trading as a publicly listed company on Nov. 2 at $24 per share, and since that time the stock has climbed 35%.
This high-end "curator," a description Restoration Hardware prefers over "retailer," has chosen a curious time to go public. The threat of the U.S. falling off the fiscal cliff has only intensified since the presidential election, the economy is expanding at only a meager 2%, and the equity markets have taken to a free fall post-election. Nonetheless, after being taken private four years ago by a private equity consortium, the company has resurfaced as a public company and has high hopes for the future.
In addition to its on-line and catalog presence, Restoration Hardware has 87 "galleries" (Restoration Hardware lingo for retail locations,) plus 10 outlet stores across North America. For the nine-week period ending on Sept. 29, 2012, comparable store sales rose almost 28% versus a similar period last year. In the third quarter, Restoration Hardware says that comparable store sales are trending higher versus net revenue after the company closed certain store locations.
The company is well aware that it is entering the public markets during times of heightened uncertainty, but they are not alarmed. In a recent interview with CNBC, company executives pointed to the fact that the company was able to undergo a transformation under private control and emerged out of the 2008 recession stronger. Its target demographic includes households with a median income of some $200,000, and the company changed its strategy by disengaging from shopping malls in favor of stand-alone store locations.
Restoration Hardware's lucidity about the challenges ahead are rivaled only by its optimism about tomorrow. Based on the company's S-1 filing, growth in the domestic housewares and home furnishings market is pegged at between three-and-four percent over the next three years. The company acknowledges a one percent grasp on this market, which could potentially pave the way for significant growth later on.
To facilitate this anticipated growth, Restoration Hardware has aggressive capital expenditure plans and intends to expand internationally over the next several years, according to the S-1 filing. After raising nearly $124 million in the IPO, much of which will be directed toward repaying debt, the company does not plan to issue more equity or debt in the near future, according to a CNBC interview. Instead, Restoration Hardware will use credit facilities already in place, in addition to company-generated income to fund growth.
Restoration Hardware is not a dividend stock and instead appears to be committed to reinvesting excess cash back into its operations.
Investors remain fearful that consumer spending -- especially among wealthy individuals -- is going to suffer due to the U.S. election results that could put an end to the tax cuts that were put in place by former President Bush. This sentiment has hurt certain luxury retailers this month.
High-end retailer Tiffany (NYSE: TIF) has shed 5% in November. At a time when much of the world's economic uncertainty is stemming from Europe, Tiffany has its sights set there. Tiffany recently revealed it will be opening a flagship retail location in Paris in 2014, where the company recognizes a "significant sales opportunity," according to a press release. The move brings Tiffany full circle, as the company's roots are in Paris where it opened its first store in 1867.
Department store retailer Macy's (NYSE: M) surpassed Wall Street estimates for earnings and revenues in the 3Q, and also staged a 3.7% increase in same-store sales. Macy's stock has been relatively flat in November, despite the fact that the company suffered through temporary store closures in the northeast throughout Hurricane Sandy, sales that the retailer is confident will be earned during the holiday season. Macy's also lifted its full-year earnings forecast by a nickel to between $3.35 and $3.40 per share on analyst expectations for the higher end of that range.
Despite the uncertainty surrounding consumers, the economy and retailers, Restoration Hardware is in fact pursuing its dreams. The company is not deterred by the many headwinds and seems almost amusingly focused on vernacular and delivering the ultimate shopping experience. Based on the stock's performance relative to industry peers, this luxury retailer's narrow focus appears to be working so far. Perhaps the second time around will in fact be better for Restoration Hardware and investors.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Tiffany & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.