Is Restoration Hardware's (RH) Sales Miss a Glitch or a Longer Trend?

This story has been updated from 2:38 pm EST with analyst comments, stock price close.

NEW YORK (TheStreet) -- Restoration Hardware (RH) shares sunk 2.5% to $79.99 -- the lowest level in three months -- on Thursday after reporting mixed second quarter earnings and revenue results.

The home furnishings retailer reported second-quarter earnings of 66 cents per diluted share on revenue of $433.8 million. Analysts were expecting earnings of 64 cents per share on revenue of $454.3 million. The company forecast full year revenue between $1.85 billion and $1.87 billion, while analysts are expecting revenue of $1.89 billion.

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Here's what analysts were saying about Restoration Hardware's earnings report.

Anthony Chukumba, BB&T Capital Markets (Hold)
Restoration Hardware's (RH) Q2'14 earnings were better than we expected, although revenues came up light. While we continue to have a fairly bullish view on the company's long-term growth prospects, the disappointing Q2'14 top-line performance gives us pause -- particularly given the lofty relative valuation. Thus, we believe our Hold rating remains appropriate.

David Schick, Stifel (Hold)
Sales growth slowed and profitability improved. There were some special factors at work -- so we don't think that's a trend -- and RH management believes the opposite will generally occur over the next two quarters. It's fair to say the stock traded down after market as total sales growth of +13.5% y/y was the slowest since at least mid-2010. Management noted adverse timing of the catalogs y/y left far fewer customers ready to shop the July 4th Friends & Family event. This likely hurt sales (trends otherwise were stronger in the quarter and this re-acceleration bolsters the company's confidence in 20%-23% brand comp guidance for upcoming 3Q14) and helped gross margin (less business done on sale). There's no doubt RH remains a revenue growth leader in retail - and a brand that's positioned to capture customer demand, either online or in stores. There is some incremental pressure for RH to see re-acceleration of sales with inventory per foot growth up about 24% y/y. But, RH management is, again, confident it is past speed bumps of promotional timing and the inventory/sales ratio will normalize by year end.

TheStreet Ratings team rates RESTORATION HARDWARE HLDNGS as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate RESTORATION HARDWARE HLDNGS (RH) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall."

You can view the full analysis from the report here: RH Ratings Report

RH Chart RH data by YCharts

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