Restoration Hardware Holdings, Inc common stock (NYSE: RH) stock fell over 0.2% in the pre market session on December 5th, 2019 (Source: Google finance) after the company posted decent results for the third quarter of FY 19. The company has generated $96 million of free cash flow in the quarter compared to $16 million a year ago.
RH in the third quarter of FY 19 has reported the adjusted earnings per share of $2.79, beating the analysts’ estimates for the adjusted earnings per share of $2.22, according to Zacks Investment Research. The company had reported the adjusted revenue growth of 6 percent to $676.7 million in the third quarter of FY 19, beating the analysts’ estimates for revenue of $675.6 million. RH has increased the gross margins by 170 basis points compared to last year and versus the midpoint of the guidance, which was up 140 basis points. The company has also generated record adjusted operating earnings of $88 million, which is up 44% versus last year and record adjusted operating margin of 13.0%,
RH expect the operating margin to expand at least 200 basis points in fiscal 2020 and targets a 20% operating margin over the next several years
Meanwhile, RH has started to prove the capability as a property developer with its first two development projects in Yountville, California, and Edina, Minnesota. In Yountville the company has acquired, develop, and execute a sale leaseback of the project at a cap rate of 4.26%, which will involve vast majority of the capital, and the company project to complete a sale leaseback of the Edina Gallery by the first half of next year at a cap rate in the range of 5.0% to 5.25%, which will again involve most of its investment. The company is also developing the Aspen Gallery and Guesthouse in a joint venture that needs no upfront capital, and where RH has a profit interest upon completion and sale of the properties. The company project to recoup 90% to 100% of the minimal finish and fixture capital investment in both projects. Further, the company continues the transformation of the real estate in North America from legacy to new design Galleries. Therefore, the company expects their revenues to rise substantially, leveraging occupancy, advertising, and other SG&A costs across the platform.
In addition, RH intends to launch RH International in 2021 or 2022 and are currently close to completing real estate transactions for 5 to 7 initial locations across Europe. Based on the penetration of other luxury businesses, the company anticipates that it will position the company to become a $20 billion global brand.