I think that investors should pay attention to all of the costs being capitalized in the latest 10-Q.
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restoration hardware RH
RH: This one might take a while…
Restoration Hardware recently announced the pricing of the convertible debentures that they are selling (here is the press release filed on EDGAR). Unfortunately, this is a blow to my short thesis.
Restoration Hardware versus West Elm
Restoration Hardware competes against a company called West Elm, which is owned by the publicly-traded Williams Sonoma (WSM). SEC 10-K filings disclose metrics for both companies. Restoration Hardware’s metrics are far superior:
- Higher “comparable brand revenue growth” overall
- Roughly three times higher sales per leased square footage (by my calculation)
Yet there are some curious things about Restoration Hardware:
- According to Google Trends data, West Elm has been trending stronger than the supposedly faster-growing Restoration Hardware.
- I’ve never seen a hot retailer shrink its store count. Hot retailers look like West Elm. They open stores because the rate of return on new stores is likely very high.
Restoration Hardware: Their numbers don’t make a lot of sense
Restoration Hardware is a retailer with a shrinking store count, going from 95 stores in YE2010 to 70 stores in YE2014. Despite this drop in store count, capital expenditures have grown from $2.024M to $93.868M in that timeframe. One explanation is that Restoration Hardware is improperly capitalizing expenses to inflate its earnings. Of course, it is also possible that there is no accounting fraud here. Perhaps Restoration Hardware is legitimately making a huge investment in software and store renovations. As always, you should do your own due diligence and come to your own conclusions.
Market cap: $2.6B
Borrow: <1%
Shares short / shares outstanding: 10.3% (Shares short as a % of float would be higher)
