Restoration Hardware Surges After IPO
Restoration Hardware Holdings Inc. (RH), the seller of leather couches and tables made of salvaged wood, rose 30 percent in trading after pricing its initial public offering at the top of the proposed range.
The shares climbed to $31.10 at the close in New York. Corte Madera, California-based Restoration Hardware and shareholders yesterday raised $123.9 million selling 5.2 million shares for $24 each, according to a statement, after offering them for $22 to $24.
The IPO price valued Restoration Hardware at $887.3 million, or 27 times net income in the 12 months through July, making the stock about 64 percent more expensive than peers, according to data compiled by Bloomberg. The company commanded a premium to shares of home retailers Williams-Sonoma Inc. (WSM), Ethan Allen Interiors Inc. (ETH) and Bed Bath & Beyond Inc. (BBBY) after annual profit surged sixfold and U.S. housing starts climbed to the highest level in four years.
“If you look at our track record during the last few years where we looked at economic difficulties, our customer has responded tremendously well,” Gary Friedman, chairman emeritus and former co-chief executive officer, said in an interview today on Bloomberg Television. “We continue to believe that the customer will continue to respond in a very significant way.”
Restoration Hardware didn’t name competitors in its filings. It operates in a market “characterized by smaller, independent competitors” and targets consumers with household incomes of $200,000 or higher, according to regulatory filings.
Net income at Restoration Hardware jumped in the 12 months through July to $33.1 million from $4.9 million a year earlier as the company closed stores and sold more online and through catalogs, regulatory filings show. Sales increased 22 percent in the same period to $1.05 billion. Williams-Sonoma, Ethan Allen and Bed Bath & Beyond were valued at an average of 16 times net income in comparable periods in yesterday’s trading.
Consumer confidence rose to a five-year high in October, while housing starts in the U.S. surged 15 percent in September to the highest level in four years, adding to signs of a revival in the industry at the heart of the financial crisis. A net 171,000 workers were added to U.S. payrolls in October, according to Labor Department statistics. The increase was more than the median forecast of 125,000 in a Bloomberg survey.
“Our customer is an event buyer -- buying a new home or remodeling a home or acquiring a vacation home,” CEO Carlos Alberini said in an interview. “A recovery in housing can only help us.”
Restoration Hardware moved ahead with the offering after Friedman announced in August he would step down as co-CEO. The 55-year-old, who has frequently appeared in the large catalogs for which the company is known, will stay on as an adviser and board observer, the filing shows. As of today, a letter from him was on the home page of the company’s website, citing Don Quixote and ending with the words “Carpe Diem.”
“I am going to remain the curator and creator of the company,” Friedman said today by telephone. “I will continue to be the face of the brand. This is in many ways my life and my legacy. I will be here as long as they want me.”
Friedman’s departure came after the company investigated a personal relationship between the former co-CEO and an employee, according to filings. He declined to provide specifics about the investigation.
“Every once in a while, people fall in love with work and fall in love at work,” Friedman said. “That is what happened. I never thought my personal life would be so interesting to people.”
Friedman, who didn’t plan to sell shares in the IPO, will own about a 16 percent stake after the offering, worth about $138 million at the IPO price, data compiled by Bloomberg show.
The shares offered represent a 14 percent stake in the Restoration Hardware, filings show. The company sold 4.8 million of the shares in the sale, while management and other holders sold about 382,000 shares, according to filings.
Restoration Hardware, previously listed on the Nasdaq Stock Market, was bought by a group including Friedman and private equity firm Catterton Partners in 2008. After the IPO, Catterton will have a 32 percent stake, filings show.
Restoration Hardware is listed on the New York Stock Exchange under the symbol RH. Bank of America Corp. and Goldman Sachs Group Inc. led the sale.
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