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Restoration Hardware Crushes Pier 1: Retro's In, Imports Aren't

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Restoration Hardware Celebrates The Opening of RH GREENWICH: The Gallery At The Historic Post Office With The Greenwich Internat
Roger Kisby/Restoration Hardware/Getty Images
Don't let anyone tell you that home furnishings retailers are all the same. We saw that disparity on display this month when Pier 1 Imports (PIR) and Restoration Hardware (RH) posted quarter updates.

Shares of Pier 1 plunged 13 percent on Thursday after posting uninspiring financials. Exactly one week earlier, Restoration Hardware's stock soared 13 percent after it posted blowout quarterly results.

How can the home decor industry be so exciting one Thursday and so dreadful the next? It's simple: no two specialty retailers are alike.

Taking a Long Walk on a Short Pier 1

Pier 1 had a bad quarter. Comparable sales rose 6 percent as folks flocked to its stores for cushions, artwork and other items to spruce up their digs. However, things fell apart on the way to the bottom line. Margins contracted to the point where earnings clocked in at 16 cents a share, down from the 19 cents a share profit it scored a year earlier. Analysts were holding out for a slight improvement on the bottom line with stronger sales.

Pier 1 hasn't beaten Wall Street's profit targets for more than a year. The future will prove challenging, leaving Pier 1 lowering its net income forecast for the fiscal year.

Pier 1 didn't live up to expectations at a time when it should be benefiting from the housing boom that's creating demand for new furnishings. One Wall Street pro -- Deutsche Bank (DB) analyst Adam Sindler -- downgraded Pier 1 from buy to hold, taking down price target from $24 to $18.

He feels that Pier 1 may not be backpedaling enough with its guidance as it implies more robust gross margins in a promotional environment that's proving more challenging. He also feels that Pier 1's same-store sales growth is coming mostly from costly e-commerce improvements.

No Rest for Restoration

The market had an entirely different reaction to Restoration Hardware's report, but that's understandable once you dive into the numbers. Revenue surged 22 percent, fueled primarily by an 18 percent spike in comparable revenue. Margins improved to the point where adjusted earnings tripled to 18 cents a share. Analysts were only holding out for net income of 11 cents a share.

Pier 1 hasn't beaten analyst estimates in more than a year and has come up short in three of the past four quarters. Restoration Hardware hasn't missed in more than a year and has beaten Wall Street's profit forecasts -- by double-digit percentage margins -- in three of the past four quarters.

Pier 1 hosed down its outlook, but Restoration Hardware is going the other way. It is boosting its sales and earnings projections for the fiscal year that ends in January of next year.

Bookends That Don't Match

Eyeing the financials, performance relative to expectations and the direction of the revised guidance, the two retailers couldn't be more different. Trends change, and Pier 1's imported furnishings appear to be losing their appeal at a time when Restoration Hardware's retro high-end items are gaining in popularity.

Not every peer or rival rides on the coattails of a hot retailer or fades in response to a weak one. We're seeing it this month in home furnishings. And we may get a different snapshot when Bed Bath & Beyond (BBBY) reports on Wednesday.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any Motley Fool newsletter service free for 30 days.

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