Why Restoration Hardware Holdings, Inc. Shares Jumped 11% on Friday

By Markets Fool.com

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Image Source: Restoration Hardware.

What:Shares ofRestoration Hardware Holdings, Inc.(NYSE: RH) got a much-needed shot in the form ofGoldman Sachson Friday, sending the retailer's shares up 11%.

So what: The high-end home-furnishings retailer has seen its stock crushed this year, falling from over $100 last fall to as low as $25, as profits have tumbled amid supply-chain problems in its rollout of RH Modern, and a slowdown in customer demand due to shifts in oil and currency markets.

On Friday, Goldman Sachs upgraded the stock to buy, saying it expected a recovery by the end of the year. Analyst Matthew Fassler lifted his price target to $40 and cited four factors for a comeback in the fourth quarter, including the mailing of new catalogs for the first time since the spring of 2015, the implementation of member pricing in the new catalogs, the increased stocking of RH Modern offerings, and the addition of RH Modern products to all stores by the end of the year.

Now what:There's no doubt that Restoration Hardware is going through some tough times this year as it posted a per-share loss of $0.05 in its first-quarter report, down from a profit of $0.23 per share from the year before.

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However, much of the company's problems seem to be temporary, such as the rollout of RH Modern and the conversion to a membership pricing model. CEO Gary Friedman has proven his knack for high-end retail before, saving the company from near bankruptcy in the early 2000s by pivoting to a luxury brand.

Fassler also noted Friedman's "strong track record as a merchant over more than 25 years." I expect the company to be in a better position a year from now.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Restoration Hardware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.