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Restoration Hardware stock split: Warren Buffett favourite RH 3-1 share split details in full

By Alejandro Arrieche

Edited by Alexandra Pankratyeva

16:29, 27 July 2022

Restoration Hardware stock split: Warren Buffett favourite RH 3-1 share split details in full Restoration Hardware trademark logo on retail store.
Restoration Hardware trademark logo on retail store.

On 29 March this year, high-end furniture retailer RH (RH), formerly known as Restoration Hardware, announced its intention to perform a 3-for-1 stock split. Management believes it might have “a number of benefits”, including the recruitment and retention of talent within the company.

The official statement said that the split should be completed during this year’s spring season but did not share a specific Restoration Hardware stock split date. 

Spring season in the United States has already ended and the split has not yet been confirmed by the company.

What would happen if the split occurs? In this article we share more details on what stock splits are and what a 3-for-1 RH stock split could mean for the share price.

What is a stock split?

A stock split increases the number of a company’s outstanding shares. After a split, shares are worth a fraction of what they were. 

However, the value of the company’s equity or that of the investors’ total holdings will not be affected, as every existing shareholder will receive the additional shares issued as a result of the split.

For example, in the specific case of the Restoration Hardware stock split, investors will receive two new additional shares for every RH stock they hold. As a result, they could have three shares instead of one, and the price of the shares in the market will be divided by three, if the RH stock split is completed.

Stock splits are typically performed to increase the liquidity of the stock by lowering its price. Common reasoning for this operation is that it could make the asset more accessible for retail investors with a lower investment budget. A stock split could incentivise traders to invest in low-priced stocks to build a diversified portfolio.

However, with the introduction of fractional shares and contracts for difference (CFDs), investors can now get exposure to virtually any listed stock by investing a much smaller initial amount.

What is Restoration Hardware?

Restoration Hardware was founded in 1979 in Eureka, California, by entrepreneur Stephen Gordon. The company sells furniture, home décor and other similar items both online and through a network of 120 stores (as of Q1 2022), including 67 galleries, 39 outlets and 14 Waterworks showrooms. 

Restoration Hardware’s CEO since 2001 is Gary Friedman. In 2012, Restoration Hardware went public for the second time, under the ticker symbol RH.

In 2012, the company rebranded as RH as part of an effort to revamp the business. Under Friedman’s leadership, the company focused on improving their customers’ experience when visiting their physical establishments. It adopted a membership model whereby members pay a $100 annual fee in exchange for discounts, rewards and other perks.

According to Hennessy Funds: “Introduced in 2016, the RH Members Program has yielded attractive results. It consists of approximately 415,000 members and drove approximately 95% of sales within the core RH business in 2019.”

In 2019, the company attracted the attention of Warren Buffett. Berkshire Hathaway (BRKb) announced the 1.2 million shares stake in a filing with the Securities and Exchange Commission (SEC). 

By the end of the first quarter of 2022, Buffet increased Berkshire’s RH stock holdings to 2,170,000 shares, according to Berkshire Hathaway’s 13F filing. It makes Warren Buffett's position in RH worth $543,454,800m. 

In 2021, RH produced net revenues of $3.76bn and a net income of $688.55m. By the end of that year, the company reported that it had 6,500 associates (employees). 

RH (RH) stock performance, 2017-2022

BTC/USD

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Short position overnight fee 0.0137%
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Short position overnight fee 0.0069%
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Short position overnight fee 0.0137%
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US100

19,526.60 Price
-1.140% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0

When will the Restoration Hardware stock split occur and why?

It is unclear when the Restoration Hardware stock split will occur. The Board of Directors has not confirmed if it will happen. The announcement made by the company in March indicated that they had the intention to do so.

They justified this intention by stating that it would help them retain and recruit talent. However, the Board did not clarify how a stock split could assist the management in these efforts, as this is not a typical rationale for a split.

If the RH stock split history started today (27 July), the theoretical price of the stock would have been $83.48 a share. This results from dividing the current Restoration Hardware stock price before split ($250.44 as of 26 July 2022) by three. 

Investors should keep track of any further Restoration Hardware stock split news. 

Will the stock split boost Restoration Hardware shares?

Stock splits don’t have a material impact on a company’s financial performance, valuation, or any other aspect as these transactions only modify the number of shares in circulation. In addition, the new shares are issued and granted to existing stockholders only.

This is the main difference between a stock split and an outright share sale, as the latter involves the issuance of new shares to be bought. 

If existing investors don’t buy the number of shares corresponding to the percentage of the company they currently own, their voting power will be diminished. This is known as equity dilution.

Analysts predictions’ and opinions about RH stock

In regards to the mid-term outlook for RH stock, analysts surveyed by MarketBeat have rated RH a ‘moderate buy’, with 12 analysts of 17 rating the stock a ‘buy’ and five giving it a ‘hold’ recommendation. 

The average price target for RH stood at $366.13, resulting in 46.19% upside potential, if that target is hit. The highest estimate for RH was $600 and the lowest $224.

Multiple firms lowered their price targets for RH stock following the release of its financial results covering the first quarter of the 2022 fiscal year. However, none of them downgraded the stock.

RH (RH) stock analyst ratings and price targets

Following the release of this earnings report, Morningstar analyst Jaime M. Katz stated: “RH has gained share in the fragmented $118 billion (U.S. Census) domestic furniture and home furnishing market in recent years, curating differentiated offerings from specialized global artisans.”
She added: “Brand equity should remain stable given the pace of tailored store buildouts, category expansions, and consistency of pricing, but the diverse end-market expansions RH is pursuing could make it difficult to capture a cost advantage. Entry into $200 billion hotel industry and $1.7 trillion domestic housing market should help support high-single-digit top line growth.” 

If you’re interested in trading RH stock, it’s important to bear in mind that analysts’ forecasts can be wrong. Their projections are based on making a fundamental and technical study of the stock’s performance. Past performance is no guarantee of future results.

It’s important to do your own research and always remember that your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.

FAQs

When did Restoration Hardware stock split?

Restoration Hardware has not yet performed a stock split. The Board of Directors announced on 29 March 2022 its intention to perform a 3-for-1 split but has not confirmed a date for the transaction or if it will occur.

Did Restoration Hardware have a stock split before?

Restoration Hardware (RH) has had no splits since the company went public.

How many times did Restoration Hardware stock split?

Restoration Hardware (RH) had not split its stock in the past.

Why did Restoration Hardware stock split?

The management stated that they believe a split has many benefits for the company including the “recruitment and retention of talent”.

 

Markets in this article

RH
Restoration Hardware
273.32 USD
-1.9 -0.700%
BRKb
Berkshire Hathaway
434.80 USD
-7.03 -1.590%

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