Restoration Hardware drops after earnings miss, lowered guidance; Weatherford improves

By Rebecca Melvin

New York, June 9 – Restoration Hardware Holdings Inc.’s two series of 0% convertibles were lower in active trade on Thursday after the Corte Madera, Calif.-based specialty retailer missed earnings estimates and lowered guidance for the current fiscal year.

Trading in the two issues accounted for a good portion of the day’s secondary market volume, New York-based traders said.

“Restoration Hardware is in focus with the stock getting slammed,” a trader said.

Restoration Hardware’s 0% convertibles due 2020 were down 2 points to 70 and the Restoration Hardware 0% convertibles due 2019 gapped down 3 points to 77.5, according to Trace data.

Restoration Hardware shares were down $7.62, or 21%, to $28.45.

Elsewhere, Weatherford International Ltd.’s 5.875% exchangeables continued to surge. The paper traded up another 1.5 points to 121.5 bid, 122 offered as news of a straight bond deal boosted the convertibles, which priced last week.

In the primary market, Tutor Perini Corp. modeled cheaply and was expected to do well in the space, a trader said, ahead of final terms expected to be fixed after the market close. The $125 million offering of five-year convertible senior notes was being talked at a 3.25% to 3.75% coupon and a 32.5% to 37.5% initial conversion premium.

Internationally, two French companies launched significant convertibles deals. Valeo SA priced $450 million of 0% five-year convertibles and Airbus Group SE launched a €1 billion deal of 0% five-year bonds exchangeable into shares of Dassault Aviation SA that were expected to price on Friday.

The Valeo deal was for bonds priced at par of $200,000 per bond for a 0% yield to maturity and a 45% initial conversion price over a reference price based on the volume-weighted average price of shares over 10 trading days beginning June 10.

The Airbus/Dassault convertibles were talked at an issue price of 102.5% to 105% of par for a minus 0.97% to minus 0.49% yield to maturity and with an initial conversion premium of 45%.

Restoration Hardware drops

Restoration Hardware’s 0% convertibles due 2019 were down 3 points at 77.5, and the Restoration Hardware 0% convertibles due 2020 traded at 70.1, which was down 2 points.

Restoration Hardware shares closed down $7.66, or 21%, to $28.41.

A New York-based trader said that Restoration Hardware was active and Weatherford was trading in large volume, but the market was quiet otherwise.

Restoration Hardware posted a loss for its fiscal first quarter of $13.5 million, citing production delays and shortages and costs, and compared with a profit of $7.2 million in the year-earlier period. Excluding one-time items, the loss was 5 cents a share, down from a profit of 23 cents a share. Sales rose 7.8% to $455.5 million.

Looking ahead, the company said adjusted earnings per share will be $1.60 to $1.80 for the fiscal year that began Feb. 1, down from $2.72 in the previous year. In March, the company had predicted profits on that basis would be largely flat and some analysts had expected profit of $2.66 a share.

Weatherford gains again

Weatherford’s 5.875% exchangeable was quoted at 121.5 bid, 122 offered at the close against shares of $6.75.

The $1.1 billion issue has risen 20% since debuting in the market a week ago. The latest 1.5 point to 2.5 point gain was induced by news of the company’s large straight bond issue launched Wednesday and which priced “inside of the talk,” a New York-based trader said.

Mentioned in this article:

Airbus Group SE Paris: AIR

Dassault Aviation SA Paris: AVMD

Restoration Hardware Holdings Inc. NYSE: RH

Tutor Perini Corp. NYSE: TPC

Valeo SA Paris: EN

Weatherford International plc NYSE: WFT

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