Convertibles activity slows; Herbalife falters as guidance altered; Restoration Hardware eyed

By Stephanie N. Rotondo

Seattle, June 5 – Convertible bond market activity slowed on Monday, with Herbalife Ltd.’s 2% convertible notes due 2019 among the few issues drawing attention.

The name was notable on Monday following the company announcement on Sunday that it had massively cut its revenue guidance. However, the company did increase its earnings forecast.

One New York-based sellside source quoted the convertibles at 102.375 bid, 102.625 offered, which was down from earlier levels around 103.

Another market source saw the notes finishing just under 102, which was a loss of over 3.25 points outright.

The underlying stock was getting hit as well, falling $4.91, or 6.64%, to $69.01.

Herbalife said its current quarter revenue would decline 2% to 6% due to its efforts surrounding its settlement with the Federal Trade Commission in July 2016.

The company had previously forecast a decline of 0.5% to 4.5%.

The settlement was in regards to accusations that the nutritional supplements distributor was a pyramid scheme. Herbalife agreed to pay $200 million to settle the claims and also agreed to implement new methods for documenting its sales.

Still, total expected adjusted earnings for the quarter was increased to 95 cents to $1.15 per share. That compared to previous guidance of 88 cents to $1.08 per share.

Another name moving around on a forecast change was Restoration Hardware Inc.

In Monday trading, the company’s 0% convertible notes due 2020 were seen in an 81.125 to 81.75 context. That was up from a single print on Friday at 80 but was down from Thursday’s levels in an 84.25 to 84.75 range.

Restoration’s equity, however, was up 3.28%, to 7.71%, at $45.82.

After the market closed on Thursday, the high-end furniture retailer said it was expecting to see adjusted second-quarter earnings of 38 cents to 43 cents a share.

Analysts polled by Bloomberg had predicted 53 cents to 75 cents a share.

However, the company also upped its full-year revenue forecast to $2.4 billion to $2.45 billion from $2.3 billion to $2.4 billion previously. Adjusted earnings for the year were also changed, to $1.67 to $1.94 a share, versus the previous forecast of $1.78 to $2.19 a share.

Come Friday, the company’s stock got hammered, falling as much as 26% on the day.

The guidance revision came along with the release of the company’s first-quarter results. For the period, Restoration posted a net loss of $3.4 million, or 9 cents per share. Revenue was $562.1 million.

On an adjusted basis, EPS was 5 cents, at the high end of the company’s previous guidance.

The retailer is moving to a membership model, while also launching cafes in its stores. As such, Restoration is trying to liquidate inventory by offering steep markdowns.

Markdowns tend to generate more revenue but ultimately hurt the bottom line.

Mentioned in this article:

Herbalife Ltd. NYSE: HLF

Restoration Hardware Inc. NYSE: RH

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