Gary Friedman is a highly-regarded retail executive.
The Founder, Chairman & CEO of RH (Restoration Hardware) is also unusual in that, unlike most CEOs, he can be very blunt in his assessment of the economy and his company’s prospects.
Friedman is making waves for his commentary after RH delivered record financial results for the fiscal year ending in January.
He’s very candid about the impact of inflation, freight rates, the war in Ukraine, and many other factors affecting RH’s consumer reliant business.
Friedman, who’s run RH for more than 20 years, says he’s never been as excited and as uncertain.
Get a bird’s eye view into the headwinds facing this multi-pronged luxury brand, which touches many aspects of the economy.
And why RH’s stock, which rose more than 1,600 per cent over five years, can still triple from here.
with files from Bloomberg and Business Insider
RH, the luxury home furnishings retailer formerly known as Restoration Hardware, is in a somewhat unusual position that gives Gary Friedman a view into many parts of the economy.
Beyond making and selling high-end furniture and fixtures, the company also owns “guest houses” around the world, a line of fully furnished luxury houses and condos, a yacht, and it’s soon launching a charter service on a pair GulfStream jets.
Here are some comments from Friedman from RH’s earnings new release, which include the effect of the war in Ukraine.
“While we enter 2022 with confidence that our efforts will continue to elevate and expand the RH brand for years to come, we also recognize there are several external factors, such as record inflation, rising interest rates and global unrest, that create uncertainty.
While first quarter sales and margin stand to remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia’s invasion of Ukraine in late February and the market volatility that followed.
We believe it is prudent to remain conservative until demand trends return to normal.”
Friedman went on to describe RH’s various business challenges this way:
“I’ve never seen it so chaotic, honestly, from an execution point of view, whether it’s construction, sourcing, manufacturing, shifting the supply chains, freight.”
“When you run an integrated business like ours, where you need all the pieces of the puzzle to paint the picture, that just makes it more complex and more difficult.”
RH’s logistically difficult but record 2021, added an average of five weeks lead-time into the company’s supply chains.
Not only do those delays cost money, prices for other goods and services continue to climb while the Federal Reserve raises the cost of borrowing.
Throw in Russia’s invasion of Ukraine and a slowdown of demand, and the mix is a heady one, which Friedman candidly admits.
“I don’t think anybody really understands what’s coming from an inflation point of view, because either businesses are going to make a lot less money or they’re going to raise their prices.
And I don’t think anybody really understands how high prices are going to go everywhere.
In restaurants, in cars and everything.
It’s – and I think it’s going to outrun the consumer.
And I think we’re going to be in some tricky space.
So everything is kind of happening at once.”
In spite of the difficulties and dire warnings, Friedman insisted that a strategy of slowing down and being patient will keep RH from “winding up in the ditch.”
“In my 22 years here with RH, I’ve never been more excited,” Friedman said. “I’ve also never been more uncertain.”
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Editor’s note:
From an analyst standpoint, we like to listen to Brian McGough, Sector Head Retail at Hedgeye Risk Management.
He was recommending RH five years ago when the stock traded just below $40.
The shares hit nearly $700 in June of last year.
McGough acknowledges the current headwinds for RH but believes the stock can triple from here within three years once the company’s challenges dissipate in the second half of 2022.
He also believes Friedman may have an ulterior motive in giving a less than rosy outlook.
And that is because he’d like to buy back stock at as low a price as possible, similar to the $700 million share buyback RH launched in 2017, when Friedman believed the shares were undervalued.
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