retail watch | Mar 29, 2022 |
RH projects a bright future amid an uncertain present

In announcing record fourth quarter and annual earnings on Tuesday, RH once again ran down an impressive and overwhelming list of projects it is engaged in. From hotels and residential communities to European expansion, most of these endeavors move it farther beyond the business of simply selling sofas and credenzas to well-off American shoppers. That was nothing new. But in comments on a call with analysts following the release of the results, RH chairman and CEO Gary Friedman voiced uncharacteristic concern with current conditions, particularly with how supply chain issues, inflation and consumer sentiment in light of the war in Ukraine might impact both his own business and the overall economy for the short-term.

“I wouldn’t call it happy days now,” he said in response to questions about the company’s comments that it has “experienced softening demand in the first quarter that coincided with Russia’s invasion of Ukraine in late February and the market volatility that followed.” Friedman said it was important for the company to be honest and transparent, adding, “I don’t mean to be a pessimist, because we believe we have a great year [ahead of us] … In 22 years here, I’ve never been more excited, but I’ve also never been as uncertain.”

That’s the present day. When it comes to the future, Friedman remained his usual effervescent self. “Although we lack the ability to predict economic outcomes on a macro scale, we do have the business model, strategy and balance sheet to take advantage of opportunities that may present themselves whether it be during times of economic expansion, contraction or dislocation,” he said with his characteristic confidence.

Even if the numbers missed analyst projections for the quarter, they continued the hot streak RH has been on for several years—one that has seemingly exploded during the home boom. Net revenues were up 11 percent for the quarter, with big gains in operating margins as well. Net income increased 13 percent for the period. For the year, net revenues jumped 32 percent, with net income on a GAAP basis skyrocketing 153 percent.

Concurrent with the release of its earnings, the company also announced a three-for-one stock split, to be executed sometime this spring. From a low of just over $80 a share as recently as March of 2020, RH stock closed Tuesday at $385 a share (it was as high as nearly $750 last summer). How Wall Street reacts to the split, and to these latest numbers, is a big question—especially as RH stock ricocheted back and forth in after-hours trading following the company’s earnings announcement—at press time, it’s hovering at $369.

Some of that volatility may have depended on which of Friedman’s comments investors were listening to: On one side were the tantalizing glimpses into what’s coming, like the brand’s first European store, scheduled to open outside of London in June; on the other were frank assessments of ongoing supply chain challenges—not expected to clear up until the end of the year—and the resulting scaled-down and delayed debut of RH Contemporary. (The collection is now set to launch with a 300- to 350-page catalog, versus the original plan for 500 pages. “We’re trying to slow down a little bit,” said Friedman on the call.)

Friedman’s definition of slowing down might be very different from most. “Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences—fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning, time-starved consumers,” he wrote in his shareholder’s letter.

That same letter reaffirmed the company’s long-term strategy: “building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries.”

Wrapping up his remarks on the call, Friedman told analysts: “I wish I could tell you more about what we’re working on, but you’d probably get scared. But we’re not scared.”

Homepage photo: RH Jacksonville in Florida | Courtesy of RH

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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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