In case you missed the earnings call from Restoration Hardware last night, some of the comments from CEO Gary Friedman were very noteworthy. I’ll let his words speak for themselves.
In the prepared remarks:
“While we enter 2022 with confidence that our efforts will continue to elevate and expand the RH plan for years to come, we also recognize there are several internal/external factors such as record inflation, rising interest rates, and global unrest that create uncertainty…While first quarter sales and margin trends 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.” In response they moderated earnings expectations for 2022.
In the Q&A:
Expanding on the guidance, “And I think you’ve got to kind of also consider the fact that you’ve got – it’s clear now to everyone that inflation isn’t going back to 2% even though Janet Yellen, not too many weeks ago, when it was 4-5%, said it was going to 2%. And two weeks later, it went to 7.5%, and now it’s 7.9%. And we’ve got Jerome Powell saying that they waited too long. And now we’re going to have two years of interest rate increases – rising interest rates. So, you’ve got a lot of news and a lot of noise out there, compounded by a war and invasion. And I think the invasion of Ukraine by Russia just became a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 to 12 points, and it’s been relatively consistent during that period. When it returns to normal? Not sure. How aggressive is the Fed going to be? Not sure.
There are things we know, and I don’t mean to be a pessimist, but history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession. And I don’t need to tell you guys that math. It’s just a fact. So look, we tend to – as I like to say, pray for peace and plan for war.”
On supply chains, the question was this, “whether the current supply chain environment has or is anticipated to impact these (product) launches in any way?
Gary said “What do you think? Of course it’s impacting the launches. I mean everything is somewhat late and a little fragmented as it’s coming together…But when you think about countries like China, Vietnam, or some of the places that we have big sourcing out of – yes, it just all got kind of cooped up. So we – I think we’re about a couple of months behind…we thought we might launch with 450 or 500 pages in contemporary. I think it’s going to be probably more like 300 to 350 pages, just stuff is late. My sense is it might even be later.
I mean the supply chain; I think many of us thought it would have been caught up by now. I mean, we’ll be lucky to be caught up by the end of the year. And because it’s just hitting everybody from all angles, all the raw materials all the transportation issues, not just the transportation getting it to us. Our vendors having to get all of their component from all over the world shipped to them…we’re in a world that is – it’s just – 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.”
On housing and more on Janet Yellen and the Fed, “You’ve got housing prices at all time highs. I mean, is it sustainable? I don’t know for how long the math. Doesn’t makes sense on kind of what’s happening in the housing sector and other places that you’ve got inflation like I’ve never seen. Now I was telling people when Yellen said, we’re going back to 2%, we were just signing our new freight contracts, ocean freight contracts. I just wonder if anybody at the Fed has picked up the phone and called a business person and said, hey, what do you think is happening with inflation? How’s ocean rates? How is this? How is that? I mean, I think, 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.”
And Gary’s approach: “So everything is kind of happening at once. And I think you got to prepare for war. I mean, if you’re going into a very difficult, unpredictable time, you just got to be super flexible. You’ve got to be able to improvise, adapt, overcome and kind of be ready for anything.”
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.