2022-06-29

Restoration Hardware CEO is Back With Another Warning

Back in early April, I posted Wall Street Ignores Margin Collapse Warning. The CEO of RH talked about how dealing with inflation involved a number of bad choices, that collapsing margins were coming and that it reminded him of the scene in The Big Short, when people are listening toa speaker say the company is fine while the stock price is imploding. Now he's back...

ZH: US Consumer Implodes As RH Cuts Guidance For 2nd Time This Month, Warns Of Cratering Demand

Well, fast forward to today when moments ago RH - aka Restoration Hardward - just pulled a Snapchat and just three weeks after the company with the outspoken CEO saw its shares tumble after it guided lower for Q2 and the full year despite sold Q1 results, RH just cut guidance again with CEO Gary Friedman saying that “the deteriorating macro-economic environment has resulted in lower than expected demand since our prior forecast, and we are updating our outlook, particularly for the second half of the year.”

Taking into account the macro-economic conditions and our current business trends, RH provided the following outlook for the second quarter and full year, which assumes demand will continue to soften during the remainder of fiscal 2022:

Fiscal 2022 net revenue growth in the range of (2%) to (5%), with adjusted operating margin in the range of 21.0% to 22.0%.

Previously the company had seen revenue growth of 5% to 7% and operating margin of 23.0% to 23.5%, so a huge hit to both the top-line and profit margins.

For Q2, RH sees net revenue growth in the range of (1%) to (3%), with adjusted operating margin in the range of 23.0% to 23.5%. The second quarter outlook remains unchanged versus our prior forecast due to faster backlog relief offsetting lower than expected demand.

Friedman's catastrophic forecast continued, “With mortgage rates double last year’s levels, luxury home sales down 18% in the first quarter, and the Federal Reserve’s forecast for another 175 basis point increase to the Fed Funds Rate by year end, our expectation is that demand will continue to slow throughout the year.”

The economy is imploding and RH is first in line because they report weeks before the rest of the market, plus have high exposure in the housing market.
While the past week or so have been focused on technical warfare between bulls and bears, the macroeconomic picture is rapidly deteriorating. It's a matter of if, not when, the Fed pivots now, and from what level of SPX. After the pivot, then we'll get confirmation on whether a cyclical turn to inflation is underway or not.

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