HR drops 13% as furniture retailer reports mixed results and CEO warns of ‘big short’ style economy

  • Relative humidity fell 13% on Wednesday after the company offered a soft forecast for the coming quarter.
  • CEO Gary Friedman compared the uncertainty of today’s economy to a scene from the 2015 movie The big short.
  • “I couldn’t be more excited, but I couldn’t be more unsure, and that’s just the story,” Friedman said.

HR, formerly known as Catering equipmentfell 13% on Wednesday after the high-end furniture retailer announced its fourth quarter results and called the current economic environment as uncertain as ever.

RH reported a mixed quarter, with earnings beating estimates while revenue barely exceeded expectations. But the company’s subdued guidance for the first quarter had a bigger impact on the company’s share price on Wednesday.

For the first quarter, RH expects net revenue growth of 7% to 8%, well below last year’s 78% growth, which benefited from weak year-over-year comparables. another due to the COVID-19 pandemic. For the whole of 2022, RH forecasts net revenue growth between 5% and 7%, compared to 32% in 2021.

Rising inflation, soaring interest rates and deteriorating consumer sentiment added to HR CEO Gary Friedman’s hazy outlook, and in the company’s earnings call he referenced to a scene from the 2015 film The Big Short to illustrate the challenges ahead.

“I don’t want to scare everybody off. But I’m talking about it, like there’s the scene in The Big Short, where everybody’s in this ballroom and…then a guy on his BlackBerry, he says , ‘May I ask the question, sir? In the 20 minutes you’ve been talking, your stock is down like 55%. And everyone ran out of the room…I’ve never been here for 22 years, I’ve never been more excited. I’ve never been more uncertain…I think you have to have a really balanced view, right? now,” Friedman said. .

Much of Friedman’s concern stems from the prospect of soaring interest rates, with current expectations that the Federal Reserve will hike rates up to eight times this year to keep inflation under control. This has already pushed mortgage rates up to almost 5% for a 30-year fixed rate loan, which will likely put pressure on HR activities as home buying fuels demand for new furniture.

“We can’t influence or predict big macro trends until you see them. I mean the Fed can’t do that. Janet Yellen can’t do that. I don’t think anybody on this call can really do it. Nobody ever really gets these things right,” Friedman said, supporting his view that a balanced perspective is needed right now given the uncertainty.

Friedman added that few market participants other than Warren Buffett and Charlie Munger have experienced what the market is currently experiencing from the perspective of soaring interest rates and inflation.

“How old were all the people on that call in 1980 when the fed funds rate was 20%? I’m not trying to scare anybody. But almost everyone on that call, look, in 1980 I was a child, I didn’t know what I was doing. I had no wisdom back then. I don’t think there are many people in business today, other than Warren Buffett and Charlie Munger and I don’t know, George Soros and there are a handful,” Friedman said.

Surprisingly, Friedman said a drop in demand for his products coincided with Russia’s invasion of Ukraine. “I think Russia’s invasion of Ukraine became a reckoning point, if you will, where people had to stop and pay attention to everything,” Friedman said.

“I couldn’t be more excited, but I couldn’t be more unsure, and that’s just the story,” Friedman said.

About Oscar L. Smith

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