A Jump the Shark Moment for Restoration Hardware and Ollie's Bargain Outlet?
Both RH and OLLI have added incremental discounts and promotional events of late that are out of character for both brands.
This week, Krispy Kreme (DNUT - $2.57) ended its recent partnership with McDonald’s (MCD - $285.55).
Last year, DNUT signed an agreement with MCD to make its doughnuts available in more places nationwide in its attempt to become a national brand.
But, DNUT is now admitting that the relationship was not profitable for the company.
How unprofitable? Not only is DNUT ending the partnership with MCD, but DNUT also suggested that it was withdrawing its outlook for the year and said that it would stop paying a quarterly dividend.
Ouch!
But, the management team at DNUT is not alone in their zeal to jump start their top-line. Others have recently announced initiatives that may similarly be viewed as jump the shark moments (i.e., red flags) at some point over the next 6-12 months.
Let’s take a look at two retailers that recently announced strategic top-line initiatives that are clearly out of character. Both management teams suggested that the strategic top-line initiatives had been considered “for years,” but I suspect that these shifts came about more recently.
Let’s start with Restoration Hardware (RH - $186.95). On the company’s Q1 2025 conference call two weeks ago, the company announced that the recent increase in the member discount was permanently shifting to 30% off (previous = 25% off).
Per CEO Friedman on the conference call…
“We’ve been thinking of taking membership from 25% to 30%, I don’t know, for five years. It’s not a new idea for us. It’s a long-term strategic move… if we’re going to do something like this, we might as well do it now… why not take market share now.”
Hmm.
What makes the timing of the incremental discount even more striking is the mysterious 600 basis point sales ‘shift’ from Q2 to Q3/Q4 via a tariff-related “re-sourcing disruption." I say ‘mysterious’ because the CEO failed to provide much in the way of detail as to why these sales were going to mysteriously come to fruition in 2H 2025.
Of course, let’s not forget that this is the same CEO that has previously suggested that the company was “climbing the luxury mountain.”
What this particular move (incremental member discount) signifies is that RH’s theoretical climb up the luxury mountain is not exactly fit for a King.
Gosh, just ~9 months ago the RH’s CEO was talking about the “size of the vector we are creating in comparison to our industry.” Yet, today, he’s seemingly worried about market share so much that he’s decided that the company needs some additional juice to achieve this particular objective.
At minimum, this particular promotional shift is not a “road less traveled” move. It’s a “well traveled” move that may be viewed as a jump the shark moment 6-12 months from now.
There’s another retailer, while at the opposite end of the quality spectrum relative to RH, has made a strategic top-line move that may be the start of a slippery slope.
Recently, Ollie’s Bargain Outlet (OLLI - $131.47) announced that it would offer an additional Ollie’s Army Night (June 22, 2025) on top of the retail chain’s annual mid-December promotion.
On the company’s Q1 2025 conference call a few weeks ago, the recently promoted CEO said the following…
“With this Ollie’s Army Night we’re going to run in June, it’s something we’ve actually been talking about for years… what many, many customers have known us for a long, long time is the Ollie’s Army Night we run in December, so why not run a second one at a different point in time of the year?”
The company even went so far as to continue the event over the following week (Ollie’s Army Days)…
What makes the incremental Ollie’s Army Night (and follow-on Ollie’s Army Days) particularly striking is the ex-CEO’s longstanding insistence that the company was not obsessed with comp sales gains…
Q2 2023 Conference Call 08.31.2023 - Ex-CEO John Swygert:
“I think the long-term algo of +1% to +2% is appropriate from a comp store sales perspective.”
Also, the announcement of an incremental promotional event comes at a time when the company was unable to raise its annual top-line and bottom-line guidance ranges (rare for OLLI).
Is this event going to boost the top-line in the current quarter. Absolutely! My guess is that this quarter’s revenue will be far greater than management’s low-ball guidance.
I suspect that this week’s credit card data is reflecting the incremental sale event and the stock is now trading at all-time highs.
But, similar to RH, this particular top-line gimmick may be favorable in the short-term, but have longer-term ramifications. Only time will tell if OLLI’s customers become confused and begin to ‘wait’ for similar promotional events going forward.
So, let’s go back to DNUT.
On March 26, 2024, the company announced its partnership with MCD. On the day of the announcement, the stock spiked to $17.84. It’s been almost all downhill since.
Are these material strategic shifts always a death knell? Absolutely not.
But, in the case of DNUT, the partnership with MCD was a Hail Mary that, in retrospect, was ill-advised.
Only time will tell if a similar inflection results from the recent top-line maneuvers at RH and OLLI.
But, at minimum, I’m skeptical of companies that unveil a new strategic initiative that runs counter to their prior long-term strategic thesis.