Restoration Hardware's Stock Price Vectors -63% YTD

Over the past ~6 months, CEO Friedman's hubris has gotten the best of him. A more thoughtful IR/messaging strategy could have avoided much of the pain.

This week, Restoration Hardware (RH - $145.66) plunged -38%. YTD the stock is down -63%.

At one point during this week’s Q4 2024 conference call, CEO Friedman got a look at his company’s after-hours stock price and said…

“Oh shit. Okay, I just looked at the screen. I had to look at it. It got hit when I think the tariff came out. And, everybody can see in our 10-K where we’re sourcing from.”

At this point, he appeared to believe that the newly announced reciprocal tariffs were the material driver of his company’s stock price collapse. If so, he was dead wrong.

Then, the next day, in an act of desperation the company issued a press release titled “RH Provides Clarifications Related to the Reciprocal Tariffs Announced on April 2, 2025.”

In this particular press release, the company lauded President Trump’s Truth Social message re: the president’s “productive call” with Vietnam and suggested that if the president lowered Vietnam’s tariffs to 0%… RH’s Vietnam sourcing would then become “accretive to margins.”

Also, in the follow-up press release, the company disclosed its Q1 2025 QTD “total demand’ metric (+17% vs. LY) after suggesting during the prior day’s conference call that the company would no longer disclose this particular metric going forward.

Of course, the newly disclosed “total demand” metric fails to account for the incremental catalog mailing in Q1 2025 versus LY. So, it’s a bit disingenuous.

But, here’s the thing… if you’re issuing follow-up press releases subsequent to your quarterly conference call… you’re losing.

The reason RH’s stock price plunged -38% this week certainly had something to do with Wednesday’s reciprocal tariff announcement. But, the biggest driver of the stock price decline was the bungled IR strategy of the company’s CEO, Gary Friedman, over the past ~6 months.

Let me explain. Let’s take a step back to September 2024.

That’s when Mr. Friedman said the following…

“We believe the important measure is not the timing, but rather the size of the vector we are creating in comparison to our industry. Vectors are measured in magnitude and direction, and can be effective in forecasting strategic separation and future market share gains. It is now clear that our vector is increasing by both measures as we are outperforming the industry by 15 to 25 points.”

But, while the company was pointing out the vector they conveniently ignored the “reverse vector” of significant market share losses over the prior ~2 years.

Here’s the reality… RH greatly underperformed the industry in FY 2022 and FY 2023. So, to say that the company’s performance in FY 2024 is a “strategic separation” is disingenuous.

Here’s an updated chart from what I published ~6 months ago here on Substack…

RH’s top-line shortfall relative to Pottery Barn over the past 5 years came despite the core brand increasing is leased square footage +40% over that timeframe while PB lowered its store count -10%.

Ouch!

Since the Q2 2024 earnings release (September 2024), in Q4 2024, the company’s “total demand” metric fell short of its guidance range (+17% vs. guidance range of +20% to +22%).

Also, the company’s Q4 2024 EBIT% was well below the company’s guidance range (11.3% vs. guidance range of 12.2% to 13.2%).

The quarterly financial guidance shortfalls are even more of a concern at RH given the later timing of the company’s earnings releases relative to peers.

When queried as to why Q4 2024 EBIT% fell short of the company’s guidance range, the CFO only had this to say…

“I’d say product margin’s still up year-over-year in the quarter. And, some expenses came in higher than expected. But, other than what’s called out in the MD&A, Seth, we can look at that later. I don’t have any specific comment at this time.”

I’ve never understood what value RH’s CFO brings to the table at RH. He speaks very little on quarterly earnings conference calls. He offers none of the underlying financial insight that CFO’s typically provide to the investment community. The result is that RH is one of the least financially transparent companies I’ve followed in my career.

And, when given the chance to allay investor fears about the company’s Q4 2024 EBIT% shortfall versus guidance, the CFO punted.

In summary, RH’s stock price plunge this week had more to do with a bungled IR strategy employed by CEO Friedman in September 2024 than reciprocal tariffs.

If CEO Friedman had just tempered his enthusiasm on the Q2 2024 and Q3 2024 conference calls, I suspect that the company’s stock price today would be much closer to $300 than $200.

But, CEO Friedman’s hubris ~6 months ago got the best of him. So, here we are.

Mr. Friedman is a brilliant home furnishings CEO. But, sometimes, his mouth is his, and the company’s, worst enemy.

Looking ahead, the company’s guidance for FY 2025 implies a “hockey stick like” EBIT% improvement in 2H 2025 versus LY.

Given the CEO’s recent puffery and the CFO’s inability to articulate the company’s underlying financial dynamics to the investment community, it’s a tough sell at the moment. And, that’s even before considering the potential ramifications of reciprocal tariffs.

CEO Friedman likes to say that his management team is the smartest in the home furnishings sector. Clearly, in FY 2022 and FY 2023, they were not.

Maybe the smartest folks in the home furnishings space over the last 5 years was WSM, and not RH. The EBIT% chart above clearly suggests as much.

There’s so much more that came out of this week’s quarterly earnings release and conference call. There are many financial red flags (e.g., if catalog circulation almost doubled in FY 2024 vs. LY… why did Advertising Expense per 10-K note disclosure only increase +14% versus LY… hmm). I’ll save other red flags for my clients.

But, if you have an interest… click below for what I wrote ~6 months ago re: RH. Much of what I wrote ~6 months ago remains relevant today.

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