SAN FRANCISCO, March 19, 2020 /PRNewswire/ -- This is the story of a really big and bold strategy. It probably doesn't make sense for any other store, but it is certainly working for Gary Friedman, the genius and creator of RH, who envisions a path to success that other people could never have seen.
It's a remarkable strategy because conventional wisdom today is that a retail business should not expand into larger, more expensive retail spaces, especially when selling furniture and home accessories.
Today, most retail stores suffer from being 'Amazon-ed'. That is, retail stores are closing, rather than opening. Stores like Macy's, Bed, Bath and Beyond, Pier 1 Imports and Sears were closing stores prior to the Coronavirus forced closings.
So what is going on with RH? The former in-line, mall Restoration Hardware store is now being steadily transformed into a free-standing, three-story, bigger than life, beautiful RH retail store, with restaurants, wine bars, coffee shops, and a staffed designer gallery.
Consider that the traditional Restoration Store was a mall store with 6,000 square feet of selling space.
Today, that store is magically transformed under the new name of RH. It is often a 60,000+ square foot gallery within a historic/modern space, such as the Historic Museum of Natural History in Boston, or the Historic Three Arts Club building in Chicago, or RH New York, The Gallery in the Historic Meatpacking District. Source
These historic buildings are made over into showrooms of stylish, desirable furniture and accessories that blur the lines between residential and retail, indoors and outdoors, home and hospitality. RH has replaced designer-quality services by providing a highly trained staff, free designer consultation, and a wide array of luxury materials and fabrics.
The new stores include a gourmet restaurant, a coffee shop, and a wine bar. They are truly a magnet for people to gather. The New York store in the Meatpacking District is 90,000 square feet and includes a rooftop restaurant & bar, and an in-house interior design firm.
Consumers today are choosing RH for its speed and quality of services, easy deliveries, and relatively reasonable cost of services, over high-priced boutique designer prices. Returns are easy too.
How do I know this? I've experienced it personally, having furnished my own house over the past year with RH. And by joining their Membership program for only $100 a year, I got a 20% discount off every purchase. Being a member keeps the customer coming back and builds loyalty.
The CEO, Gary Friedman, is proving himself to be a retail genius. He is single-handedly remaking the furniture/accessories business. He's also making a fortune for himself and his shareholders.
The stock was as low as $26 a share in February 2017. It hit a recent high of $256 on February 19, 2020. That is up ten times! Since then, it has sold off, along with the rest of the Market, and as of March 19, is around $87. This is a drop of about 66%, which makes it a healthy buy in my opinion. There are no fundamental problems. It is all related to the current virus situation, and I predict that will resolve itself with time.
There are certainly many unknowns re: the Coronavirus today, and this has resulted in RH temporarily closing their retail spaces. However, for the investor who has a time horizon of two or three years, this is a terrific opportunity to get in at a discounted price. Admittedly, this is not the only solid story that is selling at a steep discount today - Starbucks, another favorite of mine, is 50% off it's highs. But regardless, this is a very attractive entry point for RH.
Can it go lower? In this volatile market, of course it can. That's why you want to leg-in slowly over the next two months. Timing the bottom is impossible, but bottom-fishing will ensure you get in at an average attractive entry point.
Start averaging in, instead of putting all your money in one order. Spread it out over an eight-week period, to take advantage of any further dips in the coming weeks: buy some shares now, buy a little more in two weeks, add a little more in four weeks, and so on.
In 2019, RH was one of the best gainers in my personal investment fund, The Sharper Fund, which was up 96% last year, partly because of the RH performance. Source
Now the question is, will it turn around and go up? In the most recent quarter, Q3 GAAP EPS increased +197% to $2.17, vs. $0.73 LY. Source This was an excellent result, and a predictor of future performance, after we get past the problems due to Coronavirus.
In the past year, RH expanded its merchandise categories: There is now RH Modern, RH Outdoor, RH Baby + Child, RH Teen, RH Ski House, and RH Beach House, in addition to the original RH design. Within each of the sub-brands, RH partners with internationally renowned designers to expand their products and services in a way that fits their consumer's lifestyle. RH is becoming more of a lifestyle brand than just a furniture brand, as it continues to evolve.
To quote Gary Friedman, "Our focus on elevating the RH brand by building architecturally inspiring spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality with seamlessly integrated restaurants and services, have rendered our brand more valuable while creating a customer experience that cannot be replicated online. Our dominant physical presence combined with our integrated multi-channel platform that generates over a billion dollars online will continue to enable the RH brand to disrupt the highly fragmented luxury home furnishings market, and take share for years to come."
I'm expecting RH to continue to play a leadership role in my investing success, and I continue to hold and add to my RH position. This is a solid story that proves this bold strategy is working.
Gary Friedman is proving himself to be a real visionary in his industry, and he has a remarkable, bold strategy that will continue to work. You should consider getting in and watching it grow. This is a good buying opportunity.
About Richard Thalheimer
Richard Thalheimer is the founder and former CEO of the American consumer brand, The Sharper Image, which began in 1979 with only three employees. At its peak, the company had annual revenues exceeding $750 million, 200 stores, an active catalog and website, and 4,000 employees. The company became a public corporation in 1987 when its stock was offered on NASDAQ. Thalheimer now runs The Sharper Fund, a successful private fund. He is an expert in the field of investing who is sought after by journalists and their readers for his trendsetting observations about products, companies and market movements.
Having been CEO of a NASDAQ listed public company, Richard has 20 years of experience with analysts and stock listings. Regularly evaluating concepts and products for The Sharper Image has given him a keen insight into what will succeed and grow, and what will not. He has spoken to analysts and reporters for over 20 years as a public CEO, this has taught him valuable lessons about how Wall Street analysts think, and when to actually have confidence in their judgment. As a result, today he is able to better predict which company's stock price will go up. This gives him an edge in investing and has resulted in superior portfolio performance.
Recent Podcast with Richard on Investing:
Tesla and Richard Thalheimer Sources Referenced:
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Richard Thalheimer will consider press inquiries and investing related interviews on a case by case basis.
SOURCE Richard Thalheimer