After a wild earnings call three months ago — in which he blamed a “collapsed” luxury housing market for poor quarterly results — RH CEO Gary Friedman is back at it.
“Inflation that was thought to be temporary is now considered persistent by the Federal Reserve, resulting in a record increase in interest rates, which has caused a dramatic decline in the housing market, with luxury home sellers declining 45% in the most recent quarter compared to a year ago,” Friedman said on a late Wednesday earnings call. “Add to that a bad stock market, and a banking crisis that nobody saw coming and the data points to business in our sector likely to get worse before it gets better.”
The chief executive of the high-end home furnishings player didn’t stop there.
“All you have to do is Google the history of the federal funds rate and zoom in to the 1970s to 1980 and see how many times, the Federal Reserve brought inflation under control, lowered the federal funds rate to to raise it twice. high up to, I think 21%, but if you look at the movements and zoom in on that chart, you know we’re in uncharted waters right now from in an economic environment perspective,” he added later in the call.
Friedman continued to rail against the increased industrial discount and once again described the housing market as collapsing.
RH’s limp quarter and soft outlook – in part fueled by the decisions of Friedman and his management team amid the current macroeconomic environment – add subtext to the fiery earnings call.
The company’s fourth quarter sales fell 14.4% year over year to $772.5 million. Operating profit fell 48% from a year earlier to $112.2 million. Inventory improved about $70 million from a year ago as sales declined.
In the first quarter, RH guided sales of $720 million to $735 million while Street estimated $828.3 million. Operating margins were targeted in a range of 13% to 14%, well below analyst forecasts for 18.6%.
Full-year sales are seen at $2.9 billion to $3.48 billion. Analysts had predicted $3.48 million.
RH stock (RH) fell 6% in pre-market trading on Thursday.
“With ‘challenging business conditions’ expected for at least the next few quarters, we don’t see a good buying opportunity at current trading levels,” Jefferies analyst Jonathan Matuszewski said. wrote a note to the RH client.
Recent industry research from Matuszewski shows why sales of RH products have slowed so much.
The findings show that the median price for a luxury home in 15 prime markets — especially homes selling for more than $2.5 million — rose 6% year-over-year last year. January, a “steep” decrease from the 20% obtained in December.
In January, the median home price sold in the luxury market was at a 23% discount to listing, wider than November and December. Luxury homes priced above $2.5 million are at a new multi-year peak in terms of days on the market at 61 versus 37 in January 2022.
In addition to higher interest rates, Jefferies thinks broader changes in the economy such as the growing layoff from technology are also putting pressure on the luxury housing market.
“The data of March 2023 shows that the bank’s investment bonuses fell 30-50%,” Matuszewski explained. “Mid-level private equity professionals fell ~33%.”
On the earnings call, Friedman added that “I can tell you, the bad feeling as a person on Saturday afternoon watching the Warriors basketball game and the news that the line was cut was formed around your local bank while the bank sends hourly e-mails trying. to tell you that they commit to serve you. It’s a terrible feeling, okay? And those on the East Coast who haven’t experienced what’s happening here on the West Coast, maybe not very close to it, but I, as a person close to it, have never seen anything like it.”
Brian Sozzi is the Executive Editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Bank crisis tips? Email brian.sozzi@yahoofinance.com
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