Shares of RH are down 8.5% today after an earnings call that highlighted a sudden drop in consumer spending.
We're not getting much corporate commentary at the moment because earnings season is largely over but furniture is a good leading indicator of the health of the consumer.
On the call, CEO Gary Friedman said business "kind of dropped 10 to 12 points overnight" around the time of the outbreak of the Ukraine war.
"We have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed," Friedman said while delivering conservative Q2 guidance.
Friedman dove deep into macro in the call.
"It's clear now to everyone that inflation isn't going back to 2%, even though Janet Yellen, not too many weeks ago when it was 4% or 5%, said it was going to 2%. And 2 weeks later, it went to 7.5%. And now it's at 7.9%," he said.
He went to say this:
"So you've got a lot of news and a lot of noise out there, compounded by a war, an invasion. And I think the invasion of Ukraine by Russia just became a -- kind of a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 to 12 points, and it's been relatively consistent during that period. When it returns to normal? Not sure. How aggressive is the Fed going to be? Not sure. There are things we know, and I don't mean to be a pessimist, but history would tell us 4 to 5 times the Fed raises interest rates over a sustained period, we have a recession. And I don't need to tell you guys that math. That is just the fact."
Friedman coupled that by saying that his company has moved to a more-conservative stance on its expansion plans and will be cutting his catalog to 300-350 pages from 450-500. He also lamented the supply chain, saying "we'll be lucky to be caught up by the end of the year."
He dove into inflation as well.
"I just wonder if anybody -- the Fed has picked up the phone and called a businessperson and said, "Hey, what do you think is happening with inflation? How's ocean rates? How is this? How is that?" I mean, I think -- I don't think anybody really understands what's coming from an inflation point of view because either businesses are going to make a lot less money or they're going to raise their prices. And I don't think anybody really understands how high prices are going to go everywhere, in restaurants, in cars and everything. It's -- and I think it's going to outrun the consumer. And I think we're going to be in some tricky space."
He even compared the current moment to The Big Short.
"It's not just us. It's everybody I know in every industry. And I just don't think it's like -- again, I don't want to scare everybody. But I talked about the theme, like there's this scene in The Big Short where everybody is in that ballroom and the guy -- I think it's the guy from Bear Stearns or someone is up there, one of those things, and he's saying how they're going to buy back $1 billion of their stock, this, this and that. And then one guy who's on his BlackBerry, he goes, "Can I ask a question, sir? In the 20 minutes that you've been talking, your stock is down like 55%." And everybody ran out of the room."
