In April, RH (the stock-buyback/short-squeeze mogul formerly known as Restoration Hardware) reported dismal earnings which sent its stock plunging and prompted CEO Gary Friedman to give an ominous assessment of the overall macro situation.
While first quarter sales and margin strand to remain healthy due to the ongoing relief of our backlog, 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. We believe it is prudent to remain conservative until demand trends return to normal and -- we are providing the following outlook for the first quarter of 2022.”
This was shocking at the time as it was the first direct admission of tangible weakness in consumer end-demand, and was soundly mocked by all the 'consumer is strong' narrative-pushers as idiocysncratically focused on RH and not systemically-based. Friedman went on at the time:
...And you've got inflation like I've never seen.
Now I was telling people, when Yellen said, we're going back to 2%, we were just signing our new freight contracts, ocean freight contracts. I just wonder if the Fed has picked up the phone and called a business person and said, hi, what do you think is happening with inflation?
How is ocean rates? How is this? How is that?
I mean 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. And I think it's going to outrun the consumer. And I think we're going to be in some tricky space. So everything is kind of happening at once.
And I think you got to prepare for war. I mean if you're going into a very difficult, unpredictable time, you just got to be super flexible, you've got to be able to improvise, adapt, overcome and kind of be ready for anything.
His comments unleashed a pall over the broader retail sector.
Now, five months later, Friedman is dropping more truth bombs, this time even more focused on who (or what) he blames for the worsening crisis the American consumer and economy faces.
Responding to question about reduced Q3 guidance, Friedman started by reminding analysts on last night's earnings call that he saw this coming (as we showed above):
...there's nothing in our business that's happening right now that's surprising to us, that we didn't see a long time ago.
And I think -- I don't know when it was like in February and March, when I spoke about what I thought was going to happen in that, four out of five times the Federal Reserve raises interest rates, we have a recession. That's just the math. It's not my opinion. Four out of five times the Federal Reserve raises interest rates, the U.S. goes into a recession. And then everybody called me Doomsday forecaster. And I became a meme for a while there. And so -- but everybody thought like I was Mr. Negative. I'm like Mr. Positive. Anybody who knows me well knows I'm probably -- I'm just like wildly optimistic.
But I'm also wildly realistic about things that you can know. And there's just data and trends.
The outspoken CEO continues to point out that only octagenarians (or older) like George Soros and Warren Buffett can remember actually trading through a period like this before...
It doesn't look good. When I circled the last the last 20 years, the average Federal Funds rate was 2%. And if you look at it over the last 30 years, I think it's 3%, average 3%.
And if you look at the last time we had real inflation, most of the people that are managing a lot of money on Wall Street or foreign positions were kids. And I thought like nobody's seen what's happening right now. Nobody's seen inflation like this in their lifetimes.
And that is when the fingers start to get pointed...
Never seen anything like this.
Never seen interest rates -- never seen the inflation like this. Never seen interest rates like this.
That's why Powell was so wrong in the beginning. That's why Janet Yellen was like massively blind and wrong. I mean -- and Fed moved too slow, quite frankly. And now because they move too slow, we're going to see higher interest rates than we would have if they would have moved faster.
And I'd say we're going to have -- the interest rate is going to go higher. It's going to hit the housing market first. And the housing market is the biggest part of the U.S. economy. And it's going to drag down everything.
And if I'm wrong, that's OK. But the data is there. Now like nobody should be surprised about what's going to happen here.
And so I mean, yes, do we look at our numbers and stuff like that? It's all kind of irrelevant, right? What's really relevant is we're unseen before inflation. We're an unseen before for most of the people in business today that are not 80 years old plus interest rate. Yes, interest rates rise. I mean like -- and where it's going to go.
I think that's why Powell said like, OK, now we got it. We have to move because otherwise, I'm going to sit here and have a mess like Volker.
So, concludes the RH CEO, "that's why we're not aggressively buying back our stock. That's why we have raised $2 billion when we did - $2.5 billion when we did. Why did we raise it? Because that's what we saw."
Friedman's words echo those of the Fed Chair himself, warning that there is likely more pain ahead. But for now, retail investors remain committed by BTFD in hopes that inflation has peaked and The Fed knows it... and Powell will pivot in the face of his heartily hawkish jawboning. It sounds to us like Friedman isn't buying the 'soft landing' narrative...
In April, RH (the stock-buyback/short-squeeze mogul formerly known as Restoration Hardware) reported dismal earnings which sent its stock plunging and prompted CEO Gary Friedman to give an ominous assessment of the overall macro situation.
While first quarter sales and margin strand to remain healthy due to the ongoing relief of our backlog, 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. We believe it is prudent to remain conservative until demand trends return to normal and — we are providing the following outlook for the first quarter of 2022.”
This was shocking at the time as it was the first direct admission of tangible weakness in consumer end-demand, and was soundly mocked by all the ‘consumer is strong’ narrative-pushers as idiocysncratically focused on RH and not systemically-based. Friedman went on at the time:
…And you’ve got inflation like I’ve never seen.
Now I was telling people, when Yellen said, we’re going back to 2%, we were just signing our new freight contracts, ocean freight contracts. I just wonder if the Fed has picked up the phone and called a business person and said, hi, what do you think is happening with inflation?
How is ocean rates? How is this? How is that?
I mean 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. And I think it’s going to outrun the consumer. And I think we’re going to be in some tricky space. So everything is kind of happening at once.
And I think you got to prepare for war. I mean if you’re going into a very difficult, unpredictable time, you just got to be super flexible, you’ve got to be able to improvise, adapt, overcome and kind of be ready for anything.
His comments unleashed a pall over the broader retail sector.
Now, five months later, Friedman is dropping more truth bombs, this time even more focused on who (or what) he blames for the worsening crisis the American consumer and economy faces.
Responding to question about reduced Q3 guidance, Friedman started by reminding analysts on last night’s earnings call that he saw this coming (as we showed above):
…there’s nothing in our business that’s happening right now that’s surprising to us, that we didn’t see a long time ago.
And I think — I don’t know when it was like in February and March, when I spoke about what I thought was going to happen in that, four out of five times the Federal Reserve raises interest rates, we have a recession. That’s just the math. It’s not my opinion. Four out of five times the Federal Reserve raises interest rates, the U.S. goes into a recession. And then everybody called me Doomsday forecaster. And I became a meme for a while there. And so — but everybody thought like I was Mr. Negative. I’m like Mr. Positive. Anybody who knows me well knows I’m probably — I’m just like wildly optimistic.
But I’m also wildly realistic about things that you can know. And there’s just data and trends.
The outspoken CEO continues to point out that only octagenarians (or older) like George Soros and Warren Buffett can remember actually trading through a period like this before…
It doesn’t look good. When I circled the last the last 20 years, the average Federal Funds rate was 2%. And if you look at it over the last 30 years, I think it’s 3%, average 3%.
And if you look at the last time we had real inflation, most of the people that are managing a lot of money on Wall Street or foreign positions were kids. And I thought like nobody’s seen what’s happening right now. Nobody’s seen inflation like this in their lifetimes.
And that is when the fingers start to get pointed…
Never seen anything like this.
Never seen interest rates — never seen the inflation like this. Never seen interest rates like this.
That’s why Powell was so wrong in the beginning. That’s why Janet Yellen was like massively blind and wrong. I mean — and Fed moved too slow, quite frankly. And now because they move too slow, we’re going to see higher interest rates than we would have if they would have moved faster.
And I’d say we’re going to have — the interest rate is going to go higher. It’s going to hit the housing market first. And the housing market is the biggest part of the U.S. economy. And it’s going to drag down everything.
And if I’m wrong, that’s OK. But the data is there. Now like nobody should be surprised about what’s going to happen here.
And so I mean, yes, do we look at our numbers and stuff like that? It’s all kind of irrelevant, right? What’s really relevant is we’re unseen before inflation. We’re an unseen before for most of the people in business today that are not 80 years old plus interest rate. Yes, interest rates rise. I mean like — and where it’s going to go.
I think that’s why Powell said like, OK, now we got it. We have to move because otherwise, I’m going to sit here and have a mess like Volker.
So, concludes the RH CEO, “that’s why we’re not aggressively buying back our stock. That’s why we have raised $2 billion when we did – $2.5 billion when we did. Why did we raise it? Because that’s what we saw.”
Friedman’s words echo those of the Fed Chair himself, warning that there is likely more pain ahead. But for now, retail investors remain committed by BTFD in hopes that inflation has peaked and The Fed knows it… and Powell will pivot in the face of his heartily hawkish jawboning. It sounds to us like Friedman isn’t buying the ‘soft landing’ narrative…
