Another earnings cycle brings another blunt call-out by outspoken furniture-hawking CEO Gary Friedman.
After originally saying that the housing market was collapsing under the weight of higher interest rates in an earnings call in late March, RH’s top exec said late Thursday that he and his team had already predicted during good times. Only overloaded rich people for expensive furniture.
“I think the world raised prices, and we all know that because inflation has hit a 40-year high, right? And that’s going to affect things. An easy demand environment,” Friedman acknowledged. Did. “And as the easy demand environment subsides, and that’s what we really need to challenge, is our value equation going to create the level of demand that we think is right for the business?”
Judging by the latest results from RH, formerly known as Restoration Hardware, consumers don’t see the value in putting a $2,300 wooden dining room table on a charge card with a very high interest rate attached. This is especially due to the housing market being under pressure.
The California-based furniture retailer’s first-quarter sales rose 23% year over year to $739.2 million, it reported Thursday. Gross profit margin declined to 47% from 52.1% a year earlier.
Friedman said RH will now move to reduce excess inventory this year by aggressively offering discounts, which will eat away at margins.
Full-year adjusted operating margin is pegged in the range of 14.5% to 15.5%, down from 15% to 17%. Sales for the year were guided to $3 billion to $3.1 billion, up from $2.9 billion to $3.1 billion, as Friedman bet that consumers would bite his promotion.
“$1.5 billion in cash and $1.5 billion in share repurchases create a floor for the remaining stock, although we see limited upside given that 20% operating margin may not be on the table until 2025. We believe RH New product launches under Contemporary. “The line at more favorable price points will drive demand in the second half, but not enough to push it above the midpoint of guidance,” Jefferies analyst Jonathan Matuszewski warned in a research note. “
RH’s struggles partly reflect poor execution by Friedman, but also the realities of changing housing markets. The dynamics have implicated everyone from home improvement sellers Home Depot and Lowe’s to appliance maker Whirlpool, a high-end furniture seller in RH over the past year.
Existing home sales fell 3.4% in April from a year earlier, according to the National Association of Realtors. Home prices declined for the third month in a row.
A new report from Redfin this week showed that nationwide home prices fell by as much as $18,000 in April, the most in more than a decade. The report found that median home prices fell in 45 of more than 90 metro markets.
“We’re launching [our new product line] Probably the worst home environment I’ve seen in my career. “I’ve never seen luxury housing at the levels I’ve seen from recent reports, and we’re at 20-year high interest rates,” Friedman said on the call.
The stage is set for a similar tone from Friedman three months from now.
Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozy on Twitter @BrianSozzi and on LinkedIn, Tips on banking crisis? Email [email protected]
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