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After a wild earnings call three months ago — during which he blamed a “collapsing” luxury housing market for weak quarterly results — RH CEO Gary Friedman is back at it.
“Inflation, which was thought to be temporary, is now believed to be sustained by the Federal Reserve, resulting in a sharp increase in interest rates, which has significantly depressed the housing market, with luxury home sales down 45 percent in the most recent quarter,” Friedman said late Wednesday. said on the earnings call. “Add to that a low stock market, and a banking crisis no one saw coming and the data shows business in our sector will get worse before it gets better.”
The CEO of a high-end furniture player didn’t stop there.
“All one has to do is Google the history of the federal funds rate and pull it up from the 1970s to the 1980s and how many times the Federal Reserve brought inflation under control and lowered the federal funds rate to double it. I think it’s 21%, but if you look at those movements and go there If you look up the chart, you will realize that we are in uncharted waters today in terms of the economic environment,” he added on the call.
Friedman continued to bullish the rail market against higher industrial discounting and once again stated that the housing market was collapsing.
RH’s limp quarter and soft outlook — fueled in part by Friedman and his management team’s decisions on the current macroeconomic environment — add subtext to a fiery earnings call.
The company’s fourth-quarter sales fell 14.4 percent year over year to $772.5 million. Operating profit fell 48 percent to $112.2 million from a year ago. Inventory ballooned to about $70 million a year ago.
For the first quarter, RH guided for sales of $720 million to $735 million, while the route estimated $828.3 million. Operating margins were pegged in the 13% to 14% range, below analysts’ forecasts for 18.6%.
Full-year sales are seen in the range of $2.9 billion to $3.48 billion. Analysts had predicted $3.48 million.
RH stock ( RH ) was down 6% in pre-market trading on Thursday.
“We don’t see a promising buying opportunity at current trading levels, given the ‘difficult business conditions’ expected for at least the next several quarters,” Jefferies analyst Jonathan Matuszewski wrote in a client note on RH.
Recent industry research from Matusevsky points to the reason why sales of RH products have declined significantly.
The findings showed the median price for a luxury home in 15 key markets – particularly homes sold for more than $2.5 million – rose 6% year-over-year in January, a “decline” compared to December’s 20% gain.
In January, the median home price sold in luxury markets was down 23%, more than in November and December. Luxury homes priced over $2.5 million are at a new multi-year high in terms of days on the market in January 2022, with 61 versus 37.
In addition to very high interest rates, Jeffries thinks that broader economic changes, such as technology displacement, are putting pressure on the luxury housing market.
“As of March 2023, investment bank bonuses have been reduced by 30-50%,” Matuszewski explained. “Mid-tier private equity professionals down ~33%.”
“I’ll tell you what, being a guy watching a Warriors basketball game on a Saturday afternoon and the bank sending out emails every hour, the news is off,” Friedman added on the earnings call. Let me tell you that they made a promise to serve you. It’s a very unsettling feeling, okay? And maybe those of you on the East Coast who haven’t experienced what happened here on the West Coast may not be close to it, but I, as someone close, has never seen anything like it. “
Brian Sozzi Yahoo Finance is the editor-in-chief. Follow Sozzi on Twitter @BrianSozzi And on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com
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