Home furnishing retailer RH (NYSE: RH) CEO Gary Friedman painted a bleak picture of the economy’s outlook during the company’s recent earnings call. The company reported its fiscal Q4 and 2021 full-year financials, highlighted by annual revenue of US$3.76 billion, up from 2020’s US$2.85 billion.
“It’s clear now to everyone that inflation isn’t going back to 2% even though [US Treasury Secretary] Janet Yellen, not too many weeks ago, when it was 4% or 5%, said it was going to 2%,” said Friedman. “And two weeks later, it went to 7.5%, and now it’s 7.9%… And now we’re going to have two years of interest rate increase — rising interest rates.”
Friedman added that he thinks the invasion of Ukraine by Russia just became “a reckoning point” where people had to stop and pay attention to everything. The upscale home-furnishing firm suffered a 10 to 12-point slowdown in its business.
“I don’t mean to be a pessimist, but history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession,” he said.
Adjusted operating margin for the year ended at 25.6%, up from last year’s 21.8%. The company also reported an annual net income of US$688.5 million, up from last year’s US$271.8 million. This translates to US$22.13 earnings per diluted share.
Annual operating cash flow and free cash flow also rose to US$662.1 million and US$476.7 million, compared to their year-ago counterparts of US$500.8 million and US$389.6 million.
Adjusted EBITDA for the year also went up to US$1.09 billion coming from last year’s US$745.6 million.
For 2022, the firm is eyeing a 5% to 7% net revenue growth, with adjusted operating margin in the range of 25.0% to 26.0%. Specifically for Q1 2022, net revenue growth is expected to be in the range of 7% to 8%, with adjusted operating margin in the range of 23.0% to 23.5%.
Friedman said “it’s probably one of the most difficult guides since 2008 and 2009,” because of the disruption caused by the war in Ukraine.
“I don’t think it’s all Ukraine and Russia. I think it’s triggered a greater awareness. Like it’s like someone — I think this was ring [sic] the bell, everybody pay [sic] attention and then all of a sudden, everybody started talking of sudden, the Feds off to the races and that creates concern,” he said further.
He also said that while the guidance for the coming years took into consideration “all the best thinking,” the uncertainty of “big macro trends” can’t be baked into the guides.
“So we thought about everything we can [into the guides]. I don’t know. We can’t impact nor can we forecast big macro trends like until you see them. I mean the Fed can’t do it. Janet Yellen can’t do it. I don’t think anybody on this call can really do it. No one ever really gets these things right,” he explained.
He also touched on how the US Federal Reserve might be lacking in consultation with the firms in determining the ramifications of the rising inflation, asking if anyone in the Fed “has picked up the phone and called a business person and said, ‘hey, what do you think is happening with inflation?'”
“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,”
However, Friedman reiterated that he is excited about the firm’s outlook, but nevertheless, also uncertain.
“[We] tend to just try to be transparent and honest. And look, maybe our stock is going to take a big hit because of this and people are going to think Gary Friedman wasn’t excited. I’ve never — I told — I’ve never been in my 22 years here, I’ve never been more excited. I’ve also never been more uncertain, right? So — and I think you have to take a real balanced view right now,” he said.
RH last traded at US$385.69 on the NYSE.
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