- RH CEO Gary Friedman bemoaned slowing luxury home sales and higher mortgage and interest rates.
- The high-end furniture company's boss expects those factors to weigh on sales this year.
- Friedman warned about inflation, house prices, and rate hikes in March, referencing "The Big Short."
RH CEO Gary Friedman issued a dire warning about raging inflation, bloated house prices, and rising interest rates earlier this year, comparing the current economic uncertainty to a scene from "The Big Short."
The luxury-furniture retailer's boss reiterated his concerns in a trading update on Wednesday. He blamed a worsening macroeconomic backdrop for lackluster demand, and forecasted a decline in net revenues of 2% to 5% this year — a sharp reversal from 32% growth in 2021.
"With mortgage rates double last year's levels, luxury home sales down 18% in the first quarter, and the Federal Reserve's forecast for another 175 basis point increase to the Fed Funds rate by year end, our expectation is that demand will continue to slow throughout the year," Friedman said.
He added that a tough comparative period for RH given the furniture-buying boom last year, and its decision to cut back on advertising in light of the difficult business environment, would pose challenges over the next few quarters.
RH, formerly known as Restoration Hardware, suffered a 12% slump in its stock price on Thursday. Its shares are now down about 60% this year.
Ringing the alarm
Friedman, during an earnings call in late March, described Russia's invasion of Ukraine as a wake-up call. It made people realize the Fed had begun a campaign of interest-rate hikes, record house prices might prove unsustainable, and inflation was spiraling out of control.
"I don't think anybody really understands how high prices are going to go everywhere — in restaurants, cars, everything," he said, according to a transcript on Sentieo, a financial-research site. "I think it's going to outrun the consumer, and we're going to be in some tricky space."
"I don't want to scare everybody," he continued, before describing a scene from "The Big Short" where someone announces during a Wall Street event that Bear Stearns' stock price is collapsing. The news rattles the bankers in the audience, causing them to rush out of the room.
Friedman explained that he also wanted to be honest and transparent about the situation. "In my 22 years here, I've never been more excited. I've also never been more uncertain," he said.
The RH chief may have been channeling the famously forthright Warren Buffett, who Friedman frequently quotes in his shareholder letters and during earnings calls and investor days.
Buffett's Berkshire Hathaway owned 2.2 million shares or nearly 9% of RH at the end of March — a stake worth over $700 million at the time, but less than $500 million at the current stock price.