Restoration Hardware 1Q26 Immediate Call Postmortem
Gary sounded a lot more upbeat right off the bat. Still a ton of “trust me” for a guy that has said that for many years now only to not deliver on anything new in over a decade (international in particular). The most confusing thing was that Gary kept referring to “the video” when there is no video for today but seems like they are pointing to last quarter. Today we saved most explicit Gary only commentary for last. Scroll down if you want to see it. Also a bit spicier today with commentary than normal - not sure why but something just annoyed me the whole call.
Guess the good news is they got the press release out in a timely manner this time around. Still can’t seem to start the call on schedule. Just once it would be nice to see operational details happen as they are supposed to. Such as the need to hire French speaking employees at RH Paris…
Gary decided to break new store growth contribution out from his total revenue growth expectation in the letter! There is a phrase for the remainder that every other retailer provides on a consistent basis: comp store sales. End of day I am just wondering why they don’t seem to have comp growth anywhere else in their business beyond “backlog reduction” and “new concept growth”. Suppose that’s because they are taking so much space away from the existing business. But you don’t see Williams-Sonoma needing to create an entirely new, unproven business to achieve strong comp sales growth. How often does this business model require Gary to randomly recreate the whole thing just to revitalize it?
Of course, Super Bull Forbes is first in Q&A. Has he ever had a rating other than buy on this name? That’s a 75% loss if you listened to him on this recent cycle. Most of Gary’s answer to his question is very similar to how they used to talk about the business a decade ago, particularly with how luxury product is only accessible to designers, not consumers. Makes sense that they have gone back to review what worked for them in the past as feels they really lost that POV at some point many years ago. Not everybody wants the same beige California sectional so hopefully this recent epiphany of Gary’s shows he is moving past his hubris as the sole arbiter of taste.
Gary talked about how they can’t stop people from buying antiques. Immediately makes me think about the positioning of the Williams-Sonoma Greenrow concept.
Wish some sell-side analyst would ask Gary about the gross margin impact of his renewed idea of becoming an “open platform” (nobody did). Particularly with all this customization he is talking about. Gary says prices will be higher but it’s such a tremendous value. End of day, investors going to be skeptical of anybody paying higher prices for “one of a kind” product from a brand that is perpetually on sale. Max asked about margin expansion in general but was told “refer to the video”, which we only assume was last quarter’s video before all this talk about going back to “open platform” began.
Lasser as always nails the main question which is the 500 basis points of growth that should come from Estates this year. Gary barely talks to that but rather goes on a rant about how his peers have tried to compete with him for “last three years and we outperformed all of them”. No. No. No. RH has maintained flat sales on 30%+ square footage growth. Gary only says this absolute trash for people that don’t know why ALL retail analysts look at comp store sales. Now that Williams Sonoma is back to growing stores, can’t wait for Gary to use that as an asterisk as to why he is underperforming them.
Simeon clearly went to the Milan grand opening party. Max clearly is going to the London opening. Wouldn’t listen to the opinion of either of these analysts on this name as a result. There is a reason why Super Bull Forbes, and most other sell siders, lost their clients 75% all the way down. To be fair, Simeon is a lot better this year overall (actually shows up to calls) and probably would have ranked him #3 if had done Hardline endorsements this year.
Fadem asked about international and Gary very explicitly said “we have to build the brand”. Such a different narrative than when he originally embarked on dumping hundreds of millions going after Europe. There is a basic concept in finance called time value of money that seems most sellside bulls don’t fully comprehend or simply ignore so they can party with Gary at his opening galas.
The massive share decline despite no repurchase just tells everybody that a lot of people are now underwater with derivatives in this name. Guess that’s an incentive to do better…
“We were a bit arrogant at that point in time”. No Gary. You have been arrogant for at least over a decade and constantly moving the goal posts to meet the needs of your ego over shareholders. “Was Tesla ever on time” is the perfect example of how you are still arrogant (not to mention how you can’t even start a simple quarterly conference call on time).
We already know Gary doesn’t take debt seriously. But maybe, just maybe, he shouldn’t use the word “covenant” in his shareholder letter as in “A New Covenant with the Trade”. S&P and Moody’s should immediately put the name on credit watch for such blatant lack of awareness.
“Mr. Gorbachev, tear down this wall”. Gary really can’t help himself. For someone so seemingly lacking in awareness at least he knows to use Reagan quotes during the Trump era. Looking forward to the day the US Government steps in to save this company for “national security” reasons (furniture industry already got this classification with Section 232 BTW).
Where is my video??? Gary is such a tease bringing that back last quarter only to give us nothing once again this quarter. The city of Milan got a video, Gary. Are you too good for your home? – Happy Gilmore
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Restoration Hardware and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.