HR slows as Ukraine, supply chain, rising interest rates and inflation create headwinds

In the most recent HR revenue call, CEO Gary Friedman didn’t exactly put the brakes on the company, but he took his foot off the accelerator. Always proclaiming that 2022 will be the year of the new, that the new will arrive late.

Reporting its annual and fourth quarter results ending Jan. 29, 2022, the company just hit the 32% annual forecast it raised three times last year to $3.8 billion. Adjusted operating margins exceeded forecasts, up 25.6%. Adjusted net income rose 66% to $767 million for the year.

But compared to the third quarter 2021 results, revenue, margin and revenue growth has slowed. And it expects first-quarter revenue to rise in the range of 7% to 8%, compared to a 78% increase last year. Net revenues in fiscal 2022 are expected to increase 5-7% and operating margins 25-26%.

Most troubling of all, he announced that demand fell 10 to 12 points in the first few weeks of the first quarter of fiscal 2022. Friedman added, “Our demand has been down for several months.

As always, Friedman’s earnings call was filled with juicy details, like the average revenue at his gallery restaurants is approaching $10 million a year and online continues to lose money, but he was a Friedman. more pensive than exuberant we heard on the call.

“Everything is a bit out of sync in the world right now,” he said. “You have to wait for quality and we won’t get any points for rushing right now. We’re slowing things down a bit, trying to be more thoughtful. We’re trying to make fewer, bigger, bigger moves.

Uncertainty builds on uncertainty

Friedman promised that “2022 will mark the beginning of the next chapter of growth and innovation for the HR brand,” but he also added, “In my 22 years here, I’ve never been so uncertain.”

The emergence of new Covid variants continued to throw a wrench into the HR supply chain. Early expectations were that the supply chain would loosen this year, but Friedman said that hasn’t happened, but it has gotten complicated.

That adds another five weeks of delay on average, but in some cases delays have extended to 10 to 12 weeks and the cost of containers has doubled from two years ago, from $2,400 to $4,800.

With house prices at an all-time high and inflation now at 7.9%, Friedman is miffed that Treasury Secretary Janet Yellen is giving no indication of when or where it will end.

“I don’t think anyone really understands how much prices are going to go up everywhere. I think it’s going to go beyond the consumer and we’re going to be in a tricky space,” he asserted.

On top of that, the Federal Reserve just hiked interest rates expecting more rate hikes to come. Friedman sees this as another sign of trouble.

“I don’t want to be pessimistic, but history would tell us [when] the Fed raises interest rates for an extended period, we have a recession,” he said, adding, “I’ve seen enough cycles to know caution is in order right now.

Then, the war in Ukraine added complications to an already complicated market. Friedman said the company’s drop in demand coincided with precisely that.

“Russia’s invasion of Ukraine became a reckoning point, where people had to stop and pay attention to everything,” he said.

While he said, “We pray for peace but foresee war,” he did not speculate on the impact of rising global tensions on HR’s plans to conquer the European market.

Slow boat to England

Friedman’s long-term plans for the company depend on its global expansion. He sees the opportunity for North America in the $5-6 billion range after opening immersive design galleries in every major market – there are 27 now, plus 36 smaller legacy galleries. But that eclipses its global expectations in the $20-25 billion range.

“The opportunity for this brand is unlike any other brand in the world,” he said. “What we are going to do next from a physical point of view in Europe is better than anything we have ever done. I wouldn’t want to be in Europe competing with us.

Design galleries are in the works for London, Paris, Munich, Dusseldorf, Milan, Madrid and Brussels, but its first overseas venture, RH England at the historic 73-acre estate of Aynhoe Park, is delayed from date initial from June 2022 to July or even August.

Confident there will be produce on hand, he said construction delays and cost overruns for this Grade One listed building have slowed the opening and even when it does finally open not all bids will be available.

“I’ve never seen it so chaotic from an execution perspective, whether it’s construction, procurement, manufacturing, moving supply chains, freight,” he added.

At home

On the home front, the highly anticipated opening of RH San Francisco is on hold for late spring, New York City RH Guesthouse for early summer and RH Palo Alto for the fourth quarter, although it could be pushed back to the first quarter next year.

The launch of its new RH Contemporary collection has also been delayed. Scheduled for a mid-March launch, it is now scheduled for May. And the 450+ page contemporary source book originally planned has been shrunk down to 300-350 pages.

“Things are late. My feeling is that it might even be later,” Friedman warned.

With high hopes for Contemporary – “The most compelling and potentially disruptive product introduction in our history – he doesn’t want to push it to market until it’s ready.

“The Contemporary is the highest quality product we’ve ever had. This is the highest price we have ever had,” he added.

Slowly but surely, we succeed

As confident as Friedman is about RH’s future prospects – “Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world carefully curated by RH, creating an emotional connection unlike any other brand in the world – it’s not rushing to realize that vision.

“Going into a very difficult and unpredictable time, you have to be super flexible. You have to be able to improvise, adapt, overcome and be ready for anything,” he said. can capitalize on any environment if you’re prepared, and that’s all we try to do, we just try to be in a position to win and be able to take advantage of any opportunities that arise. .

“We will be patient. We might seem a little slow to some people, but we like to say, don’t move until you see it. So we will wait to see it and then we will move,” he concluded.

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