"It's Not Rocket Science" - RH CEO Warns "This Is Not Normal, This Is Dangerous"

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by Tyler Durden
Thursday, Mar 30, 2023 - 04:21 PM

RH shares are down around 5% in the pre-market as the upscale home furnishings company issued weaker-than-expected full-year guidance for FY23...

According to the letter to shareholders, business conditions for RH are anticipated to remain challenging for the "next several quarters" and maybe even longer due to a rapidly weakening housing market, the uncertainty caused by the recent banking crisis, lapping of COVID-19 driven sales and backlog reductions.

"..., inflation that was thought to be “transitory” is now deemed “persistent” by the Federal Reserve, resulting in a record rise in interest rates triggering a dramatic decline of the housing market, with luxury homes sales down 45% in the most recent quarter versus a year ago. Add to that an underperforming stock market, and a banking crisis no one saw coming and the data points to business in our sector likely getting worse before it gets better,"

But, as always, it's what RH CEO Gary Friedman had to say during the earnings call that caught most analysts' ears...

In Q3 of last year, he jabbed at policymakers: "Yellen Was Massively Blind" - RH CEO Routs 'Slow & Wrong' Policymakers For Making Things Worse"

In Q4 of last year, he warned about the economy: "There Is No Soft Landing" - RH CEO Warns Housing Market "Looks More Like A Crash-Landing"

And now, in Q1, the comfortably outspoken Friedman turns up the threat amplifier to '11'...

As the Q&A began, a question about a lower margin outlook prompted this:

"It's not rocket science to know this is a really bad time," according to a transcript from Bloomberg.

"The fact is, we've been in a massive housing recession for the past year," Friedman continued.

"The data points to business in our sector likely getting worse before it gets better," Friedman said, signaling additional headwinds from bank credit contraction ahead.

"I've been on the planet for long enough to know this is not normal, and this is dangerous," he said.

He worries about the consumer (which is important given the high-end nature of his company's products might suggest some insulation from that threat)...

"...the unsettling feeling as being a person on a Saturday afternoon is watching Warriors basketball game at the news cut to align formed around your local bank while the bank was sending hourly e-mails trying to tell you that they committed to serving you. It's very unsettling..."

And more pointedly, he exclaimed that:

"Anybody that thinks it's not a big deal, the three banks went down... is living in a -- with a euphoric view of the world."

Finally, Friedman offered some advice to policymakers:

"Just land the plane on the other side, whether it's hard, whether it's bumpy," Friedman said.

"Just don't completely crash. A complete crash would look like the '70s and the '80s. That will take over a decade to recover from."

Subtle, and scary, as ever... but hey, just keep listening to the MSM and the Biden admin about how strong the consumer is... (remember how 'sound' the US financial system was a month ago too?)