Redecorating Your P&L (RH)

Coming at you early today with a trade that could afford you a 4900% return.

Think of all the redecorating you could do…

The renovations…

Think, also, of how much more you could get for your house if you just sold it before the crash…

Think of all that the land out in the country you could buy to grow your own food before they take that away, too…

Our trade today centers on what was once known as Restoration Hardware, but has since become too important for all that verbiage, and now simply calls itself RH (NYSE:RH).

Essentially a furniture store for the upwardly mobile, RH’s CEO recently admitted that the company was “arrogant”; that is, it got too greedy with its pricing regime and the strategy backfired.

We couldn’t agree more.

Rising rates have put a chill in the housing market, have pushed consumers to reconsider (more expensive) credit card charges, and led the company to go into full discount mode to unload its inventory.

Sorry, gang.

The good days at RH are over.

FUNDAMENTALS

This is a retail furniture store, friends, with margins that are about to plummet as general demand dries up—not to mention demand for overpriced furniture.

Latest quarterly earnings were announced in late May, and they showed a 23% (!) dive in Y/Y quarterly profits.

Beyond that—

• P/E is 25.61 (retail, honey—not weapons),
• There’s no Yield, and…
• Price to Book is a fantasy-laden 9.70.
• Moreover, Debt/Equity is massive, at 3.76, and…
• EPS FELL this year by 10.10%, and 74.90% Q/Q.

Now look at the chart—

But either way, keep the free bumper sticker.

And may the Lord of Hosts deliver our enemies into our hands.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew