Apocalyptic RH Earnings Call
Not doing lots of micro, but this earnings call is insightful to get a sense for the situation in the real economy. I just cut through the BS and put together the macro snippets. CEO Gary Friedman goes full mad max. Enjoy!
"While first quarter sales and margin trends remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed.
And I think you've got to kind of also consider the fact that you've got -- it's clear now to everyone that inflation isn't going back to 2% even though Janet Yellen, not too many weeks ago, when it was 4% or 5%, said it was going to 2%. And two weeks later, it went to 7.5%, and now it's 7.9%. And we've got Jerome Powell saying that they waited too long. And now we're going to have two years of interest rate increase -- rising interest rates.
So, you've got a lot of news and a lot of noise out there, compounded by a war and invasion. And I think the invasion of Ukraine by Russia just became a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 to 12 points, and it's been relatively consistent during that period.
When it returns to normal? Not sure. How aggressive is the Fed going to be? Not sure. There are things we know, and I don't mean to be a pessimist, but history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession. And I don't need to tell you guys that math. It's just a fact.
Yes. Well, look, I mean it's probably one of the most difficult guides since in 2008 and 2009 because we -- we're right in the middle of this disruption from Ukraine and Russia, which I think -- I don't think it's all Ukraine and Russia. I think it's triggered a greater awareness. Like it's like someone -- I think this was ring the bell, everybody pay attention and then all of a sudden, everybody started talking of sudden, the Feds off to the races and that creates concern.
You've got housing prices at all-time highs. I mean, is it sustainable? I don't know for how long the math. Doesn't make sense on kind of what's happening in the housing sector and other places that you've got inflation like I've never seen. Now I was telling people when Yellen said, we're going back to 2%, we were just signing our new freight contracts, ocean freight contracts.
I just wonder if anybody the Fed has picked up the phone and called a business person and said, hey, what do you think is happening with inflation? How's ocean rates? How is this? How is that? I mean, I think, I don't think anybody really understands what's coming from an inflation point of view, because either businesses are going to make a lot less money, or they're going to raise their prices. And I don't think anybody really understands how high prices are going to go everywhere, in restaurants, in cars and everything. It's -- and I think it's going to outrun the consumer. And I think we're going to be in some tricky space.
So everything is kind of happening at once. And I think you got to prepare for war. I mean, if you're going into a very difficult, unpredictable time, you just got to be super flexible. You've got to be able to improvise, adapt, overcome and kind of be ready for anything. And I don't mean that by playing defense. I mean it's by playing offense, but it's -- I wouldn't call it happy days right now. I'd call it pensive days. Be ready.
So -- but if everything, if the war in Ukraine ends and inflation slows down some miraculous way, I don't know, everybody can sign new freight contracts because, I mean, most of the world all signed new freight contracts. Two years ago, price of the container for us went from 2,400 to 4,800?
So again, I don't want to scare people. I'm just trying to tell you, I mean, you can see the numbers that we see. The last time houses had multiple bids like this, the last time prices went up like this, not -- wasn't a great other side to it.
Rising interest rates is never a great thing. Now, it might be three years away before rising interest rates really take a big hit out of the economy. I don't know. There's always patterns and we've looked at all the patterns. We've got all the graphs. We've laid over all the graphs of all the interest rates, like look, the last 20 years in the US the average interest rate was 2%. You go push it out 30 years it's 3% of federal funds rate. When's the last time it looks like that, the 1950s to the 1970s, okay? That's the last time.
How old was everybody in this call in 1980 when the federal funds rate was 20%? I'm not trying to scare anybody. But almost everybody on this call, look, in 1980, like I was a kid, I didn't know what I was doing. I didn't have wisdom then. I just don't think there's a lot of people in business today, except for Warren Buffett and Charlie Munger and I don't know, George Soros and there's a handful.
If you had wisdom in 1980, you kind of get into your years of wisdom in your '50s and start to get wise. I look back and go, in my '30s, I really didn't do anything. I just like worked really hard. In my 40s, I was got better. I could get shit done and kind of see a bigger picture. In my 50s, I started seeing a much bigger picture. And my late 50s and 60s, I think I've kind of gained a lot of wisdom, and I can see a much bigger playing field than I could.
If somebody with 50 years old in 1980, they're 90 years old today. So I just think a lot of people haven't seen this. When's the last time anybody here has seen interest rates go up two years in a row and six or seven times this year and four, five times next year? Nobody has seen that? Nobody has seen a lot of things that are happening today. So I'm just saying, look, I'm just trying to be completely honest. Again, I couldn't be more excited, but I can be more uncertain, and that's just the story. Other people might be banging a brighter, happier drum than me. Do they have better numbers than we do? I don't think so. We'll play the game the way we play the game, and we have a lot of exciting things coming. And look, if we're too conservative, that's okay to make more money."
"While first quarter sales and margin trends remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed.
And I think you've got to kind of also consider the fact that you've got -- it's clear now to everyone that inflation isn't going back to 2% even though Janet Yellen, not too many weeks ago, when it was 4% or 5%, said it was going to 2%. And two weeks later, it went to 7.5%, and now it's 7.9%. And we've got Jerome Powell saying that they waited too long. And now we're going to have two years of interest rate increase -- rising interest rates.
So, you've got a lot of news and a lot of noise out there, compounded by a war and invasion. And I think the invasion of Ukraine by Russia just became a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 to 12 points, and it's been relatively consistent during that period.
When it returns to normal? Not sure. How aggressive is the Fed going to be? Not sure. There are things we know, and I don't mean to be a pessimist, but history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession. And I don't need to tell you guys that math. It's just a fact.
Yes. Well, look, I mean it's probably one of the most difficult guides since in 2008 and 2009 because we -- we're right in the middle of this disruption from Ukraine and Russia, which I think -- I don't think it's all Ukraine and Russia. I think it's triggered a greater awareness. Like it's like someone -- I think this was ring the bell, everybody pay attention and then all of a sudden, everybody started talking of sudden, the Feds off to the races and that creates concern.
You've got housing prices at all-time highs. I mean, is it sustainable? I don't know for how long the math. Doesn't make sense on kind of what's happening in the housing sector and other places that you've got inflation like I've never seen. Now I was telling people when Yellen said, we're going back to 2%, we were just signing our new freight contracts, ocean freight contracts.
I just wonder if anybody the Fed has picked up the phone and called a business person and said, hey, what do you think is happening with inflation? How's ocean rates? How is this? How is that? I mean, I think, I don't think anybody really understands what's coming from an inflation point of view, because either businesses are going to make a lot less money, or they're going to raise their prices. And I don't think anybody really understands how high prices are going to go everywhere, in restaurants, in cars and everything. It's -- and I think it's going to outrun the consumer. And I think we're going to be in some tricky space.
So everything is kind of happening at once. And I think you got to prepare for war. I mean, if you're going into a very difficult, unpredictable time, you just got to be super flexible. You've got to be able to improvise, adapt, overcome and kind of be ready for anything. And I don't mean that by playing defense. I mean it's by playing offense, but it's -- I wouldn't call it happy days right now. I'd call it pensive days. Be ready.
So -- but if everything, if the war in Ukraine ends and inflation slows down some miraculous way, I don't know, everybody can sign new freight contracts because, I mean, most of the world all signed new freight contracts. Two years ago, price of the container for us went from 2,400 to 4,800?
So again, I don't want to scare people. I'm just trying to tell you, I mean, you can see the numbers that we see. The last time houses had multiple bids like this, the last time prices went up like this, not -- wasn't a great other side to it.
Rising interest rates is never a great thing. Now, it might be three years away before rising interest rates really take a big hit out of the economy. I don't know. There's always patterns and we've looked at all the patterns. We've got all the graphs. We've laid over all the graphs of all the interest rates, like look, the last 20 years in the US the average interest rate was 2%. You go push it out 30 years it's 3% of federal funds rate. When's the last time it looks like that, the 1950s to the 1970s, okay? That's the last time.
How old was everybody in this call in 1980 when the federal funds rate was 20%? I'm not trying to scare anybody. But almost everybody on this call, look, in 1980, like I was a kid, I didn't know what I was doing. I didn't have wisdom then. I just don't think there's a lot of people in business today, except for Warren Buffett and Charlie Munger and I don't know, George Soros and there's a handful.
If you had wisdom in 1980, you kind of get into your years of wisdom in your '50s and start to get wise. I look back and go, in my '30s, I really didn't do anything. I just like worked really hard. In my 40s, I was got better. I could get shit done and kind of see a bigger picture. In my 50s, I started seeing a much bigger picture. And my late 50s and 60s, I think I've kind of gained a lot of wisdom, and I can see a much bigger playing field than I could.
If somebody with 50 years old in 1980, they're 90 years old today. So I just think a lot of people haven't seen this. When's the last time anybody here has seen interest rates go up two years in a row and six or seven times this year and four, five times next year? Nobody has seen that? Nobody has seen a lot of things that are happening today. So I'm just saying, look, I'm just trying to be completely honest. Again, I couldn't be more excited, but I can be more uncertain, and that's just the story. Other people might be banging a brighter, happier drum than me. Do they have better numbers than we do? I don't think so. We'll play the game the way we play the game, and we have a lot of exciting things coming. And look, if we're too conservative, that's okay to make more money."
Feragatname
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