Description

RH (previously Restoration Hardware) has been written up on VIC as a short four times and as a long one time. The short theses all cite execution risks and the aggressive capital allocation by RH’s CEO, Gary Friedman. Today, RH operates a business model that’s one of a kind in the industry of furniture retail while Gary’s outsider-like share repurchases have turned out to be highly accretive. Simply put: Gary is a proven winner. 

This is a bet on the jockey stock that’s attractively valued on the existing opportunity in North America with material upside from an expansion into Europe and other new concepts, operated by one of the best living retail executives with a history of brilliant capital allocation (and he’s repurchasing shares aggressively right now: 10% of shares outstanding retired since quarter end).

The near-term future for RH is highly uncertain because of the macro environment and potential missteps with RH’s latest product cycle, but if you have a longer time horizon, I believe it’s likely that RH will be worth a lot more in 5 to 10 years than it is today.

Gary Friedman

Gary taking a bath with his clothes on (very contrarian)

Gary Friedman had a difficult childhood. His father passed away when he was only five years old, and his mother suffered from schizophrenia. The two lived off food stamps and what little money his mother could earn. Gary got his first job as a stock clerk at The Gap in 1977. By 1988, he had risen to regional manager, but quit to join William-Sonoma after receiving an offer from the CEO. Thirteen years later, Gary was passed over for the William-Sonoma CEO role. He decided to quit and join Restoration Hardware as CEO in 2001, taking 11 other WSM executives with him.

Restoration Hardware was founded in 1979 and IPOed in 1998. The company’s stock price had dropped to 50 cents by 2001 and the company was flirting with bankruptcy. After Gary was appointed CEO, he raised $15 million of equity, $4.5 million of which was his personal money. While not definitionally the founder of RH, Gary was responsible for saving the failing retailer and transforming it from a company whose number one selling product was Auto Bingo to the brand it is today.