Now I've Heard Everything...
What RH's CEO said. Also, updates on OTTR, ERIE and what you may have missed with Starbucks and Soundhound
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Roadmap…
What you may have missed: Starbucks, Soundhound
What RH’s CEO said.
New Twist in the Otter Tail tale.
Update on Erie.
Final Thought.
1. What You May Have Missed
Starbucks SBUX 0.00%↑. Yesterday I pointed out something buried in the 10-K of Starbucks.
Will it matter? Dunno, but it's what's beneath the surface, buried in plain sight, that sometimes does matter. In the very least, this one is part of the mosaic.
Speaking of which, as it turns out, Canary Data, which is rapidly evolving into perhaps the largest single database of investment risk, flagged a few other tidbits:
The company now capitalizes “internal-use software” into PP&E and will amortize it over “2 to 8 years.”
The company also amended an existing risk factor to highlight that “many factors, including operating costs, constraints, or changes, and our current and future competitors’ pricing and marketing strategies, could significantly affect our pricing strategies (including price reductions, promotions, discounts, coupons, or free goods), which may prevent us from competing effectively in certain geographies.
Sure, that last one may be boilerplate, but I’ve seen many a boilerplate turn into a risk investors wished they had paid attention to.
And since almost nobody reads the filings or footnotes anymore, those who do – and who still care about the mosaic, like the folks at Canary and my friend Michelle Leder of Footnoted – are able to exploit one of the few remaining inefficiencies in the market: things that are hiding in plain sight, but nobody sees because everybody stopped looking for them. (Or they ignore them… because they’re perceived to be boilerplate.)
Soundhound AI SOUN 0.00%↑. I also wrote about Soundhound, which I deem as the ultimate poster child of this cycle’s FOMO Follies.
The “AI” in its name says it all. It has been this year’s single-best performing alleged “AI” stock, which easily makes it one of the most dangerous long and short on the planet… the kind of stock the Reddit crowd can’t get enough of. After all, they’ll show us! On Friday alone it traded 155 million shares – nearly half all shares outstanding. Yowza…
One friend half-joked that if they’re smart, management will soon float another 100 million shares at $10 to raise more cash. Never mind the dilution. With so many shares already outstanding, nobody’ll care, any more than they care about the kind of things I and others have reported.
Just remember if hubris has gotten the best of you: With most of these, it’s the express elevator up, then with no natural buying cushion after the shorts have been squeezed out, the elevator shaft down. (If you’re a holder and you’re reading this: know I know – it won’t happen to you. Unfortunately, I’m old enough to remember 2021, when even the smartest of the smart got snared.)
2. What RH’s CEO Said…
My message to a friend after reading the transcript of RH’s RH 0.00%↑ latest earnings call was simply, “Now I’ve heard everything.”
CEO Gary Friedman is, without question, a brilliant, creative retail executive who didn’t just reimagine a dying company, but rebuilt it. He sees a global company with $20 billion in revenue, or quintupling its current size.
What’s more, as I wrote a few months ago in “Irrational Extrapolation,” there’s no way to disprove that kind of forecast. It was a fun piece to write. You can read it here…
But here’s the thing: There’s irrational extrapolation, which is par for the course. Either you buy into the vision and their ability to execute on it – or you don’t.
Then there are attempts to put a positive spin on the actual reported numbers. That’s where Friedman’s comments stopped me in my tracks…