Red Flag Radar: ‘Irrational Extrapolation’
What happens when one ‘Sideline Critic’ takes on RH
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Here’s something you don’t see every day: an analyst taking on a company in a public forum... for all to see.
That’s what my friend Rob Wilson of Tiburon Research – in his Consumer EQ newsletter – has been doing lately with RH RH 0.00%↑, the old Restoration Hardware, where he is a former treasurer.
I’ve been quoting Rob for well over a decade for a simple reason: He’s not afraid to say publicly, for attribution, what he’s thinking based on his analysis of the earnings call transcripts, filings and his own exceptionally deep models.
They lead him to ask more thoughtful, detailed and direct questions than the average analyst of the 40 consumer companies he tracks. No surprise, most companies don’t respond when he reaches out. “I almost feel like a prosecutor instead of an analyst,” he jokes.
‘A Complete Dud’
Among those who don’t respond: RH.
Our story begins with the company’s second quarter earnings a few weeks ago...
Reported results were mediocre, but the stock shot up more than 30% since then – more than 40% at one point.
The reason: Friedman’s comments on the call, which were akin to a victory lap, as he proclaimed…
The company is gaining market share.
Its outperforming the industry by 15 to 25 points.
Performance should gain momentum in the second half.
But it was this comment by Friedman that really got Rob’s attention...
A lot of reasons why we will take a lot of market share. I mean, it's not an accident, right.
I mean, we've been talking about this a long time. The question was, well, when will it happen?
I mean, some guy that I know – that used to work here as an analyst – put out a report last week, never talked to me. I don't know, probably 15 years, and he said, ‘Oh, the product transformation is a complete dud.’
I don't know how he feels today, but you can feel worse in the coming quarters. You don't learn anything by being a sideline critic. If you want to learn something, come here and ask some questions and you'll learn something.
If you're going to be a sideline critic, you're not going to learn a lot. And you'd be wrong a lot more than you're right.
Rob suspects that the “some guy” Friedman was referring to was him, since just a few days earlier he had put out a note that said...
The product ‘transformation’ which began in Fall 2023 has largely been a dud.
He still thinks that’s the case and doesn’t think Friedman is telling the complete story.
Why? Let’s take a closer look at his broader analysis, the questions he has forwarded to the company, along with comments he told me when we chatted earlier this week...