RH Deep Dive

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From a money-losing retail mall concept that sold gimmicky mayonnaise spreaders, garden gnomes, and nostalgic snack foods to elaborate six-floor luxury furniture showrooms with some of the highest grossing restaurants nationally, RH (formerly Restoration Hardware) is one of the greatest business turnaround stories of all time. 

While we are often taught to be weary of turnarounds (al la Buffett & Munger), this business has managed to grow operating profits from negligible to >$900mn with margins exceeding 25%. Following such a masterful business resuscitation, Berkshire Hathaway acquired a 10% stake, and Gary Friedman, who has been RH’s CEO since they were on the brink of bankruptcy two decades ago, has amassed a 21% stake. 

Today though, RH is still striving to undergo a new sort of transformation. No longer worried about solvency, they now want to become the first brand to ever “climb the luxury mountain” and join the pantheon of greats alongside LVMH, Chanel, Hermes, and Kering. 

Moving from a simple furniture seller to selling “spaces”, RH is attempting to become the world’s de facto arbiter of taste. The stock may be down 65% from peak, but their ambitions have never been higher. With a $6bn market cap today and $3.8bn in revenues, Gary Friedman has laid out a vision to grow to over $25bn in sales with “luxury margins”. Are we witnessing the birth of a multi-generational luxury house, or will RH be crushed by their ambitions? Will the hundreds of furniture brands, thousands of furniture retailers, and hundreds of thousands of interior designers be too much to fend against? 

In this report, we cover everything from RH’s rise from a catalog in a Victorian house living room to 90,000 square foot Design Galleries that generate >$100 million to their unique real estate model, hard to replicate value network, and creative brand extensions. 

You can find the following and more in our report:

  1. Founding History.
    • Stumbling Upon a New Store Concept.
  2. Business History.
    • Early Struggles.
    • Gary Friedman.
    • The Turnaround.
    • Restoration Hardware Reintroduced.
    • Growing Pains.
  3. Business.
  4. The RH Model.
    • Creating the RH Model.
    • The RH Value Network.
  5. Industry.
  6. Competition.
    • Players.
    • The Consumer’s Hierarchy of Preferences.
    • Peer Metrics.
  7. Real Estate Model.
  8. ROIC and Cash Flow.
  9. Expanding RH.
    • Geographic Expansion.
    • Vertical Expansion.
    • Brand Expansion.
    • Beyond RH.
  10. Valuation.
  11. Summary Model.
    • Model Summary.
    • Historical Financials.
  12. Risks.
  13. Conclusions.

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