RH (RH 1.13%) has fallen more than 50% from its 2021 high-water mark but is still up nearly 900% since the start of 2017, a recent low point. There's a lot going on here, but the big news isn't what has already happened. What investors need to consider is what management still wants to make happen in the future.
A turnaround
At one point in its history, RH was known as Restoration Hardware, a mall-based retail store that sold home furnishing and other knick-knacks. That version of the company hit a rough patch, and management went back to the drawing board, coming back with a bigger and bolder plan. Rebranded RH in 2012, it moved out of the mall and created its own destination-based store footprint heavily leaning toward design.
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The work-from-home trend that arrived shortly after the coronavirus pandemic in 2020 helped push up demand. Investors jumped aboard and pushed up the stock price. Now that the world is learning to live with the coronavirus, the excitement has cooled and investors have stepped away from RH stock. But the company is still in a much better place than it was when it was known as Restoration Hardware.
Management has a bold vision. That is what's responsible for the success so far, with the pandemic interlude best viewed as an odd and unique period. But, given the company's aggressive moves so far, what investors need to watch are the next steps.
Where to go from here
In the company's third-quarter 2022 earnings release, it included what might best be described as a corporate manifesto under the title "RH Business Vision & Ecosystem -- The Long View." According to the company, "Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative, as we continue our quest to build the most admired brand in the world." Calling a company "the arbiter of taste" is a pretty big claim.
But the company isn't done: "Our efforts to elevate and expand our collection will continue with the introductions of RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade." Further, the company plans to continue opening "immersive Design Galleries in every major market." So, five years from now, not only will the number of niches the company targets be larger, but so, too, will its store footprint.
Only the company isn't planning to stop with product lines and stores. "Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces." That includes expanding into the hospitality space, including airliners and yachts. Oh, and don't think RH has overlooked selling entire homes, because that's on the to-do list, as well. Homes, condominiums, and apartments are all in the crosshairs. The goals here are bold.
A grain of salt
So where is RH going to be in five years? With those lofty goals, it is hard to tell. But what is certain is that RH wants to aggressively reach beyond its current retail focus. Given its success in design, it would be unreasonable to think that it can't achieve at least some of these lofty aims. So bigger and broader is the likely future for RH over the next five years.
For investors, however, the key is going to be paying very close attention to what management actually achieves. Right now, it looks like the company is throwing pasta on a wall; seeing what sticks will determine how well RH does as a business. And, perhaps equally important, the company must also figure out when to throw in the towel on ideas that are just too far afield. Right now, RH's goals are huge; the next five years will determine if management can actually live up to its vision as it expands into new areas. Investors need to track management's success rate and be realistic about the fact that not everything is likely to work out as planned.
