Truly transformational stories are rare in retail. RH has been a spectacularly transformational story – but one that is only approaching the middle stages of the investment story. Step 1 was completely rethinking how a large size store concept in retail should work. RH has proven that the large design galleries are a more profitable and higher return way to showcase its home furnishings content with the core US consumer. That was probably good for a stock around $300. Step 2, which is on its way and probably still in progress is turning RH into the first real large scale luxury home furnishings brand. Margins are now at luxury levels with the company signaling they won’t revert, and capital returns are at luxury levels. When the market fully realizes this, it’s probably good for a stock around $1,000. The next step, will be taking this “new” luxury brand and gallery store experience to the global consumer. We think growth, earnings, and returns of that global luxury home business will justify a stock of $2,000+.
On Wednesday, November 24th at 11am EST we’re hosting a Black Book on RH to do a deep dive into the market growth opportunities for the brand. This data-heavy deck will look at share and growth runway for existing North American markets, and we’ll assess the potential of untapped markets within North America. The punchline is that the growth opportunity in the core US market is underappreciated. Then we’ll turn to International and outline the spending on home furnishings in key international markets from Europe, to Asia, the Middle East and Australia identifying and sizing the top growth opportunities for RH around the globe.
We’re still crunching the numbers, but as we look at our model today, we’re getting to TAIL earnings power of $50 per share, 70% return on invested capital, a truly massive global competitive moat, no real peers, and on top of that a bullet proof balance sheet that will have $125 per share in net cash on its balance sheet by year 5 – if our operating model is correct. The question then is what this is worth. We could easily argue that this is worth 40x-50x earnings given the characteristics noted above. That suggests a $2,000-$2,500 stock in five years vs $620 today. RH is a Best Idea Long is our favorite TAIL name in all of retail.
Call Details:
Date/Time: Wednesday, November 24th at 11am EST Add to Calendar: CLICK HERE
Live Video Link: CLICK HERE
