With news from S&P rating a proposed new $1bn Term Loan for RH, we’re diving in on the buyback potential here with the company levering up.
The company had $2.2bn in cash at year end. Adding in the $1bn proposed Term Loan and taking out the $490mm used in convert & warrants settlement a couple weeks back, plus some FCF generation, would mean right around $3bn in cash.
At current prices the cash balance represents almost 9mm shares.
With a stock at $350 the 1Q diluted share count would be 27mm after the announced settlement of converts ($106mm remaining).
CEO Gary Friedman owns 5.7mm shares after his tax related sales.
That means the cash would make up 40% of the float not owned by the CEO. Adjusting for short interest we’re looking at 45% in buyback potential, if you take out a few of the top long term holders/indexers you are talking roughly 2/3 of float covered.
The punchline, adding on another $1bn in debt the company can buy back a significant portion of the float much like back in 2017. With a depressed stock price and the international growth driver ahead, the company would be buying back when it should, not simply when it had excess cash like many did in 2021. That is how you maximize shareholder value.
RH remains our top long-term holding in retail, with 3-5-year upside to $2,000.
