RH: Transformation Story With Significant Growth Potential

Summary

• The story is that of the transformation of a kitschy furniture store into a luxury brand that sells furnishings.
• The company’s business model has been altered significantly.
• The stores have been reinvented, merchandise upgraded, and back end activities redesigned.
• The strategy is working as revenues and earnings are growing as never before.
• We have a Buy rating on RH with a 1-year Price Target of $370/share.

The RH story is that of a large scale transformation. Everything from the type of stores, to the merchandise, to distribution centers, to reverse logistics, to organizational hierarchy, to home delivery networks, to leasing policies, and more have been changed. The strategies appear to be working. That which started out as a crusade to reinvent RH from a failing kitschy furniture store to a highly profitable luxury brand that sells furnishings is almost complete. Customers are thronging the company’s key retail locations in large numbers, the name is becoming synonymous with luxury furnishings amongst people that matter, and revenues and earnings are growing as never before. We believe the company has reached an inflection point where the previous risk embedded in the story has been replaced with an asymmetrical risk reward profile – investors that Buy RH shares are likely to experience substantial gains with comparatively low risk of drawdowns. We have a Buy Rating on RH with a 1-year Price Target of $370/share.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.