RH falls 13% as furniture retailer reports mixed earnings results and CEO warns of 'big short' style economy

• RH fell 13% on Wednesday after the company offered soft guidance for the quarter ahead.
• CEO Gary Friedman likened the uncertainty of today's economy to a scene from the 2015 film The Big Short.
• "I couldn't be more excited, but I couldn't be more uncertain, and that's just the story," Friedman said.

RH, formerly known as Restoration Hardware, fell as much as 13% on Wednesday after high-end furniture retailer reported fourth-quarter earnings and called the current economic environment as uncertain as ever.

RH reported a mixed quarter, with earnings beating estimates while revenue barely missed expectations. But having a bigger impact on the company's stock price on Wednesday was the company's muted first-quarter guidance.

For the first-quarter, RH expects net revenue growth of 7%-8%, far below last years growth of 78%, which benefited from poor year-over-year comparables due to the COVID-19 pandemic. For all of 2022, RH expects net revenue growth between 5% and 7%, compared to 32% in 2021.

Rising inflation, surging interest rates, and deteriorating consumer sentiment has added to RH CEO Gary Friedman's hazy outlook, and in the company's earnings call he referenced a scene from the 2015 film The Big Short to illustrate the challenges ahead.

"I don't want to scare everybody. But I talk about them, like there is the scene in The Big Short, where everybody is in that ballroom and... then one guy on his BlackBerry, he goes, 'Can I ask the question, sir? In the 20 minutes that you've been talking, your stock is down like 55%.' And everybody ran out of the room... I've never been in my 22 years here, I've never been more excited. I've also never been more uncertain.. I think you have to take a real balanced view right now," Friedman said.

Much of Friedman's concern comes from the prospect of surging interest rates, with current expectations that the Federal Reserve will raise rates up to eight times this year to tame inflation. That has already led mortgage rates to surge to nearly 5% for a 30-year fixed-rate loan, which will likely put pressure on RH's business as home buying fuels demand for new furniture.

"We can't impact nor can we forecast big macro trends until you see them. I mean the Fed can't do it. Janet Yellen can't do it. I don't think anybody on this call can really do it. No one ever really gets these things right," Friedman said, backing up his view that a balanced outlook is necessary right now given the uncertainty.

Friedman added that few market participants, aside from Warren Buffett and Charlie Munger, have experienced what the market is currently experiencing from a viewpoint of surging interest rates and inflation.

"How old was everybody in this call in 1980 when the federal funds rate was 20%? I'm not trying to scare anybody. But almost everybody on this call, look, in 1980, I was a kid, I didn't know what I was doing. I didn't have wisdom then. I just don't think there's a lot of people in business today, except for Warren Buffett and Charlie Munger and I don't know, George Soros and there's a handful," Friedman said.

Surprisingly, Friedman said a fall in demand for its products coincided with Russia's invasion of Ukraine. "I think the invasion of Ukraine by Russia just became a reckoning point, if you will, where people had to stop and pay attention to everything," Friedman said.

"I couldn't be more excited, but I couldn't be more uncertain, and that's just the story," Friedman said.