Restoration Hardware Synopsis
RH had enjoyed a strong increase in stock price due to the company's successful core business. However, RH's stock fell significantly in late 2015 and continued to follow a negative trend in 2016. The stock had been trading/valued based on negative views on the company's ability to successfully re-brand their core business. The consensus views grew very negative when management decided to re-brand the core business and experienced supply shortages that impacted revenues and margins.
In order to better understand RH's supply/demand dynamics, we conducted the following investigative tasks:
Held in-depth conversations with management and management of competing firms
Performed statistically significant surveys of staff at RH locations across the country
Visited the flagship location of the new store model in Los Angeles and interviewed staff at this location
Performed regression analysis on years of industry data provided by the Census Bureau and RH historical data
The results of our research corroborated management's claim that demand for RH was only increasing, because of the new store models. Our surveys also found that the supply problem had been resolved and customers that experienced delays were satisfied with RH's response. The company's strong earnings and guidance beat on 2/24/17 was the catalyst that caused the consensus to reevaluate their expectations for RH's new store models. Not only did sentiment completely shift after this catalyst, but a major short squeeze also ensued.