Wedbush Securities Managing Director Seth Basham joins Yahoo Finance Live to discuss the challenging business conditions for RH, the impact of banking turmoil on the company, and the outlook for RH.
- Shares of RH are lower today after the luxury furniture company's CEO warned that business conditions would be challenging for the next several quarters due to housing market conditions and banking turmoil, setting its sales forecast far below estimates. Wedbush Securities Managing Director-- excuse me-- Seth Basham joins us now. Seth, great to have you here with us. Help us break this down a little bit further. Just how long could these conditions persist?
SETH BASHAM: Yeah. That's a good question. I think at least the first half of 2023. Could extend into 2024 depending on what happens with the macro and also depending what happens with their strategy of, quote, unquote, "climbing up the luxury mountain."
- And that's always what I'm curious about in these situations, Seth. You have on the one hand the macro environment. Then you have the management of the company. The macro environment we know is not necessarily in their favor right now. What can they be doing to sort of manage their way through it?
SETH BASHAM: Yeah. There are a couple of things they could be doing. They could be more aggressive in lowering prices and promoting their products to drive sales. There are a number of players in the industry, especially at the mass market level, and to a certain extent at the aspirational luxury level, that are doing that. RH has decided that it doesn't want to play that game because it will negatively impact their brand. So they're restraining their promotional cadence. They are clearing a fair amount of merchandise to make room for newness and execute on their growth strategy, which is really all about expanding in Europe right now and introducing new higher end products.
- Where is the material changeover in that merchandise strategy going to take place from your perspective?
SETH BASHAM: Yeah. We're in the midst of it right now. Last year, they launched a new line called contemporary, which has had mixed reviews thus far. They're launching a number of new collections within their core, interiors, and modern lines this year. And then we'll also see introductions in their outdoor set, which is happening right now. So a lot of newness with mostly higher prices, which could help drive average retail prices. But at the same time, it's a question of whether or not their core customer wants to pay those higher prices.
- Well, and let's talk a little bit more about those higher prices and about the consumer. I'm sure that you have been looking into sort of the health of that higher end consumer to some extent. What is the spending power right now, or the spending appetite I guess more appropriately because even if wealthier consumers have the money, maybe they're spending it on-- I don't know-- flying to the Riviera instead of buying an expensive new couch.
SETH BASHAM: Yeah. I think it all depends on how you define the customer. If you're talking about that ultra high net worth customer, they might have a little bit less confidence to spend. But they have the spending power. So we saw RH's demand trends take a step back during the first two weeks after the banking crisis. They rebounded a bit. Still down materially, but improved.
But it's really that core aspirational luxury consumer that we see as moving more to the sidelines here. And that's a customer that has been key to RH's growth over the last five years and a customer that they're deemphasizing going forward to focus on that ultra high net worth customer. And to the extent that they de-emphasize that customer too much, they lose market share. And we're seeing that right now. It's a question of whether or not those market share losses are bearable or not.
- Yeah. Well, I guess we'll have to wait to find that out. Seth, thank you so much. Seth Basham, Wedbush securities managing director, talking to us about RH.