What happened
Shares of RH (RH -2.19%) jumped 16.8% in the month of January compared to where it closed out 2022, according to data provided by S&P Global Market Intelligence. The upscale furniture retailer is navigating a challenging market, especially in housing, that CEO Gary Friedman says is in "free fall."
The luxury home decor company's stock lost half its value last year, which has apparently encouraged management to accelerate stock buybacks. In early January, RH filed a report with the Securities & Exchange Commission indicating that it had 23.6 million shares outstanding, which led Guggenheim analyst Steven Forbes to calculate that the retailer had repurchased $400 million worth of stock.
Forbes maintained his buy rating of the company and raised his one-year price target slightly to $350 per share. The stock was trading just below $277 at the time, indicating some 26% implied upside, and the price has narrowed the gap since then, closing yesterday at $324 per share.
Image source: Getty Images.
So what
The premium furnishings market might be more robust than Wall Street has envisioned. While the well-to-do are not immune to the effects of inflation, higher energy costs, and rising interest rates, they tend to be some of the last to feel their impact. With increasing talk of a possible soft landing for the economy, the rich might not even pause their spending habits.
Friedman, though, isn't worried about what RH will do this month, this quarter, or even this year. He's focused on positioning the retailer to be ahead of the pack 5 or 10 years down the road. That's an admirable quality investors should seek out in an executive: ignoring Wall Street's demand for ever-higher quarterly performance regardless of the long-term impact.
Now what
Interestingly, although it seems RH might have repurchased a lot of stock recently, Friedman was telling analysts on the retailer's earnings conference call in December that RH wouldn't follow other companies that "went out and spent a lot of money on buybacks and went bankrupt," pointing specifically to Bed Bath & Beyond (BBBY) as an example of one that was about to go under.
Even so, he also said he thought shares of RH were undervalued at the time, and the retailer's stock just might have been a deal too good to pass up.
