the

RH CEO: Lost Decade of Retailers | Mad Money | CNBC

when Rh the company formerly known as

Restoration Hardware reported a blow out

quarter in June it's not exploded higher

but after the high-end furniture

retailer reported again last night the

stock broke down plunging nineteen

dollars or 13 percent today

wrong well are a gigantic turning speed

its revenue came in at time you did

light and even though imagine raises

full-year earnings forecast dramatically

thanks to much higher gross margins they

slightly trim their full year revenue

forecast I think these numbers were

pretty darn great frankly but the stock

and runs so much going to the quarter

that was price for perfection and profit

takers he'd be looking for any reason to

ring the register including what I

regard as short-sighted ones but do not

take it from me earlier chair we got a

chance to check in with Gary Friedman

he's the chairman and the CEO of RH at

his magnificent brand-new store in

Manhattan's meat packing district

take a look Gary you called a gallery I

think it's a palace tell us what's going

on here well Jim think we this is to

date our finest work and you know we

said I think I wrote in the letter we

believe this is the most innovative

innovative retail store in the world in

the most important city in the world so

we put a lot of effort into this and

basically it's it's an integration it's

everything we do from food wine art and

design and creating a deeply immersive

experience for our consumers and and for

our clients and and really trying to

amplify the brand in in what is you know

the most visited city in the world and

this is this is much more than a store

except it's it's a it's a statement

about kind of who we are and what we

believe in that we believe will echo

globally ok now you're speaking tomorrow

to shareholders speaking to analyst

these are people who really are bound in

many ways by the four walls of the

spreadsheet not by the four magnificent

walls here how do you get across your

vision what you just told about do

people are saying I want to know what

the price Turing's multiple

the stuff well I think you have to think

about you know business like ours over

the long term right whether it's a

horizon of a year five years there's

there's really three holders between

myself I mean if you read our proxy you

know between my options everything I own

about 27 percent of the business and he

stock you bought in the open market 120

points ago 120 points that I've got over

the last my last purchase I think was 97

so I bought stock four times in the last

14 months you know all the way up from I

think 27 to 97 and I won't say what I'll

do on this dip but but it's really it's

it's interesting people talk about our

turnaround or like it's a short-term

view it says not a turnaround this is

really continually reconceptualized and

evolving the business and the brand so

you know I've been in the kind of public

markets for a long time and what I've

seen is is people you know it's like you

get into public markets you bring a car

out of the racetrack and then you're on

this quarterly racetrack right you're

racing around and eventually you're

gonna blow a tire and you have to bring

it into the pits and the question is

what do you do when you bring the car

into the pitch do you just change the

tires and get back out and I think

that's what most people tend to do

because there's such a short term focus

we brought the car into the pits and we

Rican septa lies the entire operating

platform the entire business moved from

a promotional model to a membership

model where we architecting and INRI

conceptualizing every aspect of how we

run the business and in my entire career

I've never done that and I've never

experienced it and and and it you know

so you know we were setting to this

business up for the next 10 years right

and and it's hard to understand because

I've never done it before and I'm sure

nobody's seen it though but you have to

come here to understand it I've been

able to look around including the

rooftop you start your conference call

this time yeah you started talking about

hospitality now you take us in other

directions than we're used to the road

less traveled you invoke that in your

conference call is sometimes you're too

big for us to think how

get my arms around a concept of a man

who's doing hospitality showing us

amazing things in a beautiful building

has a guest house across the street and

yet it's still focused on buying back a

billion dollars with the stock at much

lower prices what one not a man it's a

it's the team I've got most of my team

here in the background getting ready to

open this this beautiful gallery but we

always say we're always unfinished we're

always on the move everything's always

in evolution and I think the thing that

people miss about us I think because we

you know we we curate and we present

goods in you know such a aspirational

inspirational fashion they think it's

it's magic right and and a lot of times

if people oh you guys really have the

magic well if if you talk to anybody in

our company they tell you Gary would say

this is all about math it's not about

magic it's about math and so if we have

one of the most volatile stocks in all

of retail and Albert Einstein says you

know in the middle of difficulty lies

opportunity right you've got a stock

going up and down what's the opportunity

opportunity is how do you monetize that

volatility right so we were able to do

three convertible note offerings at zero

interest we raised the first to six

hundred fifty million dollars and

because of that we were in a position

when our stock went down we were in the

pull decart of the pitch to buy back

half of the company at $49 a share right

and and so you have about a hundred

points ago a little left Simon today you

know they're beating us up the bed but

again I mean you look at somebody asked

me yes when are you okay and I said I

said I'm great this is gonna be one of

the best days of my life

but remember Gary I teach people same

store sales of the hundreds I teach

people we want to see revenue growth it

was an expense you gross margin

expansion story you want to make money a

different direction from what a lot of

people are used to yeah again it's just

what what's the right thing for a

business in the moment right and and and

so you have the in the moment looking

out over

kind of a longer term horizon and it's

this series of decisions so I mean look

are comparable brand revenues were up 5%

I I don't know anybody in the Home

Furnishings industry that had a higher

one okay so people think oh it wasn't as

high as they thought it was but our

earnings are up more than three times

right and and the way you have to think

about this business today is that you

know most retailers just reconceptualize

or evolve the front end of their

business but because it's it's it's hard

to kind of run a business and then kind

of change the engines right you know it

was like you're flying the plane we're

rican sexualizing the the engines and

reconceptualize in the back end and then

we'll pivot back to more accelerated

growth next year on what we believe will

be the most profitable and capital

efficient platform in our industry by

far all right one last question estate

zinc ring planter okay my wife Lisa

actually brought this shoot leave or not

310 listed she buys at 2:30 because

she's a member so they're our bat

membership has privileges in your

loyalty oh absolutely and and what we

tried to do is remove the chaos right

and and simplify the business and not

our clients deal with the up and down

promotions of a typical retail business

and we're difference yeah that Terrace

is another story but you know we'll see

what happens everybody operates in their

own self-interest I think and China and

America will find what's the right

medium but as far as membership goes we

wanted to simplify the business or our

customers can focus on their projects

and not focus on the promotions we

wanted to accentuate and amplify our

design services so you get free interior

design services and not decorating right

we don't come in here and send some kind

of junior visual people to kind of hang

a few things on your wall we have really

trained interior designers coming into

your home and helping yury conceptualize

your home and and it's you know it's

it's you've got a remove I think the

clutter in our industry that's happened

over the past years I think it's gonna

be be seen as kind of the Lost Decade of

retailers

the capital allocation over the last ten

years and people creating that unnatural

shift to move their business online

there's massively deteriorating

operating margins and you know online

since the other channel we do over a

billion dollars online you know people

that people think like he talks about

retail stores he doesn't believe I don't

like we do a billion dollars online when

you make a lot of money I made a lot of

money for shareholders but what really

matters including yourself guy refused

chairman CEO of restoration operate

again thank you so much oh yeah Jim

Cramer here from Mad Money thanks for

watching see me see you on YouTube click

here to subscribe and get the jump on my

exclusives with CEOs plus market news

investing advice and a whole lot more