RH (NYSE: RH), formerly Restoration Hardware, has been touched by a modern-day King Midas, otherwise known as Warren Buffett, one of the most successful investors in the world. And Buffett has done it again. He invests in luxury home furnishings brand RH, and this stock has turned to gold, as it rose more than 500% in the past year. In other words, RH is one of the COVID-19 winners.
Investors, take note
If Warren Buffett increased his stake in RH and now owns 8.5% of the company, you can probably assume RH is a good bet to invest in. Bloomberg reports [subscription required] that RH revenues, according to RH executives, are expected to increase by double digits in the year ending January 2022.
Not only that, RH management predicts revenue to increase 10% to 15% a year for the next decade. Plus, RH is investing in major cities like Aspen, Colorado, where the company is building an upscale mixed-use development, with a gallery (what RH calls its stores), restaurants, guesthouse with bathhouse and spa, and residences.
Home furnishing store trends in general
During COVID-19, most home furnishings stores were left "hanging by a thread," reported Forbes. The ones hit hard were the ones forced to close during lockdown orders and didn't have a method to deal with not having a showroom. Some chains that closed many stores or filed bankruptcy include Art Van furniture (filed for bankruptcy), Pier 1 (filed for bankruptcy), Sur La Table (filed for bankruptcy), and Bed Bath & Beyond (NASDAQ: BBBY) (scheduled to close 200 locations by 2022).
RH in particular
Not all home furnishings stores fared poorly during the pandemic. The ones that cater to the luxury market, like RH, fared better. And RH didn't just fare better: It triumphed. Wealthy consumers, bored at home during the pandemic, took the time to redecorate. Many customers also needed to update or create a home office and sought out RH for that as well. As upscale city dwellers fled urban locales like New York City for the suburbs, they needed to decorate those homes, and many chose RH to do so.
The RH model
RH CEO Gary Friedman didn't mince words when he talked about the RH business model and why RH has succeeded when so many other furniture stores haven't: "We are not building s---tty little crappy retail stores … We are developing buildings." Well, then. Enough said.
But seriously, RH has picked a side: the upscale, well-to-do buyer. As many stores that cater to the middle class are largely biting the dust, like Pier 1 and Gap (NYSE: GPS), stores that cater to discount brands, such as Walmart (NYSE: WMT) and Target (NYSE: TGT), and stores that cater to the wealthy, like RH and Lululemon (NASDAQ: LULU), are faring much better. And that's a pretty accurate reflection of the economy during and post-COVID-19 -- a shrinking of the middle class.
The Millionacres bottom line
So if you're still wondering whether you should invest in RH, here's what to consider: Warren Buffett backs it, and his philosophy is to invest in the overall potential of a company. Buffett seeks ownership in quality companies that he thinks will make money.
RH is positioned well in the marketplace. It has a current price of over $600 per share and a market cap of $12.2 billion, which some investors think is overvalued. If you think RH will perform as RH executives say it will, though, this might be a good commercial real estate investment for you.