RH CEO Gary Friedman on Navigating Tariffs and Business Momentum

Impact of New Tariffs

• ⚠️ RH experienced a significant stock drop following the announcement of new, high tariffs, particularly on manufacturing in countries like Vietnam and China.
• 💡 CEO Gary Friedman acknowledges the shock of the tariff levels but notes that tariffs are not new to RH, having operated with 25% tariffs from China previously.
• 🎯 The company has successfully resourced the majority of its China sourcing to Vietnam and also brought some production to its own factory in North Carolina.

Strategic Response to Tariffs

• 📈 Friedman views the tariffs as a negotiating tool by President Trump to improve global trade conditions and believes they will not be a permanent 46%.
• 💰 Even with a potential 46% tariff, RH anticipates it will be manageable, estimating a net increase of about 20% after accounting for better pre-tariff landed costs in Vietnam.
• 🧩 The company plans to absorb some of this increase through negotiations with manufacturing partners, slightly higher consumer pricing, and leveraging freight costs.

Business Momentum and Financial Health

• 🚀 RH reports strong business momentum, with demand up 20% in the current quarter, significantly outperforming the industry.
• 📊 The company has $200-300 million in additional inventory at cost, which de-risks merchandising and provides a buffer against tariff fluctuations.
• 🏦 Friedman assures comfort with the company's financial position, highlighting his significant personal investment and the company's substantial real estate assets (estimated $500 million) that can be monetized.

Market Perception and Transparency

• 🔍 Friedman suggests that RH's transparency about its sourcing locations might be contributing to its current market perception, while more opaque competitors may be less affected.
• 🗣️ He emphasizes the importance of distinguishing between the noise of market reactions and the true signal of the company's underlying growth and resilience.
• 🤝 Friedman chose to appear on Mad Money to advocate for shareholders and provide clarity during a challenging period.

Broader Economic and Political Context

• 🇺🇸 Friedman likens President Trump's negotiation style to high-stakes diplomacy, suggesting it could ultimately lead to balanced trade and a stronger US economy.
• 📉 While acknowledging potential impacts from interest rates and the housing market, RH's strong outperformance suggests indifference to broader market conditions.
• ✅ Friedman expresses confidence in RH's ability to navigate the current tariff situation, advising investors to bet against the company at their own risk.