What Ollie’s and Restoration Hardware Have in Common
Also fun with numbers – why so many companies rely on adjusted earnings. And More on the China stock scam.
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The Weekly Wrap...
▶Checking in on Restoration Hardware... It’s been awhile since I’ve written anything on RH ($RH,) which will always be Restoration Hardware – or RSTO, its original stock symbol – to me. The stock is down around 40% since I first red-flagged it in October in my report headlined, “Irrational Extrapolation.” Of course, first it rose 40% to a new 52-week high, before having tumbled nearly 60% from those heights. In other words, classic RH-style volatility... to be expected, especially in this market.
I hadn’t taken a close look lately – at least not until I received the latest from my pal Rob Wilson at Tiburon Research, who eats, breathes, sleeps retail and consumer stocks. And as a former treasurer of RH going WAY back, it’s one he has watched... forever. In his latest RH writeup, Rob wonders if we’re seeing a jump-the-shark moment for the company, which positions itself as a “luxury lifestyle brand.” He’s referring to the company’s announcement on its recent earnings call that it was permanently increasing its member discount to 30% from 25%. In announcing the move, Rob pointed out, CEO Gary Friedman said, “We’ve been thinking of taking membership from 25% to 30%, I don’t know, for five years. It’s not a new idea for us. It’s a long-term strategic move… if we’re going to do something like this, we might as well do it now… why not take market share now.”
Except, if they’ve been thinking about it for years, the obvious question... Why now? Could it be that high-margin membership revenues from the $200 annual membership fee tumbled 42% between the end of FY2021 and FY2024? Who knows. The last I looked, higher discounts are not usually done from a position of strength. And what’s good today to goose membership sales, may not be good for the gander tomorrow. I guess the good news – they didn’t offer any coupons.
▶Along the same lines... Rob noted that Ollie’s Bargain Outlet ($OLLI) did something similar by adding a second Ollie’s Army Night to its lineup. This is a special deep-discount annual event, usually in December. But they’re adding one in June. In announcing the move, its new CEO said, “It’s something we’ve actually been talking about for years…” If for years... Why now? Well, maybe the answer is no more complicated than the chart below of comp-store sales...
One thing is for sure, once hooked on the drug of discounts to enhance short-term performance, it’s hard to get off.
▶Fun with numbers... A standing joke for folks in my sphere is that adjusted or non-GAAP earnings these days aren’t merely adjusted, but double- and triple-adjusted. I’ve been writing about this for decades, including this article in 2000 in Fortune Magazine headlined, “Alphabet Dupe...” Back then there was no double- and triple-adjusted, instead just plain ole EBITDA as the alternative of choice. The only thing that has happened is that people care less about it than they did back then, even though it’s more widespread than ever. That’s why I loved this Barron’s report by Andy Serwer, headlined, “Companies Keep Issuing ‘Stupid’ Earnings for One Simple Reason: It Makes Them Look Better.” Or as Andy wrote, “For fiscal 2024, some 351 companies in the S&P 500 index, or 71%, reported either non-GAAP net income or non-GAAP earnings per share.” And it was done for the express purpose of making them look better because, as the author of this study on the topic said, they do it because “GAAP makes us look worse.” But I think accounting expert Jack Ciesielsky of R.G. Associates put it best, when he said...
I think there are a lot of investors that want to be misled. They’re going to throw money at anything that puts up better numbers than last year on any basis, whether it makes economic sense or not. And these investors set prices. Companies feed this stupid hunger. As long as the SEC lets them do this kind of reporting within the safe harbors, the frenzy continues.
And my hunch is that it will continue to be good fodder for some of us to fret over... long after I’m gone!
▶Finally, if you missed it, last week’s batch of blather included...
Don’t fall for this stock scam. That’s the final chapter in the saga of Ostin Technology, the stock scam I outed a few weeks ago... and said it should trade for pennies. Well, it fell 95% in one day last week to trade for... pennies. I have since heard from victims from all over the world, including some who lost their life savings. While those of you interested in shorting might not have been able to profit from it, since the “borrow” on shares was exceedingly expensive – and that’s assuming you could find them – I consider this one as having been a PSA to all.
This quick hit on Hims, which tumbled and stumbled after its brief partner Novo Nordisk accused it of doing all sorts of nefarious things. No surprise, given this market, the stock has regained some of those losses. Meme stocks will do what meme stocks do... till they don’t.
Merging technicals and fundamentals. This included a video I did with Steve Strazza, chief strategist of All Star Charts, where we discuss Hims – and what the fundamentals and technicals say. It was a fun chat. There’s also a link in there to a CNBC hit I did on Hims.
▶Now... it’s back to working on premium ideas – and I’ve got a few lined up like planes on the runway. One, in particular, if I can get it across the finish line will likely be worth the price of admission. They all just take time to research and write... in between the other nonsense that I can’t seem to avoid. Keep watching this space.
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I do not have a position in any stock mentioned here.
Feel free to contact me at herb@herbgreenberg.com