VUCA

“Omicron that hits. Then all of a sudden, boom, you've got a war, Russia invades Ukraine, boom. Yellin says interest inflation is going from four to two, and then it goes to 7.5...these are all kind of temporal issues, whether it's the war that -- the inflation and stuff like that. None of this is permanent. It's just -- there's a lot of things going on at once.”

This candid statement came from Gary Friedman,?RH’s Chairman & CEO, during?RH’s Q4 2021 conference call?on March 29. Although I’m a huge fan of his, I actually haven’t written about RH, the American luxury home-furnishings company, since I turned negative on the stock in my September 14, 2021 research note based on my concerns the stock may have gotten ahead of itself as it had tripled since the start of the pandemic and signs that its pandemic-driven tailwinds were slowing down. It turns out my concerns were justified as RH’s stock has since fallen by over 50%.?

What really stood out to me during RH’s conference call this time was the brutal honesty of Friedman’s remarks during the Q&A session. And as I reflected on his remarks, I realized they point to the one word that captures the state of the world right now and explains why it’s so difficult for us to connect the dots and put together the pieces of the puzzle — VUCA.

VOLATILE: Russia’s Invasion Hit Demand by 10–12%:?“we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed….our demand got hit by 10 to 12 points.”?Inflation Is Hitting Everything: “I don’t think anybody really understands how high prices are going to go everywhere, in restaurants, in cars and everything. It’s — and I think it’s going to outrun the consumer."

UNCERTAIN: Dislocation Between Demand and Revenue Will Hit Everyone:?“I just wanted to give you color that there has been a change…there's also one of the biggest dislocations between demand and revenues. I think it's going to be that way for everybody.”?Supply Chains Haven’t Gotten Better:?“everybody thinks supply chains are getting better. I don't think we've gotten better at all. I mean it is what it is. I mean, product is on the water for a long time, getting ships into port. It's taken a long time. We’ve got generally about five extra weeks in our supply chain right now.”

COMPLEX: Supply Chain Disruption is Compounding:?“it’s just hitting everybody from all angles, all the raw materials all the transportation issues, not just the transportation getting it to us. Our vendors having to get all of their components from all over the world shipped to them. So you just have this compounding supply chain kind of puzzle happening.”?Business Is Chaotic:?“I’ve never seen it so chaotic, honestly, from an execution point of view, whether it’s construction, sourcing, manufacturing, shifting the supply chains, freight. Everything is a little out of sync in the world right now.”

AMBIGUOUS: Rising Threat of a Recession:?“history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession.”

NOTE: This is the introduction to the 8-page research note I published on April 5 for my institutional investment and corporate clients.?If you would like to join the over 2,100 professionals on LinkedIn that are now following my research, you are welcome to SUBSCRIBE to my weekly LinkedIn newsletter. I look forward to sharing my insights with you.?