Mad Money

CEO of RH was inspired by Warren Buffett during the home design giant's turnaround

Key Points
  • RH CEO Gary Friedman tells CNBC's Jim Cramer that he took a page from Warren Buffett's book during his company's turnaround.
  • Friedman says the billionaire's moves during the 2008 financial crisis taught him a valuable lesson about corporate financing.
CEO of RH was inspired by Warren Buffett during the home design giant's turnaround

In the midst of the 2008 financial crisis, the worst economic landslide in the United States since the Great Depression, legendary investor Warren Buffett was spending billions.

In 2008, the Berkshire Hathaway chief invested $5 billion in Goldman Sachs. In 2011, he doled out another $5 billion to Bank of America. The moves were widely seen as "votes of confidence" from Buffett, who is considered to be one of the world's top investors.

Several years later, his loans paid off big: In 2013, The Wall Street Journal reported that Buffett made about $10 billion from the massive loans.

"In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period," the billionaire told the Journal in 2013.

And Gary Friedman, who was already chairman and CEO of furniture and home design retailer Restoration Hardware at the time, was watching Buffett's every move.

"I study Warren Buffett all the time," Friedman told CNBC's Jim Cramer in a Wednesday interview. "It seems like those with capital in difficult times are the ones who capitalize."

So when shares of Restoration Hardware, now RH, reached their lows in early 2017, Friedman took a page out of Buffet's crisis-era playbook.

The central lesson resembles Wall Street's pervasive "buy low, sell high" mantra. Friedman raised capital when his company didn't need it, but interest rates were so low that the deal made sense.

"I saw Warren was lending money to Goldman Sachs, lending money to B of A [during the crisis]. And so when the capital markets were ripe, we thought, 'Jeez, can we access [the] capital markets?'" Friedman said on "Mad Money."

"We didn't need the money, and that's a good time to get the money," he added.

Like Buffett, Friedman took advantage of an unexpectedly opportune time, raising over $600 million via convertible bond offerings, a tool companies use to raise cash that blunts the negative impacts of stock offerings (which may signal to investors that a stock is overvalued).

Friedman remembered RH board member and global investor Barry Sternlicht telling him that, back then, the offering was "almost like free money."

And when investors got skittish about RH while the company was undergoing its transformation — which, besides changing its name, involved moving from a promotional model to a membership model — the company had the money to save its stock.

"We said, 'Look, if they don't want to bet on us, we'll bet on ourselves.' And so we took the money on the balance sheet, we raised some other capital and we bought back half the company."

Shares of RH were hovering around the $153 level in Thursday's trading session. The stock ran more than 30 percent following the company's latest earnings report. For more on RH and where Friedman sees the company going, click here.

Watch Gary Friedman's full interview with Cramer here:

People missed 'exactly what we told them' about RH before furniture maker's 30% jump, CEO says

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