Daniel Loeb, the CEO and founder of New York-based hedge fund Third Point, on Friday revealed a new position in luxury furniture and home furnishings chain Restoration Hardware Holdings (NYSE:RH).

What Happened: In a letter to investors, Loeb revealed that the hedge fund started building a position in RH in the final quarter of last year as it believes the high-quality underlying business is at a fundamental “inflection point.”

Loeb said he believes the furniture company is “well-positioned” to yield benefits as it looks to implement its aggressive international expansion strategy and growth should happen “regardless of the political landscape or housing cycle.” 

As per Loeb, RH is not a traditional furniture company and any comparison with other furniture companies is not fair to the brand just like one cannot compare Ferrari with the rest of the automakers. 

See Also: Expert Ratings for RH

“Furniture companies are not known for their high returns on invested capital, and a common bear thesis on RH was that furniture companies had never sustainably earned >10% EBIT margins (which RH had recently exceeded),” Loeb said.

According to Loeb, RH commands higher product gross margins, better leverage on fixed costs, and a unique advantage in retail, where landlords basically pay RH to anchor retail properties, as RH’s stores draw high-income traffic and create a “halo effect.”

Price Action: RH shares closed 0.7% lower at $674.99 on Friday.

Photo: By Restoration Hardware on Wikimedia