If it’s possible to say that a company’s stock can surge 270% “quietly,” that’s what Restoration Hardware (RH) has done during the pandemic.

While much of the retail attention and discussion has focused on the giant e-commerce gains of Walmart, Target, Best Buy, and Dick’s Sporting Goods during the pandemic, RH shares are up 270% since the end of March, when the COVID-19 pandemic was in full swing and U.S. brick-and-mortar stores were almost all closed.

At a time when U.S. unemployment is at 8.4%, corporate layoffs continue, and so many households are cutting back, how is this luxury home furnishings chain doing so well?

For starters, RH (as the company rebranded itself in 2012, when it went public again) is benefiting from “secular tailwinds as affluent shoppers increase investments in their homes,” analysts from Cowen wrote in a note on Wednesday, upgrading the stock to outperform with a price target of $435 (the stock is currently trading around $382).

Wealthy consumers are buying nicer home furnishings—and that’s not just because of the pandemic, though that has certainly helped RH, since many people’s homes have doubled as their offices for the past six months. (Wayfair has enjoyed a surge for the same reason.) RH is also benefiting from a “suburban migration,” as Cowen writes, that began before the pandemic.

But the RH growth story right now is also about Europe.

The company has shifted its brick-and-mortar design to “galleries” that are a lot like Starbucks Roasteries for furniture: the huge showrooms also serve food and coffee. RH opened one in Denver in 2015 and another in Manhattan’s Meatpacking District in 2018, and it’s about to open a slew of them overseas in summer 2021.

RH CEO Gary Friedman, on the company’s second-quarter earnings call on Sept. 9, described RH galleries in blunt terms: “We are not building shitty little crappy retail stores... We are developing buildings.”

Friedman also noted that most of the galleries are “not going to be capital-intensive... Paris is not as heavy capital investment. RH England is not as heavy capital investment.”

Cowen is bullish on RH in Europe, identifying TAM (total addressable market) of $40 billion to $43 billion there. “Conversations with local furniture market experts give us confidence RH is well positioned to quickly disrupt the market and take share from established competitors,” Cowen writes. RH also launched a membership program in 2016 that has been successful.

But RH is also one of many examples of a broader retail trend happening in America: the squeezing out of middle-ground brands. Discount or affordable chains like Walmart and Target are thriving, while premium, high-end brands like Lululemon, Canada Goose, Burberry, and RH are surging as well among their brand loyalists who can afford their products. Amid that ongoing bifurcation, chains that sit in the middle (think Gap, J. Crew, Under Armour) are stumbling.

“It’s been a really tough environment, and as retail is consolidating—that’s a nice way of saying plenty of retailers are going bankrupt and there’s store closures—others are surviving and taking share,” said Cowen retail analyst Oliver Chen on Yahoo Finance Live on Wednesday. “What’s also happening in the land of brands is that bigger brands are better capitalized and can do more advertising and promotions, and can also withstand this crisis better.”

Indeed, RH CEO Gary Friedman said on Sept. 9 that following the initial impact of the pandemic, RH saw a rapid acceleration in demand. “The pandemic hit in mid-March, mid to late March, and our revenues dropped by just about 40 points. And in a three-month period, little over three months, our demand went from 40 down to 40 up,” he said. “So it’s an 80-point swing... As demand builds, we thought, Jesus, it looked good coming back from down 40, to down 20, to down 10, to up 7, and then it just took off.”

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Daniel Roberts is an editor-at-large at Yahoo Finance. Follow him on Twitter at @readDanwrite.

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