When RH CEO Gary Friedman started buying his company's stock at its $27-a-share low, he recognized that investors were missing "exactly what we told them," he said Wednesday.

Friedman, who joined CNBC's Jim Cramer for an exclusive interview on "Mad Money," said he bought into the Restoration Hardware parent's shares four times in the last year just to prove his confidence in the new strategy.

"Despite that, I think we were the seventh-most-shorted stock in all of the Nasdaq and the New York Stock Exchange," he said.

Those shorts worked out to RH's advantage. Shares of the home design giant soared over 30 percent on Tuesday after the company delivered a blowout earnings report.

So what exactly were investors and short-sellers missing?

"We moved from a promotional model to a membership model," Friedman told Cramer. "Most people are shrinking the size of their retail stores or closing retail stores and we're building the biggest specialty stores anyone's ever built, so that goes the other way. People are eliminating catalogs; we're mailing the biggest source books people have seen."

"In a lot of ways, we're taking the road less traveled and then we're completely rebuilding the operational infrastructure in the company in a very integrated way, in a unique way," the CEO continued.

RH's newest stores cover tens of thousands of square feet. Some have in-store cafes and restaurants. And since the company re-branded itself as RH and turned its focus to the higher end of interior design, its per-store revenue has skyrocketed.

"Even in the small, the little 6,000-square-foot stores we inherited, those went from, on average, $2.9 million to $15 million in the same square footage" since Friedman became CEO in 2001, he told Cramer.

"In our new design galleries, we have stories in excess of $60 million," he said. "In fact, we're going to open one here in New York City that we believe will do in excess of $100 million."

One of RH's new projects will also be tied to hospitality: in spring of 2019, the company will open a "guest house" near its New York City showroom that, according to Friedman, will "redefine hospitality."

"What's interesting here [is] everybody says to me, 'Oh, so you're going to try to sell your furniture? You're going to make your guest house a showroom?'" the CEO said. "And I go, 'No, we already have a showroom 25 steps away. It'll be 90,000 square feet with a restaurant on the top with views of Freedom Tower. It'll be fantastic.' But everything we try to do we try to innovate and we try to look beyond today's reality and see tomorrow's future. So we're going to do things in hospitality the world hasn't seen."