In the intricate landscape of the stock market, the company formerly known as Restoration Hardware, now rebranded as RH (NYSE:), has carved out a remarkable narrative of financial success that has taken many investors by surprise. This luxury retailer of furniture and home decor has not only captivated the market with its sophisticated offerings but also with its remarkable financial performance that has far exceeded analysts’ expectations.
At the heart of its success story is the company’s fiscal first-quarter earnings, which have defied the hurdles of tariffs with a minimal impact, signaling a robustness in its operational framework and strategic foresight. RH reported a substantial 12% increase in revenue year-over-year, amounting to $814 million in the first quarter, despite narrowly missing the $818 million forecasted by market analysts.
This notable performance comes at a time when the broader retail landscape is navigating through a maze of economic uncertainties, from fluctuating tariff rates to the shadow of a daunting housing market downturn not witnessed in nearly half a century. Gary Friedman, RH’s Chairman and CEO, in his address to shareholders, underscored the resilience and growth of the company amidst these challenges, boasting a commendable adjusted operating margin of 7.0% and an adjusted EBITDA margin of 13.1%.
RH’s strategic maneuvers have not been limited to outperforming financial expectations alone. The company has embarked on an aggressive stock buyback program, purchasing a staggering 60% of the company’s outstanding shares at a discount, demonstrating a bullish confidence in its long-term value proposition to its shareholders. This move, inspired by the investment philosophy of Warren Buffett, underscores RH’s commitment to leveraging opportunistic periods of economic uncertainty for strategic gain.
Furthermore, RH’s approach to navigating the convoluted landscape of tariffs is nothing short of strategic prowess. The company has successfully minimized its exposure and potential vulnerabilities to tariffs, reducing its sourcing from China from 16% to a mere 2%. This has been accompanied by a strategic shift in its manufacturing footprint, with plans to ramp up domestic production in its North Carolina facility and deepen its manufacturing ties with Italy. Such strategic realignments not only insulate RH from the whims of trade negotiations but also position it to thrive in any market condition, as articulated by Friedman.
Despite the looming specter of tariffs expected to dent its revenue growth in the second quarter by around 6 percentage points, RH remains undeterred. The company has laid out a roadmap to not only recoup these projected losses by the year’s end but also to expand its market dominance with the introduction of a “new concept” slated for the spring of 2026. This forward-looking optimism is further mirrored in RH’s financial guidance, which foresees a revenue growth of 10% to 13% for the year, alongside an attractive free cash flow projection of $250 million to $350 million.
The culmination of these strategic and operational triumphs was vividly reflected in the company’s stock performance. RH saw its stock price soar by an eye-watering 20% in a single day, with its price reaching $210 per share. This surge not only highlights the market’s renewed confidence in RH’s growth trajectory but also showcases the potential value proposition it offers to investors, despite its relatively high P/E ratio.
In conclusion, RH’s journey from a high-end retailer to a market outlier, weathering the storm of tariffs and economic uncertainties, is a testament to its strategic foresight, operational resilience, and unwavering commitment to shareholder value. As the company continues to navigate the evolving retail landscape with its blend of luxury offerings and savvy market maneuvers, it stands as a beacon for investors seeking robust growth avenues amidst a sea of uncertainty.
The company beat earnings by a huge margin and has minimal tariff impact.
The name RH (NYSE:) may not register with most investors, but its former branding and full name, Restoration Hardware, may sound familiar.
RH, or Restoration Hardware, an upscale retailer of furniture and home furnishings, certainly got investors’ attention with strong fiscal first quarter earnings. The company crushed earnings expectations, and the stock price soared about 20% higher at the open on Friday.
RH delivered revenue of $814 million in the first quarter, an increase of 12% year-over-year. However, it missed estimates of $818 million.
RH lowered the cost of goods sold as a percentage of revenue to 56.3%, from 57%, but had 14% higher selling, general and administrative expenses. Thus, operating income increased 2% to $55.9 million.
Net income jumped to $8.1 million, up from a net loss of $3.6 million in the same quarter a year ago. RH got the benefit of some favorable foreign exchange rates and did not have legal costs like it did in the same quarter a year ago. Adjusted earnings were 13 per share, up from a 40 cent per share net loss in the same quarter a year ago. It also destroyed estimates of an 8 cents per share net loss.
“Our industry leading growth continued into fiscal 2025 as revenue increased 12% in the first quarter despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years,” Gary Friedman, RH chairman and CEO, wrote in the shareholder letter. “Both adjusted operating margin of 7.0% and adjusted EBITDA margin of 13.1% were at the high end of our expectations, and we achieved positive free cash flow of $34 million in the quarter.”
Get Your Washtubs Out
In the shareholder letter, Friedman said the company expects the higher risk environment to continue in 2025 due to tariffs, market volatility, inflation, global strife, and the worst housing market in almost 50 years.
“For context, in 1978 there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year,” wrote Friedman. “Despite that fact, we are performing at a level most would expect in a robust housing market.”
Yet, until Friday’s rally, the stock price had been tanking, down about 55% YTD to around $176 per share. But the company took the advice of Warren Buffett and went on offense in a defensive period.
“As Warren Buffett wrote in his 2016 letter to Berkshire Hathaway (NYSE:) shareholders, ‘Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons,’” Friedman wrote.
RH had its washtubs out, buying back some 60% of the company’s outstanding shares at a discount for the long-term benefit of shareholders.
“We believe another washtub bet is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentive will position us to capture increased market share and drive additional membership, which will serve us extremely well when the housing market recovers,” the CEO wrote.
Minimizing the Impact of Tariffs
Like all retailers, RH has to deal with the impact of tariffs. The good news is its exposure was relatively limited to begin with, and it lessened the impact after they were announced. It will reduce its sourcing from China from 16% to 2% by the end of the year. Further, it projects that 52% of its furniture will be produced from its own factory in North Carolina, with 21% coming from Italy.
“While there remains uncertainty until the reciprocal tariff negotiations are complete, we have proven we are well positioned to compete favorably in any market conditions,” Friedman wrote.
That’s not to say tariffs won’t have any impact. Friedman said the company expects tariffs to negatively affect revenue in the second quarter by 6 percentage points. That will result in 8% to 10% revenue growth in Q2.
The company anticipates recovering the projected Q2 revenue hit by the end of the fiscal year. Further, RH also delayed the rollout of a “new concept” that was initially planned for the second half of 2025 to mitigate tariff risk. The new concept will now be introduced in Spring of 2026 when there is more certainty around tariffs.
That said, RH maintains its guidance of 10% to 13% revenue growth this year and 14% to 15% adjusted operating margin. It was 7% in Q1. It also anticipates free cash flow of $250 million to $350 million.
RH stock spiked 20% on Friday to $210 per share. Its P/E ratio remains high at 41 but its forward P/E is just 17, so there could be opportunities to jump in if a dip comes along.
