RH’s Profit Returns But Headwinds Persist

Note: RH FY’24 ended on February 1, 2025

RH stock, the luxury home furnishings retailer formerly known as Restoration Hardware, spiked over 15% in extended trading Thursday after the company reaffirmed its full-year outlook and outlined measures to mitigate rising tariffs. RH expects revenue growth of 10% to 13% for FY 2025, a signal of resilience despite macroeconomic headwinds. However, the enthusiasm quickly cooled—shares slipped 1.18% in after-hours trading to $178.84 following a mixed Q1 earnings report that beat on EPS but missed sales estimates. For investors seeking growth with lower volatility, the Trefis High Quality Portfolio has outperformed the S&P 500 with 91% returns since inception, providing a smoother ride through turbulence.

RH drives revenue through a blend of high-touch showrooms and lavishly curated catalogs, both in print and online. Its product categories span furniture, lighting, textiles, bathware, garden, and even teen furnishings—targeting affluent consumers with design-forward aesthetics and premium pricing.

Photo by leemelina08 on Pixabay

Relevant Articles

1. How Will T-Mobile Stock React To Its Upcoming Earnings?
2. Why Has GE Vernova Stock Surged 68%?
3. Should You Buy PepsiCo Stock At $145?
4. How Will Coca-Cola Stock React To Its Upcoming Earnings?
5. How Will Philip Morris Stock React To Its Upcoming Earnings?
6. Should You Sell Lockheed Martin Stock Ahead of Its Upcoming Earnings?

---

Q1 2025 Snapshot: Profit Returns, But So Do Headwinds

The company reported net income of $8.04 million ($0.40 per share) in Q1, reversing a loss of $3.63 million ($0.20 per share) a year ago. Revenue rose 12% year-over-year to $814 million, just shy of analyst expectations. Adjusted operating margin reached 7%, with EBITDA margin at 13.1%. Still, RH faces stiff challenges: a sluggish housing market—described by CEO Gary Friedman as the “toughest in almost 50 years”—and mounting tariff pressures threaten future earnings.

Tariffs Bite, Expansion Presses On

The company outlined aggressive supply chain adjustments: RH is shifting production away from China, with imports from the country expected to fall from 16% in Q1 to just 2% by Q4. The company plans to manufacture 52% of its upholstered goods in the U.S. and 21% in Italy by year-end. However, these changes come at a cost—tariffs are projected to hit Q2 revenue by roughly six percentage points.

RH has also postponed the launch of a new concept to spring 2026 amid tariff uncertainty. Despite these hurdles, it’s charging ahead with global expansion, with a flagship store set to open on Paris’ Champs Élysées in September. The company plans to open 7–9 new galleries annually, targeting major cities like London and Milan.

History Suggests Caution

Investors should be mindful of RH’s history during downturns. The stock plummeted 71% during the 2022 inflation shock—nearly triple the S&P 500’s 25% decline—and 68% in the 2020 pandemic crash. While it rebounded swiftly post-COVID, it has yet to reclaim its 2021 highs. RH’s high sensitivity to macroeconomic shocks raises doubts about its durability in a potential recession. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Valuation Looks Stretched

At roughly 45× forward earnings, RH trades at a steep premium to both its five-year average (38×) and the S&P 500 (26×). Its price-to-free-cash-flow ratio is particularly alarming (>200x, compared to 21x for the S&P index), suggesting investor expectations may be outpacing fundamentals.

Following a post-pandemic demand boom in FY 2020, RH faced a volatile stretch from FY 2021 through FY 2023 as mortgage rates, inflation, and housing softness pressured results. FY 2024 offered a measure of recovery, but investor sentiment remains fragile. Tariffs and housing weakness continue to weigh on the outlook, despite operational improvements.

Bottom Line

RH is executing a bold pivot—restructuring its supply chain, expanding internationally, and improving margins. Yet the stock remains volatile and richly valued, with a track record of sharp drawdowns in turbulent times. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio into its asset allocation framework to provide clients with better returns and less risk compared to the benchmark index—a less turbulent ride, as shown in HQ Portfolio performance metrics.