RH Defies Tariffs, Earns Surprise Profit
Here's our initial take on RH's (NYSE: RH) fiscal 2025 first-quarter financial report.
Key Metrics
| Metric | Q1 2024 | Q1 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Total revenue | $727 million | $814 million | +12% | Missed |
| Adjusted earnings per share | ($0.40) | $0.13 | n/m | Beat |
| Free cash flow | ($10.1 million) | $34.1 million | n/m | n/a |
| Gross margin | 43.5% | 43.7% | +20 bps | n/a |
Back in the Black
It's been a tough environment for retailers across the industry in 2025, given all the pressures they've seen. Between macroeconomic weakness and industry-specific tariff issues, RH investors were simply hoping to see some signs of recovery from the luxury home furnishings retailer.
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Instead, what they got was a blowout quarter. Sales growth of 12% was respectable, even though it fell slightly short of what most analysts following RH had expected to see. But the big news was RH's adjusted net income of $2.6 million, which worked out to $0.13 per share. Most investors believed that RH would lose money, so the success in keeping costs under control and maintaining pricing discipline was particularly significant.
RH CEO Gary Friedman said he was proud of his company's results. He noted that although the company is currently in what he called the "worst housing market in almost 50 years," RH is "performing at a level most would expect in a robust housing market." Friedman credited RH's strength to the active steps that the company and its employees are taking to build out a luxury brand that spans across industries and geographical areas across the globe.
Immediate Market Reaction
RH shareholders reacted positively to the news that the company had made money during the quarter. Shares rocketed higher by 19% in the first half-hour of trading in the after-hours session following the market's regular 4 p.m. EDT close.
In addition, RH maintained its guidance for 2025, which also pleased investors. Management said it believes that it will be able to grow revenue at a 10% to 13% clip over the course of the full year, generating free cash flow of between $250 million and $350 million. That would represent continued upward momentum for the business during the remainder of the year, and that's something no investor is going to be upset about.
What to Watch
As is normal for RH's CEO, Friedman made a number of grandiose comments, including characterizing the company's heavy debt load and aggressive capital expenditures in the recent past as a "washtub bet" on the prospects for the luxury home furnishings specialist. Moves to shift production from China toward less tariff-sensitive sources, including its own North Carolina factory, are expected to ease tariff-related pressures over time.
RH came into this quarter's financial release having seen its stock fall by as much as two-thirds from early January's highs. Tariffs have definitely hurt the company both directly and indirectly, but investors now seem to be getting more optimistic that RH will be able to weather the storm and eventually make good on its long-term strategic vision as a unique luxury retail brand with global awareness.
Helpful Resources
- Full earnings report and shareholder letter
- Investor relations page
- Fool.com coverage of how tariffs have affected RH
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
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