RH Grows Revenue and Reaffirms Outlook

RH (NYSE:RH) reported Q1 2025 results on June 12, 2025, with revenue up 12% year over year, adjusted operating margin of 7%, adjusted EBITDA of 13.1%, and free cash flow of $34 million. The company maintained full-year guidance for revenue growth of 10%-13%, adjusted operating margin of 14%-15%, adjusted EBITDA margin of 20%-21%, and free cash flow of $250 million-$350 million, despite significant tariff-driven disruptions and an exceptionally depressed U.S. housing market.

This summary dissects key strategic advances in global expansion, pricing and membership strategy, and balance sheet optimization, linking each to explicit management commentary and situational context from this quarter's call.

Global Expansion Achieves Breakthrough Traction Amid Execution Challenges

Despite volatile macroeconomic and supply chain conditions, RH's international galleries posted robust demand growth, with RH England's gallery and online business up 47% and 44%, respectively, year over year, and continental European galleries RH Munich and RH Dusseldorf up 60% across two comparables. Management emphasized initial challenges optimizing inventory and assortments for European markets, where five-month lead times on special orders and earlier product localization missteps presented execution friction.

"... when you really look at the patterns, you look at it closely, you look at what you are doing right, you look at what you are doing wrong, is that the RH brand as it is today we believe we have kind of enough data to say it can be as disruptive and productive in Europe as it can be in America. You know? And that is what the early trends look like. The early trends are littered with what I would call just choppy execution. Right? A company in America trying to open a company in Europe. You know, we are not experts there. ... if we just do kind of three big things our team believes our business can double. That is how many customers you know, we are turning away. Know? And we have got five-month lead times on special orders. So I sit here and go, wait a yeah. We can see the trends across all of these galleries and you know, some better than others as you know, they are going to be and you know? But the most part you know, they are going to trend, I believe, over the next couple of years to levels that will drive four-wall profitability. You know, four-wall cash contributions as good or better than the U.S. That is what it is starting to look like."
— Gary Friedman, Chairman and CEO

Clear evidence of pent-up demand suggests that improving operational execution and localization in Europe will unlock material incremental profitability and accelerate global brand scalability, directly supporting the long-term international growth thesis.

Permanently Enhanced Membership Discount as a Market Share Offensive

Management unveiled a strategic increase in the RH membership discount from 25% to 30%, ending a five-year internal debate and signaling a structural shift rather than a temporary promotion; the change is permanent for all members going forward. The move follows a short-term 35% membership discount on outdoor products during a compressed peak season, explicitly aiming to augment market share while preserving long-term brand value and profitability.

"Just so you know, Simeon, the 30% is a strategic move. It is not it is not temporary. And our cash flow is our guidance. The 30% off membership is forever."
— Gary Friedman, Chairman and CEO

This structural, margin-supported discount enhancement is intended to directly displace competitors in a highly promotional home furnishings landscape.

Multi-pronged Asset Monetization and Capital Efficiency Actions to Reduce Leverage

At the start of fiscal 2025, RH reported significant debt, almost entirely resulting from $2.2 billion in share repurchases, but owns a unique real estate portfolio valued at approximately $500 million as of the beginning of the fiscal year, including joint ventures like over 30 properties in Aspen; this asset base is being positioned for opportunistic monetization via sale-leasebacks and direct sales, with management targeting $200 million to $300 million in excess inventory to be converted to cash over the next 12 to 18 months.

"We have quite a few galleries that are opening with, some that have already opened that we own that, you know, we will do sale leasebacks on. ... we have a lot of value in Aspen. We have a lot of value in multiple sale leasebacks. We still own some other properties. ... So we have a lot of flexibility. Yeah. It is not the easiest time to be, you know, real estate development business, you know, with interest rates where they are. But you know, you do not get it all right. ... But then again, you know, when we you know, look back at the assets we have and we can monetize and look at the momentum of the business that we have, we look at the cash flow potential of business. When you think about cycling this you know, this time that we, you know, we spent a lot of capital and it is expensive to build today. ... by next year, you know, that capital kind of gets behind us. And, you know, start throwing a lot of great cash flow up."
— Gary Friedman, Chairman and CEO

This diversified approach to unlocking embedded asset value and improving capital intensity is designed to fund growth and deleverage the balance sheet despite high prevailing interest rates.

Looking Ahead

Management reaffirmed its guidance, projecting revenue growth of 10%-13%, adjusted operating margin of 14%-15% for FY2025, adjusted EBITDA margin of 20%-21% for FY2025, and free cash flow generation of $250 million-$350 million, all assuming current tariffs remain unchanged. Q2 guidance anticipates revenue growth of 8%-10% and adjusted EBITDA margin between 20.5%-21.5%, with management noting that approximately six percentage points of Q2 revenue will be deferred but are expected to be recovered in the back half. The rollout of the new brand extension was postponed to spring 2026 due to tariff-driven uncertainty; the launch was originally planned for the second half of the fiscal year, but the global gallery opening schedule and multiyear capital expenditure reductions remain on course.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.