RH Reports 8% Revenue Growth

RH(NYSE:RH) reported second-quarter fiscal 2025 earnings on August 6, 2025, posting an 8.4% revenue increase with adjusted operating margin of 15.1% (up 340 basis points year over year) despite significant ongoing tariff headwinds and continued weakness in the U.S. housing market. Robust early results in Europe, especially at RH Paris, and $81 million in free cash flow support a confident outlook even as incremental tariffs and investment drag persist into the second half.

The following analysis highlights critical strategic shifts, risk management, and operational milestones shaping the long-term investment case. (Note: Fiscal 2025 refers to the period ending Jan. 31, 2026.)

RH Paris launch drives brand momentum and economics

The Sept. 5 opening of RH Paris on the Champs Élysées saw the initial design project pipeline in just six days exceed the combined total of the first five European galleries at the same stage. RH England’s second full fiscal year demand is projected at $46 million, and Paris has already outperformed the company’s flagship New York gallery in traffic since launch, signaling step-change potential for European penetration.

"I'm also pleased to report that RH Paris is off to a very strong start. Traffic in the gallery has exceeded RH New York by day by day, and the design pipeline in the first six days is greater than the design pipeline, of our first five European galleries combined in their first six days."
-- Gary Friedman, Chairman and Chief Executive Officer

Paris’s rapid ramp and strong customer engagement suggest that the company’s European expansion strategy is gaining traction, with the potential to drive significant incremental revenue and brand equity in new markets.

Tariff volatility triggers supply chain overhaul at RH

Management confirmed that new U.S. tariffs are causing a $30 million cost impact to the second half and forced delays to planned product launches, with China-sourced receipts being cut from 16% to 2% by year-end, and India tariffs affecting 7% of business, largely hand-knotted rugs. The company is executing a substantial supply-chain shift, now forecasting 52% of furniture production in the U.S. by the end of fiscal 2025, with additional manufacturing in Italy (21%) and Mexico (12%).

"As previously communicated, we've continued to shift sourcing out of China and expect receipts to decrease from 16% in Q1 to 2% in Q4 with a meaningful portion of the tariff absorbed by our vendor partners. Additionally, we are aggressively responding to the recent 50% tariffs imposed on India. Which impacts 7% of our business. Almost entirely hand-knotted rugs."
-- Gary Friedman, Chairman and Chief Executive Officer

Vertical integration, supplier broadening, and U.S. manufacturing expansion structurally reduce long-term supply risk and position the company for potential share gains if competitors fail to adapt to inflationary pressure and industry dislocation from tariffs.

Operating leverage set to inflect as major investment wave crests

Adjusted EBITDA margin improved to 20.6% (up 340 basis points year over year), even with an approximately 170 basis point drag from investments to support long-term European expansion, and free cash flow reached $81 million. Management expects $250 million to $300 million in free cash flow for fiscal 2025, as adjusted capital expenditures are guided to fall toward $150 million to $200 million by 2027, reflecting a transition from peak investment to operational scaling.

"Are forecasting to generate $250 to $300 million of cash flow in 2025. And our plans call for significant and growing cash flow from operations over the next several years if we cycle this aggressive investment period. We estimate that our adjusted capital, expenditures will decrease to a range of $200 to $250 million in 2026 and $150 to $200 million in 2027 and beyond. We remain confident in our ability to make the necessary investments continue our leading industry-leading growth while significantly reducing debt and lowering interest expense."
-- Gary Friedman, Chairman and Chief Executive Officer

The improving cash generation and capital discipline as the company cycles through an unprecedented buildout phase set the stage for deleveraging, margin expansion, and scalable returns should economic and housing market conditions normalize.

Looking Ahead

Management guides fiscal 2025 revenue growth of 9%-11%, adjusted operating margin of 13%-14%, adjusted EBITDA margin of 19%-20%, and $250 million-$300 million in free cash flow, inclusive of a 90 basis point tariff drag and 200 basis points from international investment. Approximately $40 million in revenue is shifting from the third quarter to the fourth quarter of fiscal 2025 and the first quarter of fiscal 2026 due to delayed catalog distribution tied to tariff uncertainty. An inflection point in Europe is anticipated as Paris (2025), London (2026), and Milan (2026) scale, targeting to double the company size over the next five to seven years through global gallery expansion and increased operating leverage.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,056%* — a market-crushing outperformance compared to 188% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of September 8, 2025

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.