Why RH Stock Is Still Risky Even as Profit Soars

Key Points

• Revenue rose while margins expanded.

• Management trimmed full-year guidance as tariff uncertainty and timing shifts weigh on the back half.

• Trends versus recent quarters show improving profitability, but execution and housing headwinds remain key variables

• 10 stocks we like better than RH ›

RH (NYSE: RH), the luxury home furnishings retailer known for its large-format galleries and design services, reported results on Thursday that show clear progress on profitability even as macro- and tariff-policy headwinds persist. Shares moved lower after hours as investors parsed a guidance update alongside bottom-line improvements.

The company continues to invest behind a global brand strategy, including new flagship locations in Europe, while working through tariff-related uncertainty and a still-sluggish U.S. housing backdrop. The latest fiscal quarter offers a useful snapshot: better income and margins, positive free cash flow, and revised full-year targets to reflect costs and revenue timing.

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Here is what stood out, how it compares with recent quarters, and why RH stock is still risky.

Image source: Getty Images.

Recent results and how they stack up

The quarter's results show the company continuing to build on a bottom in the housing market that it hit several years ago.

RH posted second-quarter revenue of about $899 million, up 8.4% year over year, while net income increased 79% to roughly $52 million. Free cash flow came in at about $81 million.

Margins improved dramatically. Management highlighted adjusted operating margin of 15.1% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 20.6%, both up 340 basis points from a year ago, so the company has expanded margin meaningfully versus the same period last year while adding top-line growth.

RH seems to be doing well considering the challenging housing market backdrop. In the shareholder letter, RH Chairman and CEO Gary Friedman said the strong results were achieved "despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years."

Guidance, risks, and what to watch next

But not all was positive in the update. RH revised its outlook to reflect tariff costs and the timing of marketing materials, which affects when demand converts to reported revenue. Management now expects fiscal 2025 revenue growth of 9% to 11%, down from a previous forecast for full-year revenue to grow 10% to 13%. Additionally, RH now expects adjusted operating margin to be between 13% and 14%, down from a previous forecast for 14% to 15%.

Additionally, management quantified about $30 million of incremental tariff costs in the second half (net of mitigation) and said its fall interiors sourcebook will arrive later than usual, pushing an estimated $40 million of revenue from the third quarter into the fourth quarter and early fiscal 2026.

Meanwhile, Q3 guidance calls for revenue growth of 8% to 10% with adjusted operating margin of 12% to 13%.

Investors should keep two threads in view. First, the tariff backdrop could remain fluid. The shareholder letter discusses the possibility of additional duties on top of existing tariffs, as well as new Indian tariffs that affect the hand-knotted rug category.

In response to tariff challenges, RH is shifting sourcing -- expecting receipts from China to fall to about 2% by Q4 (down from 16% in Q1) -- and increasing U.S. and Italian production in upholstered furniture.

Second, the housing market remains a major wildcard, particularly as it relates to big-ticket home purchases. Despite demand growth, Friedman remains disappointed in the housing market. But international expansion is a nice counterweight: RH Paris opened on Sep. 5, and the company expects London and Milan to follow in 2026. The letter also calls out strong second-year demand trends at RH England, suggesting the longer-term strategy of flagship galleries plus design services can keep building brand equity and mix over time -- even internationally.

While it's good to see things moving in the right direction at RH (other than a downward revision for key full-year guidance metrics), the valuation isn't easy to justify. Heading into the print, RH was trading near a mid-50s price-to-earnings multiple and boasted a notable market capitalization of more than $4 billion. For a business with improving margins but elevated uncertainty on tariffs and housing, this valuation may not be cheap enough to entice new investors. Shares fell in after-hours trading following the release, reflecting that push-and-pull between better profitability today and a more complicated near-term outlook.

Taken together, the quarter shows meaningful progress under the hood: higher income, wider margins, and positive cash generation, with demand outpacing recognized sales ahead of a potentially even busier second half. But the balance of 2025 will likely hinge on how tariff costs shake out, how quickly the delayed sourcebook translates to sales, and whether the housing market stabilizes. Investors tracking RH should focus on conversion of demand to revenue, the cadence (and performance) of international openings, and margin expansion.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.