MILAN – RH’s fourth-quarter earnings call kicked off Wednesday evening, just as President Donald Trump announced his new trade policy, slamming its biggest trade partners with higher tariffs. The news sent RH’s shares tumbling over 20 percent in after market. Chief executive officer Gary Friedman couldn’t conceal his surprise.
“I guess, you know, the stock went down, based on some of the numbers we reported, and then it got killed because of…. I just looked I just looked at the screen… You know, it got hit when I think the tariffs came out,” said Friedman, adding that companies like his that produce on a large sale can’t avoid working in Asia.
The Trump administration’s new trade policy is going to “force everyone to just play a different game,” he said, noting that RH has a long-term sourcing strategy that would further diversify its production. “I haven’t announced it. You know, it’s big and bold and it probably seems like it might be the right thing for the rest of world, but I I don’t really know where this whole negotiation is gonna end up.”
Hit by dwindling consumer confidence, the company formerly known as Restoration Hardware posted fourth-quarter growth that missed its own expectations.
MUNICH, GERMANY – NOVEMBER 28: Sipke (Sip) Halbertsma, CEO of RH Gary Friedman, and Maarten Janssen attend the RH Store Opening on November 28, 2023 in Munich, Germany. (Photo by Gerald Matzka/Getty Images for RH)
Gerald Matzka, Getty Images for RH
In the report, the California-based furniture maker reported that net revenues for the fiscal three months ending Feb. 1 increased by 10 percent to $812 million. The company posted an operating margin of 8.7 percent and adjusted earnings before interest, taxes, depreciation, and amortization or EBITDA margin of 17.1 percent.
This was lower than guidance issued in December, when RH forecast fourth-quarter revenue growth of 20 percent, an operating margin of 13.2 percent, and an adjusted EBITDA margin of 19 percent.
RH reported adjusted earnings per share of $1.58, compared to $0.72 in the three-month period a year before. This fell short of a poll of FactSet analysts, who had expected $1.92 per share and $830 million in sales.
TD Cowen slashed its target price to $220 from $510 in response to the results, citing slowing demand.
With regard to tariffs, RH seems well positioned, analysts said.
“We think RH is in okay shape as it will be able to lean on their vendors given its demand profile and scale, should have some level of pricing power given a wealthier shopper, and is already sitting on excess inventory to support demand,” TD Cowen said.
In the fiscal year, RH reported net revenues rose 5 percent to $3.18 billion, while net income fell to $107.2 million compared to $147.4 million the previous year, as the company invested $2.2 billion into stock repurchases and expanded its portfolio with real estate assets.
“While we expect a higher risk business environment this year due to the uncertainty caused by tariffs, market volatility and inflation risk, we believe it’s important to separate the signal from the noise. The fact is, we’ve been operating in the worst housing market in almost 50 years,” Friedman said, adding that by comparison in 1978 there were 4.09 million existing homes sold when the U.S. had a population of 223 million. In 2024 there were 4.06 million existing homes sold with a population of 341 million. “It illuminates just how depressed the housing market has been this past year,” Friedman said.
RH Newport Beach, The Gallery at Fashion Island
Courtesy of RH
Nevertheless, RH forecasts revenue growth of 10 to 13 percent in fiscal 2025, an adjusted operating margin of 14 to 15 percent and an adjusted EBITDA margin of 20 to 21 percent.
RH said it will persist with new openings in Paris this year, London and Milan in 2026, with a focus on building hospitality experiences, to accelerate its growth in Europe.
In a letter to shareholders, Friedman quoted President Theodore Roosevelt’s speech at the Sorbonne in Paris in 1910 and said “if it means that ‘Our place shall never be with those cold and timid souls who neither know victory nor defeat’ then put us in that arena. Onward Team RH.”
Diversifying manufacturing is key in the current market, concluded panalists at a recent panel talk hosted by TD Cowen hosted HomeNewsNow editor in chief Tom Russell. The lineup included furniture executives: Phillips Collection chief executive officer Jason Phillips; Vanguard Furniture CEO Andy Bray; Fusion Designs president Marcus Bontrager; Gat Creek CEO Gat Caperton, and Michael Carey, CEO of Stock & Trade and RW Collective.
Playing offense will require collaboration, they concluded in a report revealing the results of the panel and released earlier this week. “Some manufacturers are holding prices as they dissect whether tariffs are temporary, while others are looking to split the burden between manufacturers, retailers, and customers,” TD Cowen said.