RH (NYSE: RH) Q2 2025 Earnings Call | 09/12/2025

On September 12, 2025, RH held its Q2 FY25 earnings conference call, hosted by Alison Malkin (ICR), with Chairman and CEO Gary Friedman and CFO Jack Preston. The call highlighted RH’s strong performance despite a challenging housing market and tariff uncertainties, emphasizing industry-leading growth, European expansion, and strategic investments.

Key Highlights from CEO Gary Friedman

• Financial Performance: Q2 revenue grew 8.4% YoY, with demand up 13.7%, despite tariff disruptions and the worst housing market in nearly 50 years. Two-year revenue and demand growth were 12% and 21%, respectively. Adjusted operating margin reached 15.1% (+340 bps YoY), adjusted EBITDA margin hit 20.6% (+340 bps), net income rose 79%, and free cash flow was $81 million. Tariff disruptions caused a 5.4-point gap between demand and revenue, expected to shift to H2 2025.

• European Expansion:

  • RH England: Second-year demand up 76% in galleries and 34% online, projecting $37–39 million gallery demand and $8 million online demand in FY25.

  • RH Paris: Opened September 5, 2025, on the Champs-Élysées, featuring a seven-level gallery with a design bibliotech, floating glass stairs, rooftop garden, and hospitality concepts (Les Jardins RH, RH Bar and Lounge, Le Petit RH). Traffic exceeded RH New York, with a design pipeline surpassing the first five European galleries combined in their first six days.

  • Future openings planned for London and Milan in spring 2026, expected to accelerate European growth.

• Tariff Challenges: New furniture tariff investigations and existing tariffs (50% on India, impacting 7% of business) pose risks. RH is mitigating by shifting sourcing (China receipts down from 16% in Q1 to 2% in Q4) and increasing U.S. production (52% of upholstered furniture by FY25 end). Friedman expressed concerns about industry-wide job losses and inflation from tariffs, urging dialogue with policymakers.

• Strategic Vision: RH is building a global luxury brand through immersive galleries, bespoke interior design, and hospitality. Investments in iconic locations (e.g., Aspen, Paris) and a new brand extension (planned for spring 2026) position RH for long-term growth. The company aims to double in size over 5–7 years, leveraging Europe and potential Middle East/Asia expansion.

Financial Details from CFO Jack Preston

• Q2 Results:

  • Revenue: +8.4% YoY.

  • Adjusted operating margin: 15.1% (+340 bps, despite 170 bps drag from European expansion).

  • Adjusted EBITDA margin: 20.6% (+340 bps).

  • Free cash flow: $81 million.

• FY25 Outlook (Revised):

  • Revenue growth: 9–11%.

  • Adjusted operating margin: 13–14% (200 bps drag from international expansion, 90 bps from tariffs).

  • Adjusted EBITDA margin: 19–20%.

  • Free cash flow: $250–300 million.

• Q3 FY25 Outlook:

  • Revenue growth: 8–10%.

  • Adjusted operating margin: 12–13% (270 bps drag from international expansion, 120 bps from tariffs).

  • Adjusted EBITDA margin: 18–19%.

• Inventory and Real Estate: $300 million in excess inventory to be converted to cash over 12–18 months. Real estate assets valued at ~$500 million, with opportunistic monetization planned (e.g., Madrid property sale). Capital expenditures expected to decline to $200–250 million in FY26 and $150–200 million in FY27.

• Debt Strategy: $2.2 billion in debt from share repurchases (60% of shares in 2016–17, 30% in 2022–23). RH expects growing cash flow to reduce debt and interest expenses.

Strategic Initiatives

• Platform Expansion: Four new design galleries planned for 2025 (Manhasset, San Diego, Detroit, Palm Desert) and 7–9 galleries plus 2–3 design studios/outdoor galleries annually. A new brand extension, described as a $2 billion opportunity, will launch in spring 2026 with galleries in Greenwich, West Hollywood, and San Francisco.

• Hospitality and Design: RH Paris integrates multiple hospitality concepts and a freestanding interior design studio. The interior design business is among the largest globally, with high-end projects driving growth. Future galleries (e.g., London, Milan) will include similar hospitality and design elements.

• Tariff Mitigation: Shifting sourcing to the U.S. (52% of upholstered furniture), Italy (21%), and Mexico (12%) by FY25 end. Negotiations with vendors aim to absorb tariff costs, with $30 million in net tariff impact expected in H2 2025.

Q&A Highlights

• Real Estate Monetization (Simeon Gutman, Morgan Stanley): RH views real estate as an opportunistic asset, not a necessity, with a sale-leaseback model. Aspen properties and others (e.g., RH England, Detroit, Madrid) are valued at $500 million, with monetization dependent on market conditions.

• Growth Potential (Simeon Gutman): Friedman sees RH nearing a post-investment growth phase, with new galleries, hospitality, and the brand extension driving significant upside, despite tariff and housing market challenges.

• Inventory and Tariffs (Steve Forbes, Guggenheim): Inventory reduction targets $200–300 million, with turns improving to the mid-2s. The brand extension faces no launch risk unless new tariffs emerge. Friedman emphasized RH’s sourcing leverage but warned of industry-wide tariff impacts.

• European Economics (Max Recklenkow, TD Cohen): Paris’s strong start suggests high revenue potential, with London expected to outperform. Four-wall margins in Europe should align with U.S. galleries long-term, though startup costs (200 bps drag in FY25) persist with London/Milan openings.

• Gross Margin (Max Recklenkow): Q2 margin expansion driven by core brand improvements, with tariff headwinds expected in H2. Promotions are normalizing, but tariffs remain the primary challenge.