TLDR
- RH stock fell 10-11% in premarket trading after missing Q2 earnings expectations with $2.93 EPS vs $3.18 estimate
- Company cut annual revenue guidance to 9-11% growth from previous 10-13% due to tariff uncertainties
- Revenue grew 8.4% to $899.2 million but missed analyst estimates of $906.58 million
- CEO Gary Friedman called current housing market “the worst in almost 50 years”
- RH is shifting manufacturing away from China and dealing with 50% tariffs on India operations
RH shares dropped sharply in premarket trading after the luxury furniture retailer delivered disappointing second quarter results and trimmed its outlook. The stock fell nearly 11% before market open following the earnings report.
The company reported adjusted earnings per share of $2.93, falling short of analyst expectations of $3.18. Revenue came in at $899.2 million, slightly below the consensus estimate of $906.58 million despite representing an 8.4% increase year-over-year.
RH’s demand actually increased 13.7% during the quarter, showing underlying customer interest remains strong. However, the company is grappling with external headwinds that are impacting profitability and outlook.
Tariff Troubles Weigh on Guidance
The company revised its fiscal 2025 guidance downward due to mounting tariff uncertainties. RH now projects revenue growth of 9% to 11%, down from its previous guidance of 10% to 13%.
For the third quarter specifically, the company expects revenue growth of 8% to 10%. Adjusted operating margin guidance was set between 13.0% and 14.0% for the full year.
Tariff concerns are forcing operational changes across RH’s supply chain. The company has been shifting sourcing away from China, with expectations that Chinese receipts will decrease from 16% in the first quarter to just 2% in the fourth quarter.
RH is also responding to recent 50% tariffs imposed on India, which impacts approximately 7% of its business operations. These trade policy changes are creating cost pressures that the company is working to navigate.
Housing Market Challenges
CEO Gary Friedman painted a grim picture of current market conditions during the earnings call. He described the housing market as being at its worst point in almost 50 years.
This challenging housing environment is creating headwinds for luxury home furnishing retailers like RH. When fewer people are buying homes or feeling confident about real estate investments, demand for high-end furniture typically suffers.
Despite these market challenges, RH managed to generate some positive financial metrics. Net income surged 79% for the quarter, and the company produced $81 million in free cash flow.
The company maintained its adjusted operating margin at 15.1% and adjusted EBITDA margin at 20.6%. Both margins increased 340 basis points compared to the same period last year, showing some operational efficiency improvements.
RH stock has struggled throughout 2025, falling 42% year-to-date through Thursday’s close before the latest earnings-driven decline. The luxury retailer continues facing pressure from both macro-economic factors and trade policy uncertainties.
The company is shifting more manufacturing to its North Carolina factory as part of its supply chain reorganization efforts in response to changing tariff policies.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
