TLDR
- RH reported FY 2025 revenue of $3.18 billion (up 5.0%) but EPS missed expectations by 24%
- Net income dropped 43% to $72.4 million with profit margin falling to 2.3%
- RH stock plummeted over 40% on Thursday after the earnings report
- Trump’s new tariffs (54% on China, 46% on Vietnam) heavily impact RH, which sources 70% of products from Asia
- CEO Gary Friedman plans to expand U.S. manufacturing to offset tariff challenges
The luxury furniture retailer RH, formerly known as Restoration Hardware, is weathering a perfect storm of challenges that sent its stock tumbling more than 40% in a single trading session on Thursday. The dramatic selloff followed a disappointing earnings report and newly announced tariffs that threaten the company’s supply chain.
RH released its full-year 2025 results on Wednesday, reporting revenue of $3.18 billion. While this represented a 5% increase from fiscal year 2024 and met analyst expectations, other financial metrics painted a more troubling picture.
Net income fell sharply to $72.4 million, down 43% from the previous year. This translated to earnings per share of $3.92, missing analyst forecasts by 24% and marking a substantial decline from $6.42 in FY 2024.
The company’s profit margin contracted to 2.3%, down from 4.2% a year earlier. This compression was attributed to higher expenses across the business.
Tariff Troubles Mount
Adding to RH’s earnings woes, President Donald Trump announced sweeping new tariffs on April 2, dubbed “Liberation Day.” These include 54% tariffs on Chinese imports and 46% on Vietnamese goods.
The timing couldn’t be worse for RH. The retailer sources approximately 70% of its products from Asia, with Vietnam and China accounting for more than half of its total imports.
These tariffs pose a direct threat to RH’s already shrinking profit margins. As a member of the Russell 2000 index of small-cap companies, RH lacks the scale advantages of larger competitors when absorbing such cost increases.
Investors reacted swiftly to this double blow of disappointing earnings and tariff news. RH stock dropped 40% on Thursday, extending its year-to-date decline to 62%.
Manufacturing Strategy Shift
During the earnings call, CEO Gary Friedman addressed the tariff challenge head-on. He outlined plans to expand domestic manufacturing operations as a defensive measure.
“By year-end, 48% of our upholstered furniture will be made in the United States, with another 21% sourced from Italy,” Friedman stated. He noted that this manufacturing shift had begun under Biden-era tariffs but has taken on new urgency following the latest announcement.
This pivot represents a strategic effort to reduce RH’s dependence on Asian suppliers and insulate the company from future trade disputes.
Despite these plans, analysts remain cautious about RH’s near-term prospects. Several have cut their price targets following the earnings report and tariff news.
Baird analyst Peter Benedict reduced his target from $400 to $215 while maintaining a Hold rating. He pointed to the weaker-than-expected fourth quarter and expressed concern about the tariffs’ potential impact on profit margins.
Guggenheim analyst Steven Forbes similarly lowered his price target from $500 to $300. Forbes noted that markets are waiting to see how RH will offset the tariff impacts while navigating changing customer demand in a higher-price environment.
Looking ahead, RH faces the challenge of maintaining its luxury positioning while potentially needing to raise prices to offset higher costs. The company projects revenue growth of 9.2% annually over the next three years, outpacing the 5.0% forecast for the broader U.S. specialty retail industry.
However, achieving this growth while preserving margins will require successful execution of the company’s manufacturing shift and careful pricing strategy.
Despite the current challenges, the analyst consensus remains optimistic. Based on 10 Buy ratings and three Holds assigned in the last three months, RH maintains a Strong Buy consensus rating. The average price target stands at $426.75, suggesting potential upside of 185.6% from current levels.
For investors considering RH stock after its steep decline, the key question is whether the company can successfully navigate both its internal challenges and the external tariff pressures in the quarters ahead.
As of Thursday’s close, RH shares were down 39% from just a week ago, reflecting the market’s current pessimism about the company’s near-term prospects.
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