Earnings call transcript: RH's Q1 2025 sees EPS beat, stock dips

RH (RH) reported a Q1 2025 EPS of $0.13, significantly exceeding forecasts of -$0.07, a 285.71% surprise, while revenue slightly missed expectations at $814 million versus $818.06 million. Despite the EPS beat and a 12% year-over-year revenue increase, RH's stock fell 1.18% in after-hours trading, potentially due to the revenue miss and broader market volatility; the company maintains FY2025 revenue growth projections of 10-13% and adjusted EBITDA margin of 20-21%, while expanding its global presence.

Analysis

RH reported mixed Q1 2025 results, characterized by a substantial earnings per share (EPS) of $0.13, significantly outperforming the forecasted -$0.07 by 285.71%, while revenue of $814 million slightly missed expectations of $818.06 million, a 0.5% shortfall. Despite this revenue miss, the company achieved a 12% year-over-year revenue increase, an adjusted operating margin of 7% (at the high end of its guidance), and an adjusted EBITDA of 13.1%, alongside generating $34 million in free cash flow. This performance comes amidst what CEO Gary Friedman described as the "worst housing market in almost fifty years." The market reacted negatively, with RH's stock declining 1.18% in after-hours trading to $178.84, reflecting investor caution potentially due to the revenue miss and the stock's significant 53% decline over the past six months; InvestingPro analysis suggests the stock, with a P/E ratio of 45.49x, is fairly valued. Management is pursuing several strategic initiatives, including aggressive global expansion with new galleries planned in Paris, London, and Milan, and the strategic re-hire of Lisa Chi to bolster merchandising and creative leadership. Friedman emphasized long-term investments in product elevation and platform expansion to gain market share, evidenced by the decision to increase membership discounts from 25% to 30%. RH plans to monetize approximately $500 million in real estate equity and $200-$300 million in excess inventory to improve its balance sheet and reduce debt, with capital expenditures projected to decrease in FY26 and FY27. However, the company faces headwinds from the persistent housing downturn and tariff-related disruptions, which are expected to negatively impact Q2 revenues by approximately 6 percentage points, though this impact is anticipated to be recovered in the second half of the year. RH is also mitigating tariff impacts by shifting sourcing from China and increasing US production. Despite these challenges and the delay of a new concept launch to Spring 2026, RH maintained its FY2025 guidance, projecting 10-13% revenue growth, an adjusted EBITDA margin of 20-21%, and free cash flow of $250-$350 million.

Key Decisions for Investors

• Investors should acknowledge RH's Q1 EPS beat but note the revenue miss and subsequent stock decline, indicating potential continued short-term volatility amid a challenging housing market.
• Evaluate management's long-term offensive strategy, including European expansion and increased membership discounts, for its potential to drive market share and brand elevation, while being mindful of execution risks and near-term margin pressures.
• Monitor key upcoming catalysts and risks such as the Q2 tariff impact on revenue (with guided H2 recovery), progress on asset monetization ($500M real estate, $200-300M inventory), and developments in the housing market.
• Assess the current valuation (P/E 45.49x) and high stock volatility (beta 2.19) against the maintained FY2025 guidance (10-13% revenue growth, 20-21% adj. EBITDA margin) and projected free cash flow generation of $250M-$350M.