RH Earnings Miss Sparks Tariff Turmoil and Housing Headwinds — Will a 19% Short Interest Ignite a Wild Ride?

RH reported fiscal second quarter results last night that reflected both the resilience of its high-end positioning and the very real pressures from tariffs and a weak housing market. The company grew revenue and demand at a healthy clip, but guidance was trimmed to reflect incremental tariff costs and delays in a key Sourcebook mailing. Management framed the environment as “the worst housing market in almost 50 years” and highlighted uncertainty around potential new furniture tariffs, which could drive further industry inflation. The results underscore how consumer caution, trade policy, and supply chain adjustments are weighing on near-term profitability, even as

Financially, the quarter came in shy of consensus expectations. Net revenue rose 8.4% year-over-year to $899.2 million, below the Street’s $904.6 million forecast. Adjusted EPS was $2.93, also missing estimates of $3.22. Demand grew 13.7%, outpacing revenue as tariff disruptions shifted roughly 5.4 percentage points of sales into the second half. Adjusted operating margin was 15.1% and adjusted EBITDA margin hit 20.6%, both up 340 basis points from a year ago despite a 170-bp drag from European investments. Net income increased 79% to $51.7 million, and free cash flow reached $81 million. Management called these “industry-leading” results given the housing backdrop, but the market focused on the headline misses and the guidance cut.

Key drivers of the quarter included continued share gains in North America, early momentum from international expansion, and the rollout of AI-driven initiatives across RH’s platform. Management highlighted that RH England gallery demand grew 76% year-over-year and online demand was up 34%. The new Paris gallery, which opened last week, was described as the most immersive brand experience to date, with early traffic exceeding RH New York. These international builds are expensive—management cited a 270-bp operating margin hit in Q3 tied to Paris and upcoming London and Milan openings—but are core to the long-term growth thesis.

The headwinds are clear. First, tariffs remain the largest swing factor. RH faces incremental costs of roughly $30 million in 2H25 net of vendor mitigation. Management has reduced China sourcing from 16% of receipts in Q1 to an expected 2% by Q4, shifting upholstered furniture to the U.S. (52% by year-end), Italy (21%), and Mexico (12%). Still, new tariff investigations into furniture threaten additional inflation. India, which supplies about 7% of business through hand-knotted rugs, is subject to 50% tariffs. CEO Gary Friedman bluntly stated that “there’s going to be big furniture inflation in the second half everywhere,” adding that high-quality furniture manufacturing capacity simply doesn’t exist in the U.S. today.

Second, the housing market remains a structural drag. Existing home sales of 4.06 million in 2024 were the lowest since 1978 despite a population nearly 50% larger. Management noted that RH’s growth is coming from share gains, not from tailwinds in housing demand. This environment also pressured the decision to delay the launch of a new brand extension, initially planned for the back half of 2025, to Spring 2026. Similarly, the Fall Interiors Sourcebook mailing has been delayed, pushing about $40 million of revenue into Q4 and Q1 2026.

Guidance reflects these realities. For Q3, RH expects revenue growth of 8–10%, adjusted operating margin of 12–13%, and adjusted EBITDA margin of 18–19%. For FY25, revenue growth is now projected at 9–11% versus prior guidance of 10–13%. Adjusted operating margin is expected at 13–14%, EBITDA margin at 19–20%, and free cash flow at $250–300 million. Management emphasized that these numbers do not yet include any potential new tariffs under the latest investigation.

Analyst reactions were cautious. Telsey downgraded the stock to Market Perform and cut its price target to $220 from $255, citing reduced revenue and profit outlooks and exposure to furniture tariffs. KeyBank noted that Paris is off to a strong start but kept a Sector Weight rating given tariff and consumer uncertainty. Both firms see international expansion as a long-term driver, but worry about near-term margin pressure.

Overall, RH delivered solid growth and cash generation, but the combination of tariff costs, housing weakness, and strategic delays cloud the near-term outlook. With only 15 million shares outstanding and nearly one-fifth of the float shorted, volatility is likely to remain elevated. Bulls will point to international momentum and strategic separation, while bears will highlight tariff sensitivity and the risk of further consumer softness. The tug-of-war between those forces is likely to define RH’s stock in the months ahead, with $220 now serving as the key anchor point for the Street.