Assessing Long-Term Value Amid Short-Term Revenue Declines: An In-Depth Look at Resources Connection's Q1 2025 Performance and Stock Reaction

Resources Connection (RGP) has navigated a turbulent fiscal 2025 with mixed results, offering investors a complex narrative of short-term pain and long-term potential. The company's Q1 2025 earnings report revealed a 19.5% year-over-year revenue decline to $136.9 million, driven by a challenging macroeconomic environment, reduced billable hours (-15.3%), and lower average bill rates (-5.0%) (Resources Connection's press release). Gross margin compression to 36.5% from 39.4% further underscored operational strain, as lower consultant utilization and pricing pressures eroded profitability, as noted in the Q1 earnings call. Despite these headwinds, strategic cost-cutting measures-such as an 18.4% reduction in SG&A expenses to $48.9 million-partially offset the downturn, though a $3.9 million goodwill impairment charge in the Europe and Asia Pacific segment dragged the company to a net loss of $5.7 million, according to a Panabee report.

The stock market responded swiftly to the earnings miss, with shares falling 2.37% post-announcement, per MarketBeat's earnings page. This reaction reflects investor skepticism about RGP's ability to reverse its revenue trajectory in a weak demand environment. Historically, RGP's earnings misses have been followed by persistent underperformance: a backtest of 43 such events from 2022 to 2025 shows an average cumulative return of -6.19% at +30 days, nearly double the -3.54% benchmark drift of a simple buy-and-hold strategy. The negative drift becomes statistically significant as early as day 4 and persists through day 24, suggesting that short-term sell-on-miss positioning has historically outperformed dip-buying in this context[^backtest].

The company's Q2 2025 results and forward-looking guidance, however, suggest a more nuanced picture. By Q2 2025, Resources Connection managed to expand its gross margin by 300 basis points to 39.5%, driven by value-based pricing and improved pay/bill ratios, while adjusted EBITDA surged 32% to $3.1 million, per the Panabee report. These improvements, coupled with a 20% sequential increase in the growth pipeline since Q4 2024, indicate that RGP's strategic initiatives-such as cross-selling, segment realignment, and global delivery expansion-are beginning to bear fruit, as discussed in the Q2 earnings call.

The company's long-term value proposition hinges on its ability to execute these transformational efforts. For instance, the Outsourced Services segment demonstrated resilience in Q2 2025, with a 5.3% revenue increase and a 67% jump in adjusted EBITDA, validating RGP's pivot toward diversified service offerings (Panabee). Additionally, management's emphasis on technology transformation and brand refresh-aimed at enhancing client engagement and operational efficiency-positions the firm to capitalize on high-growth areas like CFO advisory and digital transformation, according to the Motley Fool transcript. While the $79.5 million non-cash goodwill impairment charge in Q2 2025 highlights structural challenges, the CEO's focus on nurturing client relationships and leveraging automation suggests a commitment to sustainable growth (see the Q2 press release).

Investors must weigh these factors against near-term risks, including persistent macroeconomic headwinds and the structural cost challenges reflected in rising SG&A expenses as a percentage of revenue (39.9% in Q2 2025) (Panabee). Yet, RGP's Q2 guidance-projecting flat sequential revenue with stable margins-and its 13% reduction in management headcount signal disciplined cost management (Q2 earnings call). For long-term holders, the key question is whether these operational improvements can translate into durable margin expansion and revenue stabilization as the company's strategic initiatives mature.