RH's Resilience and Growth Amid Housing and Tariff Headwinds

Restoration Hardware (RH) has navigated a turbulent 2025 marked by a weakened housing market and escalating tariffs, yet the company has demonstrated resilience through strategic cost management, production diversification, and ambitious international expansion. Despite a nearly 60% decline in its stock price year-to-date, RH's ability to adapt to macroeconomic headwinds and maintain modest revenue growth underscores its potential for margin recovery and long-term value creation.

Housing Market Challenges and Tariff Pressures

The housing market, a critical driver of demand for RH's luxury home furnishings, has been in a prolonged slump. CEO Gary Friedman has described the current conditions as "the worst housing market in almost 50 years," a sentiment echoed by industry analysts tracking declining home sales and refinancing activity according to investor disclosures. Compounding these challenges, reciprocal tariffs under President Donald Trump's administration have added 25% to import costs for Chinese-made goods, a key component of RH's supply chain prior to 2025 according to RH's investor relations. These dual pressures have forced RH to rethink its operational model while maintaining its premium brand positioning.

Strategic Production Shifts: Vietnam and North Carolina

RH's response to tariffs has centered on reducing reliance on China. By shifting the majority of its production to Vietnam and resourcing a significant portion to its North Carolina facility, the company has achieved better-than-pre-tariff landed pricing, according to its investor relations disclosures. This pivot not only mitigates direct tariff impacts but also aligns with broader trends of nearshoring and diversification. Notably, RH's Vietnam operations could benefit further if ongoing negotiations with the Trump administration result in reduced import duties, as hinted during recent trade discussions.

Financially, these moves have already shown results. In the fourth quarter of fiscal 2025, RH reported an 18% increase in net revenues, outperforming the broader furniture and home furnishings sector. The company also projected free cash flow of $250M to $350M for the year, a testament to its disciplined cost management amid inflationary pressures.

European Expansion: A Path to Growth

While RH grapples with domestic headwinds, its international ambitions offer a compelling counterbalance. The company has outlined plans to double its business size within five to seven years, with a focus on expanding its presence in Europe. New galleries in London and Milan are slated to open in 2025, capitalizing on the region's affluent consumer base and RH's reputation for high-end design. This expansion aligns with a broader strategy to diversify revenue streams beyond the U.S., where housing market recovery remains uncertain.

Analysts remain cautious about near-term housing rebounds but note that falling interest rates in 2026 could stimulate demand. For RH, the combination of a strong brand, cost-optimized production, and international growth initiatives positions it to outperform peers even in a subdued market.

Margin Recovery and Investment Potential

RH's margin recovery hinges on three pillars: production efficiency, international scale, and macroeconomic tailwinds. By reducing exposure to China and leveraging lower-cost manufacturing hubs, the company has stabilized its cost structure. Meanwhile, its European expansion, though capital-intensive, offers high-margin opportunities in markets less sensitive to U.S. housing cycles.

Investors should also consider RH's balance sheet strength. With projected free cash flow in the $250M–$350M range, the company has flexibility to reinvest in growth or return capital to shareholders. While the stock remains undervalued relative to its long-term potential, risks persist, including further tariff escalations and a delayed housing recovery. However, for those with a multi-year horizon, RH's strategic agility and premium positioning make it an intriguing candidate for a rebound.

Conclusion

Restoration Hardware's 2025 journey reflects a blend of adversity and adaptability. By pivoting production, expanding globally, and maintaining financial discipline, the company has laid the groundwork for margin recovery and sustained growth. While the housing market and trade policies remain wild cards, RH's strategic initiatives suggest that its best days may still lie ahead.