RH Surges on Robust Q4 Guidance as Demand Defies Housing Market Weakness

RH shares climbed 15 percent today following the company's third-quarter earnings report. Despite missing on earnings per share and reporting in-line revenue, the luxury home furnishings retailer impressed investors with strong demand metrics and significant upside guidance for the fourth quarter, suggesting resilience in the face of challenging macroeconomic conditions.

In the third quarter, RH reported a 13 percent increase in total demand, consistent with its guidance of 12 to 14 percent growth. Unlike most companies, RH uses total demand—representing the dollar value of orders placed excluding exchanges and shipping fees—as a key operating metric.

This focus on demand offers a forward-looking perspective on the company’s business performance, as revenue is only recognized when merchandise is delivered to customers.

The standout highlight was RH's fourth-quarter demand guidance, forecasting growth of 20 to 22 percent. November demand saw notable acceleration, with total demand up 18 percent and RH Brand Demand Growth surging 24 percent. This momentum has been particularly striking given the cautious consumer sentiment in what RH described as the worst housing market in three decades.

RH also showcased optimism around its Waterworks brand, a line specializing in luxury bath and kitchen products. The company is integrating Waterworks into its broader platform, enabling its interior designers to incorporate these products into projects and offering them for purchase on the RH website.

The potential for Waterworks to expand beyond its current $200 million in annual revenue to a $1 billion global brand represents a significant growth opportunity.

On the supply chain front, RH has been proactive in mitigating potential tariff impacts by transitioning its sourcing away from China, aiming for full disengagement by the end of the second quarter. The company is also shifting some manufacturing operations to Mexico, ensuring a smooth supply chain while addressing cost concerns.

Investor enthusiasm reflects the company's ability to execute amid economic headwinds and tap into demand from high-income consumers who remain cautious but still value luxury offerings. The focus on design innovation and quality has helped RH stand out in a competitive market.

Overall, RH’s strong demand guidance, coupled with its strategic growth initiatives like the Waterworks integration and proactive supply chain adjustments, positions it well for continued success. With back-to-back strong quarters, RH appears to be turning a corner, making it a standout performer in the luxury home furnishings space despite broader market challenges.