RH believes tariffs will benefit the company amid market pressures

RH, a leading luxury home furnishings company based in the United States, faced significant market challenges as its stock plummeted nearly 40% following disappointing earnings. This downturn occurred in late December 2024, where RH reported a substantial decline in annual net income by 43%, despite a rise in quarterly net income attributed to a previous growth in demand in 2025. While the company anticipated fourth-quarter revenue growth, it fell short, achieving only 10% growth instead of the planned 18% to 20%. In light of these challenges, CEO Gary Friedman addressed concerns during the earnings call and emphasized the resilience of RH. He underscored that the company was outperforming its competitors in the home furnishings sector, despite a struggling housing market influenced by rising mortgage rates and falling applications. Friedman explained that RH has strategically increased production capacity within the United States, specifically by doubling the output at its North Carolina factory, which is projected to manufacture 48% of its upholstered furniture by the end of the fiscal year. Furthermore, RH has established plans to expand its business globally, with several new Design Galleries scheduled to open in key locations, despite anticipated delays for openings in London and Italy until 2026. Friedman also highlighted the company's adaptive approach to production, noting a transition from China to countries like Vietnam and Indonesia to mitigate the impact of tariffs imposed by the United States. The company has maintained a strong inventory of pre-tariff goods, giving it a competitive edge over rivals facing higher costs. Friedman expressed confidence in the effectiveness of tariffs as a negotiation tool, stating that the current administration's approach may facilitate favorable changes in trade agreements that benefit RH's margins. As demand shifted over recent months with a peak in growth following initial softness in December, RH opted to continue reporting quarterly demand metrics to provide transparency to investors. Looking ahead, RH expects to solidify its position, projecting a free cash flow outlook between $250 million and $350 million in fiscal 2025 and reassuring stakeholders of strong cash flows bolstered by various real estate assets. Ultimately, Friedman reinforced that RH thrives under pressure and is committed to reinvigorating the business for long-term success.