RH Q2 Deep Dive: Margin Expansion, Tariff Risks, and European Growth in Focus

September 12, 2025 at 09:30 AM EDT

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Luxury furniture retailer RH (NYSE: RH) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.4% year on year to $899.2 million. On the other hand, next quarter’s revenue guidance of $884.8 million was less impressive, coming in 2% below analysts’ estimates. Its non-GAAP profit of $2.93 per share was 8.9% below analysts’ consensus estimates.

Is now the time to buy RH? Find out in our full research report (it’s free).

RH (RH) Q2 CY2025 Highlights:

Revenue: $899.2 million vs analyst estimates of $903 million (8.4% year-on-year growth, in line)
Adjusted EPS: $2.93 vs analyst expectations of $3.22 (8.9% miss)
Adjusted EBITDA: $185.1 million vs analyst estimates of $191.5 million (20.6% margin, 3.3% miss)
Revenue Guidance for Q3 CY2025 is $884.8 million at the midpoint, below analyst estimates of $902.6 million
Operating Margin: 14.3%, up from 11.6% in the same quarter last year
Locations: 130 at quarter end, up from 126 in the same quarter last year
Same-Store Sales rose 4.2% year on year (-1% in the same quarter last year)
Market Capitalization: $4.27 billion

StockStory’s Take

RH’s second quarter results prompted a negative market reaction, as adjusted profitability and next quarter revenue guidance both fell short of analyst expectations. Management attributed ongoing performance to steady demand growth, despite a sluggish housing market and persistent tariff-related challenges. CEO Gary Friedman stated, “We continued to generate industry-leading growth…despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years.” The company also highlighted improvements in same-store sales and margin expansion, fueled by operational efficiency and selective cost management, while acknowledging external headwinds.

Looking ahead, RH’s revised guidance is shaped by continued uncertainty around tariffs and the delayed launch of a new brand extension. Management emphasized that incremental tariff costs and later-than-planned product launches will shift some revenue into future quarters. CEO Gary Friedman explained, “Due to uncertainty related to tariffs, we delayed the launch of the new brand extension…to the spring of 2026,” and noted that new tariffs could further impact margin and growth expectations. The company remains focused on expanding its European footprint and optimizing sourcing to offset cost pressures, but acknowledges that further tariff actions or macroeconomic volatility could present additional challenges.

Key Insights from Management’s Remarks

Management credited Q2 performance to resilient demand, margin improvement, and ongoing international expansion, while warning of tariff-driven costs and operational delays that are affecting outlook and execution.

Resilient demand despite housing slump: CEO Gary Friedman highlighted that RH achieved double-digit demand growth over a two-year period, even as the U.S. housing market remained historically weak, which typically dampens furniture sales.
Margin expansion amid cost pressures: The company improved both adjusted operating and EBITDA margins, benefiting from operational efficiencies, reduced markdowns, and selective cost control, though ongoing investments in European expansion added a drag to margins.
European expansion ramping: RH Paris opened in September and outperformed early expectations, with traffic exceeding that of the flagship New York location. Management cited this as evidence that international galleries can drive incremental brand awareness and growth.
Tariff uncertainty drives operational shifts: Ongoing and potential new tariffs, particularly on furniture and imported materials, prompted management to accelerate shifts in sourcing out of China and toward U.S., Italian, and Mexican production. However, the company warned that tariffs remain a major headwind and could create industry-wide disruption.
Delayed product launches: Due to tariff and pricing uncertainty, the scheduled launch of a new brand extension and the Fall Interiors Sourcebook were both postponed, shifting an estimated $40 million in revenue into later quarters and increasing near-term operational complexity.

Drivers of Future Performance

RH’s guidance reflects the impact of tariffs, delayed launches, and strategic investments in global expansion, all of which create both cost headwinds and growth opportunities.

Tariffs as a persistent headwind: Management expects incremental tariff costs of approximately $30 million in the second half of the year, with further risks if additional tariffs are implemented. These pressures are being partly mitigated by shifting sourcing to the U.S. and vendor negotiations, but could limit profit margin improvement.
European gallery openings: The company is accelerating its European expansion, opening new locations in Paris, and planning launches in London and Milan. Management believes these brand-building efforts will support long-term growth but acknowledged that start-up costs will depress margins in the near term.
Delayed product and brand launches: The postponement of the new brand extension and the Fall Interiors Sourcebook will defer some revenue to future periods. Management cited pricing uncertainty and tariff timing as core reasons, cautioning that execution on new launches will be a key determinant of future growth.

Catalysts in Upcoming Quarters

Our analysts will closely monitor (1) the pace of revenue realization from delayed product launches and the brand extension, (2) progress in ramping European galleries, particularly Paris and upcoming launches in London and Milan, and (3) the trajectory of tariff-related cost pressures and sourcing shifts. Additionally, we will watch for signs of margin stabilization as these initiatives mature and macroeconomic conditions evolve.

RH currently trades at $217.65, down from $228.83 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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