RH (RH)

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.

Company Overview

Formerly known as Restoration Hardware, RH (NYSE:RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.

Furniture retailers understand that ‘home is where the heart is’ but that no home is complete without that comfy sofa to kick back on or a dreamy bed to rest in. These stores focus on providing not only what is practically needed in a house but also aesthetics, style, and charm in the form of tables, lamps, and mirrors. Decades ago, it was thought that furniture would resist e-commerce because of the logistical challenges of shipping large furniture, but now you can buy a mattress online and get it in a box a few days later; so just like other retailers, furniture stores need to adapt to new realities and consumer behaviors.

Competitors offering higher-end furniture include public companies Arhaus (NASDAQ:ARHS), MillerKnoll (NASDAQ:MLKN), and Design Capital Ltd. (SEHK:1545). Private company West Elm is also a competitor.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $3.34 billion in revenue over the past 12 months, RH is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, RH grew its sales at a sluggish 4.2% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, RH grew its revenue by 8.4% year on year, and its $899.2 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, an acceleration versus the last six years. This projection is eye-popping and implies its newer products will fuel better top-line performance.

Number of Stores

RH opened new stores quickly over the last two years, averaging 1.9% annual growth, faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Note that RH reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

RH’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. RH should consider improving its foot traffic and efficiency before expanding its store base.

Note that RH reports its same-store sales intermittently, so some data points are missing in the chart below.

RH has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 44.5% gross margin over the last two years. That means RH only paid its suppliers $55.49 for every $100 in revenue.

RH’s gross profit margin came in at 45.5% this quarter, in line with the same quarter last year but missing analysts’ estimates by 0.8%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

RH has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 9.8%, higher than the broader consumer retail sector.

Analyzing the trend in its profitability, RH’s operating margin rose by 1.9 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, RH generated an operating margin profit margin of 14.3%, up 2.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While RH posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, RH’s capital-intensive business model and investments in new physical locations have consumed many resources. Its free cash flow margin averaged negative 5.2%, meaning it lit $5.21 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that RH’s margin expanded by 7.7 percentage points over the last year. We have no doubt shareholders would like to continue seeing its cash conversion rise.

RH’s free cash flow clocked in at $80.68 million in Q2, equivalent to a 9% margin. Its cash flow turned positive after being negative in the same quarter last year, marking a potential inflection point.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although RH hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 31.8%, splendid for a consumer retail business.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

RH burned through $50.91 million of cash over the last year, and its $3.76 billion of debt exceeds the $34.56 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the RH’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of RH until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We struggled to find many positives in these results. Its EBITDA missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 7.4% to $212.00 immediately after reporting.

Updated: December 4, 2025 at 9:30 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in RH.

RH isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue has declined over the last three years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its cash burn raises the question of whether it can sustainably maintain growth.

RH’s P/E ratio based on the next 12 months is 15.5x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $254.12 on the company (compared to the current share price of $160.55).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.