RH Reports Second Quarter 2025 Financial Results

September 11, 2025  by Karen Parrish in Business Strategy, Industry   

SECOND QUARTER 2025 HIGHLIGHTS

GAAP Net Revenues Increased 8.4% to $899.2M

GAAP Net Income Increased 79% to $51.7M

GAAP Operating Margin of 14.3%, Adjusted Operating Margin of 15.1%

EBITDA Margin of 18.1%, Adjusted EBITDA Margin of 20.6%

Free Cash Flow of $80.7M

FISCAL YEAR 2025

Revenue Growth of 9% to 11%

Adjusted Operating Margin of 13.0% to 14.0%

Adjusted EBITDA Margin of 19.0% to 20.0%

Free Cash Flow of $250M to $300M 

The above outlook includes an approximate negative 200 basis point operating margin impact from investments and startup costs to support our international expansion and a 90-basis point impact from tariffs, net of mitigations.

THIRD QUARTER 2025

Revenue Growth of 8% to 10%

Adjusted Operating Margin of 12.0% to 13.0%

Adjusted EBITDA Margin of 18.0% to 19.0%

The above outlook includes an approximate negative 270 basis point operating margin impact from investments and startup costs to support our international expansion and a 120-basis point impact from tariffs, net of mitigations.

SHAREHOLD LETTER FROM GARY FRIEDMAN, Chairman & CEO

“RH continued to generate industry leading growth in the second quarter as revenue increased 8.4%, and demand increased 13.7% despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years.”

“On a two-year basis revenues increased 12% and demand increased 21%, resulting in significant share gains and strategic separation. As a reminder, we expect the approximate 5.4-point variance between demand and revenues due to tariff disruptions will shift from the second quarter and be realized as revenues over the second half of 2025.”

“Adjusted operating margin of 15.1% and adjusted EBITDA margin of 20.6% both increased 340 basis points versus last year inclusive of an approximate 170 basis point drag from investments to support our long-term European expansion. Net income increased 79%, and we generated $81 million of free cash flow in the quarter.”

“We continue to be pleased with the second-year demand trends at RH England, with Gallery demand up 76% in the second quarter, and online demand up 34%. Current demand trends indicate the Gallery is expected to reach approximately $37 to $39 million of demand in 2025, its second full fiscal year, with online demand reaching approximately $8 million.”

“To put those results in perspective, if an RH Gallery in the English Countryside, with an estimated population of 100,000 in a 10 mile radius 2 hours outside of London can generate $46 million of total demand in its second full fiscal year, what can a RH Gallery in the center of Mayfair, the most exclusive shopping district in London with a population of 9.7 million do in its second full fiscal year? We believe exponentially more.”

“While many questioned the decision to open our first RH Gallery in such a remote location, believing it would fail, what they failed to understand is the value of doing something extraordinary that breaks through the clutter and creates a conversation. We’ve learned during our journey at RH that when we’ve done extraordinary and remarkable work, we’ve always figured out a way to monetize it, and we’ve also learned that it’s hard to monetize ordinary and unremarkable.”

“The most important news regarding our European expansion was the September 5th opening of RH Paris, our most innovative and immersive brand experience to date. Located on the Champs Élysées, just off the Avenue Montaigne, RH Paris stands at the epicenter of fashion and luxury. Pass through the majestic gold leaf gates down a crushed limestone path to a secret garden where ivy covered walls and sculpted trees frame the 18-foot cast medallion doors marking the entrance…”

Visit the RH’s investor site for details that give you a virtual tour of the new brand experience.

“I’m…pleased to report that RH Paris is off to a very strong start. Traffic in the Gallery has exceeded RH New York, and the design pipeline in the first six days is greater than the design pipeline of our first five European Galleries combined in their first six days.”

TARIFFS, TARIFFS & THE POSSIBILITY FOR MORE TARIFFS

“Just when you might have thought the tariff conversation was complete, the announcement of a new furniture investigation and the possibility for additional furniture tariffs, on top of existing furniture tariffs, and incremental steel and aluminum tariffs were introduced with the goal of returning furniture manufacturing back to America. We believe most in our industry hope that this investigation surfaces the difficulty of that task, as current manufacturing for high quality wood or metal furniture does not exist at scale in America. It would require years of investments in building the facilities and work force that most in this industry cannot afford to make. Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026 and beyond.”

“While strong brands like ours will benefit from the likely dislocation and consolidation more tariffs will have on our industry, many smaller companies will have difficulty surviving these levels of tariffs. Additionally, more tariffs on furniture could also result in U.S. manufacturers moving production from the U.S. to countries closer to their   international clients, avoiding freight costs and the likelihood of counter tariffs. Our hope is that the investigation will seek out the perspective of a cross section of leaders in our industry as we drive toward the best outcome for our country.”

“As previously communicated, we have continued to shift sourcing out of China and expect receipts to decrease from 16% in Q1 to 2% in Q4, with a meaningful portion of the tariff absorbed by our vendor partners.”

“Additionally, we are aggressively responding to the recent 50% tariffs imposed on India, which impacts 7% of our business, almost entirely hand knotted rugs. While the hand knotted rug category is highly specialized and not manufactured in America, we have begun the process of identifying alternative countries.”

“We have also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we have been manufacturing for 10 years and plan to continue doing so. We are now projecting that 52% of our upholstered furniture will be produced in the United States, 21% in Italy, and approximately 12% in Mexico by the end of fiscal 2025. We also expect the percentage made in the United States will continue to increase throughout 2026.”

“While there remains uncertainty until tariff investigations are complete, we have proven we are well positioned to compete favorably in any market condition.”

OUTLOOK
“Due to the dislocation and continued uncertainty related to tariffs, we believe it is prudent to revise our guidance for fiscal 2025 due to the following factors: While we continue negotiations with our manufacturing partners, our updated outlook reflects a $30 million cost of incremental tariffs, net of mitigation, in the second half.”

“As communicated, due to the uncertainty related to tariffs, we delayed the launch of the new brand extension that was planned for the second half of 2025 to the Spring of 2026.”

“We have also delayed the introduction of our Fall Interiors Sourcebook by 8 weeks as we awaited tariff announcements needed to finalize pricing. Last year, 100 percent of the Fall Interiors Sourcebooks were in-home by the first week of August. This year the Fall Interiors Sourcebook will be 100 percent in-home by the last week of September, with only 28 percent in-home as of the end of last week. We now expect approximately $40 million in revenues to shift out of Q3 and into Q4 and Q1 2026.”

“Our outlook does not include any new tariffs as a result of the recently announced furniture investigation.”

PLATFORM ELEVATION & EXPANSION PLANS FOR 2025/2026:

- The opening of 4 additional Design Galleries in Manhasset, San Diego, Detroit, and Palm Desert.

- Open London & Milan in the Spring of 2026

- Continue with plans for RH Europe and the Middle East, to double the size of RH over the next five to seven years

- Accelerate expansion strategy to include opening seven to nine new Galleries per year, plus two to three Design Studios, Outdoor Galleries, or New Concept Galleries per year in under-penetrated markets

Friedman continues, “While we expect a higher risk business environment due to the uncertainty caused by tariffs, market volatility, inflation risk, and an increasing level of global discord, we believe it’s important to separate the signal from the noise. The fact is, we’ve been operating in the worst housing market in almost 50 years. For context, in 1978 there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year.”

“While our business has been strong, it has been so due to action versus inaction, innovating versus duplicating, investing versus divesting, and aggressively taking market share during this downturn so we are positioned to create long term strategic separation on the other side of it.”

Visit the investor site to see the complete shareholder letter and report.