by RH’s spending frenzy continues, debt beginning to mount
CORTE MADERA, Calif. RH is set to officially open this month its latest European flagship inside a 70,000-square-foot former palace on Milan’s Corso Venezia. Gary Friedman, RH’s chairman and CEO, told analysts on an earnings call Monday that the company’s lavish, luxe, immersive spaces aren’t about selling sofas; they are about changing what people think a furniture store can be.
In falling short of the market’s revenue expectations for the year, even as fourth-quarter sales rose nearly 4% year over year to $843 million, RH believes that it’s right where it needs to be in executing its long-term, physical-first strategy. As tariffs, war and one of the most prolonged housing start slumps in history combine to create an economic “trough,” RH is doubling down on investment in galleries, stores and retail “compounds.”
RH’s revenue guidance for the next quarter, first-quarter 2026, of $790 million underwhelmed analysts, coming in more than 10% below estimates ($880 million). And, with RH’s big push into traditional hitting floors in May, more than six months later than previously hoped, big sales gains won’t be seen until the third and fourth quarters this year, Friedman warned.
“We’ll have significant costs with sourcebook and advertising and launching costs without having much revenue until we get into the third and fourth quarter,” he told analysts.
Thus, there is a contrast between what RH says it is successfully doing and what the market thinks RH should be doing. The company, which began life as Restoration Hardware, reported that first-quarter revenue this year would fall year over year even as it continues opening some of the most expensive commercial spaces in the history of the home furnishings industry. And construction costs have doubled since COVID, adding to these retail developments’ price tags.
Will Friedman’s pitch be persuasive? RH stock has lost more than half its value over the past five years relative to its January 2021 levels. But, he certainly spoke on the call as if he and RH with him are undeterred, even excited about the company’s outlook.
“This is a good time to buy our stock,” he said. “We’re in a kind of a real peak investment cycle. We’re opening Europe, we’re launching new businesses. And, so, we have the opportunity to have a leapfrog, if we’re more right than wrong. We don’t have to be completely right; we just have to be directionally right.”
Salone del Mobile
The Milan opening is timed to coincide with Salone del Mobile 2026, and keying this opening is the belated launch of the traditionally styled RH Estates brand extension. With RH Estates, RH will cover seven major product categories for the home in three main collections: RH Interiors in contemporary, RH Modern and traditional.
RH Estates acknowledges that “60% of luxury homes feature classic or traditional architecture, which influences the majority of furniture purchasing behavior,” Friedman said on the call. “RH Estates will feature the introduction of RH Bespoke Furniture, customizable collections from our recently acquired Michael Taylor, Joseph Jeup, Formations and Dennis & Leen to-the-trade brands.”
RH Estates will also include RH Couture Upholstery by Dmitriy & Co.
The new brand extension will hit free-standing Estates Galleries in Greenwich, Connecticut, and the San Francisco Design District in early summer, and between 30 and 40 RH galleries by the end of the year, Friedman said.
“We believe RH Estates will become our largest and highest-margin brand extension, driving significant growth over the next several years,” he said.
Physical-first
RH rather famously eschews social media and, at least for direct-to-consumer sales, e-commerce, as well. In Friedman’s description, furniture “remains the least digitized large retail category” there is, represented by an 80-20 store-to-online sales split. For luxury furniture, the ratio might even be higher, perhaps as high as 96%.
“Comfort, scale, finish and quality are hard to judge online,” he said, speaking for brick-and-mortar furniture retailers everywhere. “Even when customers purchase on a website, most experienced the product in a store.”
Thus, RH will continue to stress the physical manifestations of its brand, “building some of the largest and most immersive spaces in the history of our industry,” he said.
RH galleries, palaces and compounds cannot be called stores in any conventional sense. Historic palaces with rooftop restaurants, wine bars, garden courtyards and interior design studios? “Immersive spaces,” in fact, gets more to the truth. RH already has 26 restaurants that operate as part of RH properties today, and the plan is to reach 40 by end of 2027. These totals make RH a rather significant luxury restaurant brand in addition to its primary home furnishings business. Quite a side hustle.
To Friedman, these restaurants are not amenities. They are “demand engines,” feeding thousands of customers weekly in spaces that see hundreds of furniture shoppers.
Thus, RH and Friedman are betting that as most competitors retreat to smaller footprints and online-first models, these immersive galleries and palazzos will become increasingly difficult to replicate.
In addition, the company’s North American business is 92% suburban and second-home markets, and Friedman said he believes European revenue will follow the same distribution. The big-city flagships, then, serve as primarily brand-awareness anchors for the real volume coming from suburbs and resort communities.
To support that expansion, RH recently hired Dave Stanchak, a real estate veteran with ownership-level investment experience, to lead European rollout and begin monetizing the company’s roughly $500 million in owned real estate assets through sale-leaseback transactions.
New president
RH also just appointed Veronica Schnitzius as new president and chief manufacturing and sourcing officer. Her first task is to build a global manufacturing platform that combines owned and operated, joint-ventured and outsourced manufacturing for RH’s furniture business, which represents 80% of RH brand revenues.
The strategy will emulate the vertically integrated model of many of the world’s largest and most profitable luxury brands in seeking a high level of control over manufacturing, quality and capacity, according to the company.
Before joining RH, Schnitzius spent 24 years at American Leather, a manufacturer of high-quality upholstered furniture and an important manufacturing partner of RH since 2014. She had been president there since 2017. She began her career at American Leather as a plant engineer in 2002. She has also held the positions of plant manager, vice president of operations and chief operating officer.
Favorable fundamentals
Finally, Friedman pointed to two structural forces he said he believes will expand RH’s market dramatically over the next decade: Ultra-high net-worth consumers, or those with net worth above $20 million, and an estimated $30 trillion to $38 trillion in intergenerational wealth projected to transfer over the next 10 years, or more than double that of the prior decade.
The ultra-high net-worthers own an average of nearly four homes each, and they spend more than six times what a single-residence household goes through on furnishings. This set also disperses its wealth among roughly seven heirs for every one current holder. This is favorable math for the high end.
The housing market, mired in its fourth consecutive down year and a streak that has no modern precedent? Friedman said the only reasonable response is patience.
“I’ve never seen two down years,” he said. “I’ve never seen three down years. And I have surely never seen a fourth down year. I don’t think anybody has.”
And RH’s debt, the proverbial elephant in the room? RH carries approximately $2.4 billion in net debt, with most of it maturing in October 2028. Interest expenses consumed $177 million in fiscal 2025, a drag on a business that generated around $600 million in adjusted EBITDA.
Friedman isn’t worried. Rather than seeing October 2028 as a wall, he recommends focusing on RH’s trajectory. Net debt fell roughly $200 million year over year. Free cash flow swung from negative $214 million in fiscal 2024 to positive $252 million in fiscal 2025 for an improvement of $466 million in a single year. And the company has committed to $200 million to $250 million in annual asset sales, primarily sale-leaseback transactions, through 2027.
