by RH CEO Gary Friedman has often declared that difficult retail climates can end up helping the upscale retailer. The tough sledding winnows out weaker competition, and it tends to reward sound long-term planning. In the case of a tariff war, the reward goes to those with significant pre-tariff inventory, Friedman said during RH’s fourth-quarter earnings call last week, and RH is on solid ground with respect to inventory.
After posting fourth-quarter earnings that missed projections, Friedman repeated the “tough times are good” refrain, and he doubled down on his support of Trump’s tariff “strategy,” if a strategy it is, declaring it “impressive, quite frankly. You know, usually governments move like glaciers, and he’s quite the opposite.”
RH’s revenues finished at $812.4 million, down about $16 million from the projected $828.2 million. Earnings per share of $1.58 fell short of the expected $1.89 for the quarter, despite a bulging revenue increase of 18% on a 13-week basis. RH’s adjusted operating income rose by 57%, which testifies to strong operational efficiency, and any retailer would celebrate RH’s gross profit margin of 44%.
RH projects fiscal 2025 revenue growth of 10%-13% and an adjusted operating margin of 14%-15%, which are not bad considering inflation, the tariff war, stock market volatility, a historic housing-start slump and supply chain convulsions and re-directs.
However, because RH sources most of its case goods and occasional from Asia, stock in the company plummeted 25% in after-hours trading, closing at $185, with some of that decline occurring during the earnings call. The day began with the share price at $239. In fact, the quote that led news stories on RH just after the call was Friedman reacting to the drop about two-thirds into the call, exclaiming, “Oh, sh–.” It’s this candor we’ve come to expect and even love.
Lots of friends
The pull quote for me was a different one, however: “Welcome to the new world, when at least at this moment, inventory is your friend,” Friedman said to start the call. Later he added, “For the first time in my career, extra inventory is my friend.”
Friedman described the product transformation at RH, which as a byproduct has led to stockpiles of inventory and pricing advantages related to inventory that is in hand, before Trump’s escalating tariffs take effect. This inventory position gives RH a competitive advantage, especially when married to its growing domestic footprint in upholstery manufacturing.
Michael Lasser, an analyst at UBS, asked Friedman whether RH has begun raising prices in reaction to the tariffs, a question that came amidst White House announcements of new tariffs.
“Oh, I don’t think we’re going to do anything right now,” Friedman said. “Like I said, we’ve got inventory. We’re well positioned. … and we don’t need to raise any capital.”
Friedman was careful to note that updated tariff information was coming out even during the earnings call, emphasizing that no one knows yet what the reset is going to look like with respect to global sourcing. He also reiterated that RH does not expect to be negatively impacted by the previously announced tariffs on goods from China, Canada or Mexico.
“As it relates to reciprocal and other tariffs that will be announced and have been announced today, as we’ve done with prior tariffs, we’ll be working with our manufacturing partners to mitigate the impact to both our margins and cost to our customers,” he said.
For upholstery, Friedman said RH has made its own in North Carolina for more than a decade in a factory it just doubled in capacity.
“We are currently projecting that 48% of our upholstered furniture will be produced in the U.S.,” and 14% of product overall will be made domestically this year, he said. Another 21% of RH upholstery will come from Italy.
Playing chess
To return to the latest round of tariff announcements, Friedman cautioned the Street and the furniture industry.
“It’s not a time to over-react,” he said. “This is Donald Trump talking to every other president or prime minister around the world. This is high-level strategic negotiation. You’ve got to think about who has the leverage here.”
Friedman lauded the Trump administration for playing a chess game, not a game of checkers, and for what he described as “very smart negotiating at a level we haven’t seen any administration, at least in our lifetimes, negotiate.”
He said he expected global trade negotiations to take three to six months, a period RH can ride out because of the inventory investment the company made and the heavy inventory at a good price that resulted.
“It’s crystal clear what the administration is trying to do,” he said. “Crystal clear, and I thank them for that. [They are not] playing a hodgepodge game all over the place and being really unfocused. This is their really clear and focused move. They’ve thought about this deeply and for a long time.”
Product rollout
In terms of product, with an interior source book that hit homes in mid-February through early March, the company rolled out 42 new collections across furniture, upholstery, lighting, rugs and textiles. Another 15 collections launched at rh.com.
Expansion plans for 2025 include the opening of seven design galleries, two outdoor galleries and two new concept galleries. The new design galleries include RH Oklahoma City and RH Montreal at Royalmount, both opening in the first half of this year.
Also on the roster of new galleries are RH Paris on the Champs Elysees, RH Detroit, RH Manhasset, RH San Diego and RH Palm Desert, all of which are scheduled to open in the second half of this year.
“We have a history of really performing in times of crisis and thriving in those times, and we have the ability to improvise, adapt and overcome,” Friedman told callers. “We at our core, we are innovators. We’re not duplicators. We’re leaders. We’re not managers. We’re visionaries; we’re not victims.”
