How Did RH Achieve a Surprise Profit Amid a Sluggish Housing Market?

06-14-2025, CORTE MADERA, Calif.— How did RH, the luxury home furnishings retailer, post an unexpected $0.13 per share profit in the first quarter of fiscal 2025, defying analyst expectations of a loss despite a housing market described as the worst in nearly 50 years? The company’s stock surged 11% in early trading on Friday, June 13, 2025, reflecting investor optimism about RH’s ability to navigate tariffs, high mortgage rates, and low home sales through strategic supply chain shifts, margin improvements, and international expansion.

ALSO READ | Circle’s $6.8B IPO Triumph: Stablecoin Giant Sets NYSE Debut at $31 Per Share

What Challenges Did RH Face?

The U.S. housing market in Q1 2025 remained stagnant, with existing-home sales near 30-year lows due to affordability issues and a “lock-in effect” where homeowners with low mortgage rates avoided selling. Median home prices rose 3.8% year-over-year to $398,400, while mortgage rates hovered around 6.7%, curbing demand for luxury furnishings. Additionally, tariff uncertainties, including 25% duties on Chinese imports, disrupted supply chains, prompting RH to reduce its Q2 revenue outlook by 6 points.

How Did RH Boost Profitability?

Despite revenue of $814 million slightly missing forecasts by 0.6%, RH achieved an adjusted operating margin of 7% and an adjusted EBITDA margin of 13.1%, both at the high end of guidance. These margins, up from a low of 2.22% in late 2024, drove the $0.13 per share profit, surpassing expectations of a $0.07 loss. CEO Gary Friedman attributed the improvement to strategic investments in product offerings and operational efficiency, including a 30% membership discount to capture market share.

ALSO READ | Tesla Shares Plummet as Trump Targets Musk’s Government Contracts

What Role Did Supply Chain Strategies Play?

To counter tariffs, RH reduced its reliance on Chinese imports from 16% in Q1 to a projected 2% by year-end, shifting production to Vietnam at better-than-pre-tariff pricing and expanding its North Carolina factory for upholstered furniture. Warehouse automation and optimized tariff codes further lowered costs, enabling RH to maintain profitability despite a “chaotic” trade environment.

How Did International Expansion Contribute?

RH’s European push bolstered demand, with RH England’s gallery sales up 47% and online demand up 44% in Q1. New galleries in Munich and Dusseldorf saw 60% demand growth, signaling strong potential. Friedman noted that a rural English gallery generating $46 million annually suggests significant upside for urban locations like London’s Mayfair, supporting RH’s 10-13% full-year revenue growth forecast.

Did you know?
RH’s Q1 2025 profit of $0.13 per share defied a housing market slump, driven by shifting production to Vietnam and North Carolina to dodge 25% tariffs.

Why Delay New Initiatives?

RH postponed a new concept launch from late 2025 to spring 2026, citing tariff uncertainty. This cautious approach, combined with maintaining its full-year guidance, reassured investors of management’s confidence in recovering Q2 revenue losses later in 2025. The company also generated $34 million in free cash flow, reinforcing its financial stability.

What Lies Ahead for RH?

RH’s ability to sustain margins hinges on continued supply chain agility and housing market recovery. With inventory levels up 33% from 2024 and new home sales showing resilience, there are signs of improvement, but high prices and rates remain hurdles. RH’s focus on premium branding and global growth positions it to capitalize on any upturn, though tariff risks linger.