Q4 2025 Earnings Summary
- RH is well-positioned with a strong inventory at favorable pricing, allowing the company to navigate tariff challenges better than competitors. Gary Friedman stated, "For the first time in my career, extra inventory is my friend." This positions RH to mitigate potential cost increases due to tariffs, while competitors may face higher costs.
- RH's management demonstrates confidence and strategic agility in navigating macroeconomic uncertainties and supply chain challenges. Gary Friedman emphasized their ability to "improvise, adapt and overcome" and expressed that they are at their best in times of crisis, aiming to "outthink, outsmart, out-create, and out-innovate others."
- RH's scale and platform provide a cost advantage over competitors, and their initiatives to increase U.S. manufacturing can reduce tariff exposure and improve customer experience. The company projects that 48% of their upholstered furniture will be produced in the U.S. by the end of this year, enhancing supply chain resilience and delivery capabilities.
- Increased uncertainty due to new tariffs affecting RH's supply chain and potential cost pressures: The CEO, Gary Friedman, expressed concern over the unexpected new tariffs imposed on countries like Vietnam and Indonesia, where RH sources many of its products. This requires rethinking their sourcing strategy and creates uncertainty about future costs.
- RH is no longer providing demand guidance, and margins have been pressured: The company has stopped providing demand guidance starting this year, indicating uncertainty about future sales. Additionally, margins came in below expectations in Q4, and the CFO did not provide specific details on the reasons for margin pressure.
- Weakness in the housing market and decreased member count could impact future performance: Gary Friedman noted they are operating in the worst housing market in 50 years, which negatively affects sales. Furthermore, member count was down compared to the prior year, indicating potential weakening customer engagement.
| Metric | YoY Change | Reason |
|---|---|---|
Net Revenues | +10% (from $738.260M in Q4 2024 to $812.406M in Q4 2025) | The increase reflects the successful product transformation, including new collections that built on prior strategic efforts to drive demand. This improved revenue generation follows earlier periods where such initiatives were only beginning to impact sales. |
Income from Operations | +9% (from $64.255M in Q4 2024 to $70.329M in Q4 2025) | Improved operating income is driven by better cost management and enhanced operational efficiencies that have mitigated earlier margin pressures from product transformation costs. This marks a recovery from challenges seen in the prior period. |
Net Income | +22% (from $11.381M in Q4 2024 to $13.917M in Q4 2025) | The robust 22% increase in net income indicates a strong recovery in profitability, resulting from higher revenues and improved operating margins as strategic initiatives began to yield benefits, overcoming the lower margins of earlier periods. |
Total Assets | +10% (from $4,143.897M in Q4 2024 to $4,554.689M in Q4 2025) | Total assets grew due to further investments in property, equipment, and expansion initiatives, building on capital expenditures from previous periods that laid the groundwork for growth. |
Merchandise Inventories | +35% (from $754.126M in Q4 2024 to $1,019.591M in Q4 2025) | The significant buildup in inventories indicates a strategic stock increase aimed at meeting anticipated higher demand, contrasting with the leaner inventory levels of Q4 2024 and reflecting renewed confidence in future sales. |
Cash and Cash Equivalents | -75% (from $123.688M in Q4 2024 to $30.413M in Q4 2025) | The dramatic decline in liquidity is primarily due to increased capital expenditures and higher inventory investments, which consumed available cash compared to the previous period, even as revenue and margins improved. |
Stockholders’ Deficit | Improved (narrowed from –$297.394M in Q4 2024 to –$163.589M in Q4 2025) | The considerable narrowing of the deficit reflects improved net income and stronger capital management, reversing previous negative equity trends that were influenced by lower profitability and more aggressive expense recognition. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue growth | FY 2025 | 6.8% to 7.2% | 10% to 13% | raised |
Adjusted operating margin | FY 2025 | 11.5% to 11.7% | 14% to 15% | raised |
Adjusted EBITDA margin | FY 2025 | 17.2% to 17.4% | 20% to 21% | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q4 2025 | 18% to 20% | ~10% YOY (from US$738,260In Q4 2024 to US$812,406In Q4 2025) | Missed |
Operating Margin (approx. GAAP) | Q4 2025 | 12.2% to 13.2% | ~8.66% (US$70,329 ÷ US$812,406; Q4 2025 Income from Operations ÷ Net Revenues) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Product Transformation and Innovation | Q1–Q3 calls detailed a massive transformation with new sourcebooks, clearance challenges, an 80% new product mix, and a “development supercycle” driving market share gains. | Q4 emphasizes strong demand growth (21% up), continued innovation with a new brand extension and strategic inventory optimization, reinforcing transformation as a key growth engine. | Consistent focus with refined execution and an increasingly optimistic tone on growth. |
Domestic and International Expansion | Q1–Q3 stressed opening design galleries, flagship international stores (Brussels, Madrid, RH England, Paris, London) and leveraging immersive physical experiences to build the brand. | Q4 lays out aggressive domestic expansion (7 design galleries, 2 outdoor and 2 new concept galleries) and detailed international plans with careful messaging to counter geopolitical backlash. | Recurring emphasis with scaling of initiatives and more detailed strategic planning; sentiment remains positive domestically while cautiously addressing international risks. |
Supply Chain Management, Inventory, and U.S. Manufacturing Strategy | In Q2, inventory was described as an “insurance policy” amid inefficiencies; Q3 discussed proactive sourcing adjustments (exiting China, shifting from Mexico). | Q4 presents a more detailed strategy addressing tariffs, re-architecting the supply chain, using excess inventory strategically, and moving nearly half of upholstered furniture sourcing to the U.S.. | Increasing focus and proactive measures, indicating a strategic evolution in managing supply chain challenges. |
Emerging Tariff Challenges and Sourcing Adjustments | Not mentioned in Q1–Q2; Q3 briefly noted sourcing adjustments and exiting China to mitigate tariff impact. | Q4 provides a detailed discussion of tariff impacts (with specific percentages), strategic responses using inventory advantages, and diversification including increased U.S. sourcing. | A newer, more detailed focus in Q4 that signals heightened attention to managing tariff risks. |
Margin Pressure and Profitability Concerns | Q1 highlighted challenges from the weak housing market and clearance-driven markdowns with stable gross margins; Q2 and Q3 noted positive product margin inflections despite investment and supply chain pressures. | Q4 reports lighter-than-expected operating margins, with strong product margins and careful cost management (tariff mitigation and strategic investments) balancing short-term drags. | A recurring concern with consistent long-term optimism despite temporary pressures and strategic investments. |
Macroeconomic Uncertainty and Weak Housing Market | Q1 described the worst housing market in 30 years with prolonged uncertainty; Q2 and Q3 acknowledged a depressed housing market yet noted positive demand trends and market share gains. | Q4 reiterates operating in a historically weak housing market (50-year low) with ongoing macroeconomic uncertainty, yet strong performance driven by transformative investments and adaptive strategies. | A persistent headwind managed through strategic investments, with a cautiously optimistic tone despite enduring market weakness. |
Execution Risks in New Initiatives and Capital Projects | Q1 mentioned delays in the Aspen ecosystem and product launch adjustments; Q2 discussed the inherent complexities (timing, real estate, reallocation challenges) in executing large-scale initiatives; Q3 implied risks amid extensive investments. | Q4 does not explicitly name “execution risks” but refers to challenges in complex projects (e.g. delays and integration issues with the London store). | Consistent challenges in executing complex initiatives, with cautious sentiment about managing delays and integration complexities. |
Evolving Demand Guidance and Declining Customer Engagement | Q1–Q3 focused on robust demand trends with positive growth figures (3%–30% increases) and emphasized new product introductions; customer engagement was not a major focus. | Q4 reveals a shift by discontinuing explicit demand guidance in favor of revenue guidance and notes a slight year‐over‐year decline in member count, even as demand remains strong (21%, stabilizing at 19%). | While demand remains robust, there is a new emphasis on refining guidance and addressing modest declines in customer engagement. |
Deferred Capital Investment and Free Cash Flow Narrative | Q1–Q2 did not discuss this topic; Q3 introduced expectations for turning free cash flow positive in 2026 amidst a heavy investment cycle. | Q4 shifts the narrative by emphasizing deferred capital investments as a strategic delay to manage market uncertainty and inventory, with an optimistic outlook toward positive free cash flow in 2025. | An emerging focus that has evolved from minimal discussion to a more prominent, cautiously optimistic strategy for improving cash flow. |
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Tariffs Impact on Business
Q: How will tariffs affect your business and guidance?
A: We believe it's not time to overreact to tariffs ( ). Our guidance includes what we knew before today, and we think it's on the conservative side ( ). We have significant inventory at good pricing, so we feel well-positioned ( ). -
Supply Chain and Sourcing Strategy
Q: Will you adjust sourcing or pricing due to higher costs?
A: We'll consider all options: adjusting prices, negotiating with vendors, and moving sourcing ( ). No one can escape these tariffs, but our inventory position gives us an advantage ( ). We'll optimize through efficiencies and leveraging vendor relationships ( ). -
Financial Position and Capital Needs
Q: Do you need to raise capital or use assets amid tariffs?
A: We don't need to raise capital; we're in good shape with strong cash flow expected this year ( ). We have real estate assets we can monetize; for example, we sold a building in Aspen purchased for $10.5 million for $27 million ( ). -
Guidance and Margins
Q: Should we expect guidance at lower end due to tariffs?
A: I wouldn't go below the guidance we've given today ( ). We're confident in our ability to navigate these changes without adjusting our guidance significantly ( ). -
Inventory Levels
Q: How is your inventory position beneficial now?
A: Extra inventory is our friend ( ). We have significant inventory at good prices, which positions us well compared to competitors who may face higher costs due to tariffs ( ). -
Cost Structure and Margins
Q: How are margins and costs expected to trend?
A: Product margins are still up year-over-year ( ). Some expenses came in higher than expected, but our guidance speaks for itself at the operating income level ( ). -
Clearance Activity
Q: What is the outlook for clearance activity?
A: In bad housing markets, you'll see more clearance, including from us ( ). Clearance activity is related to the economy and the amount of new products we're introducing ( ). -
Demand Trends and Guidance
Q: Can you provide color on current demand trends?
A: We're no longer giving demand guidance going forward ( ). We'll provide revenue guidance, generally in line with demand ( ). -
International Expansion
Q: Any risks to international openings amid tariffs?
A: We don't foresee significant impact on our international plans ( ). There may be some backlash, but we're proceeding with our expansion ( ). -
Advertising Costs
Q: How will advertising costs affect margins?
A: In Q1, we mailed two books, leading to higher advertising expenses than a year ago ( ). Quarter-to-quarter variability is often driven by ad costs ( ).
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