Luxury furniture retailer RH (NYSE: RH) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 12% year on year to $814 million. Next quarter’s revenue guidance of $904.3 million underwhelmed, coming in 0.7% below analysts’ estimates. Its non-GAAP profit of $0.13 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

RH’s first quarter results reflected the impact of ongoing macroeconomic headwinds and management’s continued focus on brand elevation and market share gains. CEO Gary Friedman highlighted that, despite operating in what he described as “the worst housing market in almost fifty years,” RH delivered double-digit sales growth, driven by investments in new product collections, immersive gallery experiences, and the company’s ability to capture demand in key global markets. Notably, management pointed to strong performance in its European galleries, particularly RH England, where demand trends surpassed internal benchmarks. Friedman acknowledged the strategic decision to pursue aggressive market share during a downturn, emphasizing, “We are performing at a level most would expect in a robust housing market.”

Looking ahead, RH’s guidance reflects both optimism about international expansion and caution around near-term volatility tied to tariffs and macroeconomic uncertainty. Management expects the opening of flagship galleries in Paris, London, and Milan to serve as significant growth catalysts, with Friedman stating that these locations present “a multibillion-dollar opportunity” for the brand. However, leadership noted that the recent introduction of new tariffs and associated supply chain disruptions have prompted a temporary delay in key product launches and are expected to impact revenue timing for the next quarter. CFO Jack Preston indicated that, while the company maintains its full-year margin targets, elevated investment in international markets and ongoing tariff negotiations may create further earnings variability through the remainder of the year.

Key Insights from Management’s Remarks

Management attributed quarterly performance to a mix of strong demand in Europe, ongoing product transformation, and tactical responses to trade disruptions, while emphasizing strategic flexibility amid external volatility.

• European momentum: RH’s galleries in England, Munich, and Dusseldorf saw notable demand growth, with RH England’s gallery and online channels up 47% and 44% respectively. Success in these markets encouraged confidence in the brand’s disruptive potential across Europe as new flagship locations prepare to open.

• Product transformation: Management highlighted the rollout of 18 new collections—including a new Japandi design aesthetic blending Japanese and Scandinavian influences—and ongoing efforts to elevate the product assortment. These initiatives are designed to differentiate RH from competitors and support margin resilience.

• Membership discount strategy: In response to heightened industry promotions and a compressed outdoor selling season, RH increased its membership discount from 25% to 30%, and briefly to 35% for select outdoor products. Management described this as a strategic, long-term move to capture market share, rather than a temporary measure.

• Tariff mitigation efforts: The company accelerated its shift away from Chinese sourcing, aiming to reduce receipts from China to just 2% by year-end. RH also increased U.S. and Italian production for key upholstery lines, seeking to offset uncertainty from evolving trade policies.

• Capital allocation and real estate flexibility: RH continues to hold significant real estate assets, with plans to monetize properties opportunistically. Management cited a portfolio of owned and joint-venture galleries, particularly in Aspen and major U.S. markets, providing both liquidity options and strategic growth opportunities.

Drivers of Future Performance

RH’s outlook is shaped by the pace of international expansion, margin management through product and sourcing shifts, and the evolving tariff landscape.

• International gallery expansion: Management expects the upcoming openings of flagship locations in Paris, London, and Milan to meaningfully expand RH’s global reach. These galleries are positioned in high-visibility, luxury retail districts and are anticipated to drive substantial brand awareness and sales growth, although initial investments will weigh on operating margins in the near term.

• Margin resilience and discounting strategy: Despite increasing its membership discount, RH believes its elevated product mix and operational efficiencies will support full-year non-GAAP margin targets. Management noted that margin improvement is expected as product assortment optimizes and as European galleries scale, but acknowledged ongoing promotional intensity and macro volatility as risks.

• Tariff and supply chain adjustments: The company continues to shift sourcing out of China and work closely with vendor partners to absorb tariff costs. Management warned of near-term revenue timing disruptions and supply chain unpredictability, but expressed confidence that these challenges are being addressed through diversified sourcing and inventory management.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will focus on (1) the pace and performance of new flagship gallery openings in Europe, (2) how RH manages product margins and inventory in the face of elevated promotions and tariffs, and (3) whether the shift in membership discount strategy drives meaningful incremental demand without eroding brand positioning. Progress on monetizing real estate assets and supply chain diversification will also be important indicators.

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