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RH reported 4Q25 and I wanted to provide some thoughts.
In contrast to past updates, I am toying with the idea of not summarizing the quarter and instead just moving to my opinion. (I just feel there are many sell-siders and even free online analysts who are writing up businesses now and many of you already read the press releases/ earnings transcripts anyway, so I rather not divert time to things that are easily replicated elsewhere.)
Business Commentary.
RH reported 4Q25 and revenue growth was 3.7% versus their 3Q guide of 7-8%. While they noted there was a $30mn miss from elevated backorders (furniture not delivered isn’t recorded as revenue) and a $10mn miss from weather, putting out guidance that gets missed has become a regular occurrence with RH.
While I never feel a need for a business to offer guidance (it is perfectly acceptable to not spend time in the exercise of trying to predict the future) however, if you are going to decide to give guidance, it should generally be accurate.
They are now guiding 1Q26 revenues to be down -2 to -4% with full year 2026 revenue growth of 4 to 8%. They expect a revenue growth inflection in 2027 and to reach $5.4 to $5.8 billion in revenues by 2030.
While I can appreciate just how negative macro has been for them, from inflation, high interest rates, a very soft housing market, multiple rounds of tariffs, and now war, I still don’t see how they can have confidence on the timeline of their revenue guidance. If anything, the past few years should have taught them how hard it is to predict even a few quarters out in this business.
This of course is the issue with all cyclical companies. When they look bad, they can always get worse, and even though an investor may know in a more benign economic environment the business will generate much more earnings, they can never have much confidence as to when that would be.
Despite management’s enthusiasm to turn a corner and get away from this “worst housing market in 40 years”, it doesn’t necessarily mean it will happen on the timeline they have put out. Which wouldn’t be a big issue if they weren’t sitting on $2.4bn of debt—that is was really creates the pressure.
They have put out an ambitious plan to generate $3bn in cumulative cash flows (including real estate asset sales of $500mn to become debt free by 2029. This is absolutely imperative for them. While cyclical businesses always have volatile stocks, the existential risk from the debt adds a whole new layer of pressure to make sure the business performs on a tight timeline.
To better understand just how much the macro environment has been impacting them, look at how 2025 and 2024 sales per square footage are basically the lowest they have been since 2016. Since 2020 square footage has increased 41%, while revenues are up just 21%. To some extent, their revenue growth understates how much the underlying business has struggled because of all of the growth investment that has been layered on top since (new galleries, international, restaurant openings, RH Guesthouse).
An investor can look at this data and find it to be either bullish or bearish. For some investors this is the latent operating leverage and growth opportunity in their model. In a better economic macro backdrop sales per square foot could increase to $2,400+, which would boost top line and operating margins.
You can also argue that it is a sign that the new galleries aren’t as efficient as RH had hoped and despite the bigger size, it is not translating to more sales. Pushing back against that narrative though is the simple fact that the rest of the furniture market hasn’t faired particularly well either over the past few years.
Arhaus revenue per showroom is $12.8mn in 2025, which is higher than 2021 of $10mn, but lower than their peak in 2022 of $15.1mn. It’s not the fairest comparison though comparing Arhaus revenue per showroom to RH’s sales per square foot given how much of that square footage growth was in new markets that they had zero presence in prior. I still think it supports the point though that RH is not alone in feeling pain as Arhaus’s revenue per store is 34% below their peak.
They are now guiding 2030 adjusted margins to 25-28%, which should translate to at least 20% operating margins, but probably closer to 22%. This of course would put them back near their peak operating margins they achieved in 2021 of 25%.
The question then of course is this 2030 guidance a new stable floor to build off of or just a sort of estimated peak of the cycle?
Unlike management, I know I can’t answer that. They have said in the past that 15% was a margin floor, for them to only blow through that a few quarters later saying that of course they couldn’t contemplate such an adverse housing market in that guidance.
In terms of the actual business though, while execution has been rocky at times like with RH Paris opening with a primarily English speaking staff (not how you win over Parisian locals), you can’t say that everything they are making doesn’t look beautiful. The model of using beautifully designed galleries, high end dining experiences, and interior designers to attract affluent customers still makes sense to me.
And Gary Friedman notes that the last few years had a lot more risk than the next few. I read this to mean that they have already completed a lot of the international gallery builds and are moving more towards making their existing footprint work, while focusing on debt paydown. Also, even if interest rates go back up another 25 to 75bps (as he notes) he doesn’t think it will have that big of an adverse impact at this point. However, if interest rates drop 100bps it could be a big positive. So, you could argue that there is much more room for things to go right than wrong for them.
Almost every RH update has noted how bad of a macro environment it is, as well as how much bad luck they have had with tariffs, but it is also worth noting that some businesses are just much more susceptible than others to exogenous shocks. A luxury retailer that sells high-ticket, durable, nonessential goods is almost as extreme as you can get in this regard. Constellation Software never has to mention interest rates impacting sales cycles and Meta never talks about housing cycles—there are just some industries that are much better to be in than others. And we all know what Buffett said about the reputation of great managers who encounter a bad industry…
For investors that value predictability, RH is not for them. On the other hand, you could argue that they are probably nearing or have already gone through the trough of this cycle, so the future is much more likely to look better than the past. But of course, there still are risks— for instance, prolonged elevated energy prices could kick off stagflation and RH would be among the worst positioned for that.
If they do hit the midpoint of their 2030 revenue target and achieve 20% operating margins, and investor put a very moderate 15x multiple on the business given the cyclicality, that is still a $13.4bn market cap. If they generate enough cash to pay off their debt by then, that would be a 4-bagger from their last day closing price of $140 per share ($2.6bn market cap). After hours the stock is down even more at $116 per share ($2.2bn market cap), which would make it closer to a 5-bagger if they achieved their guidance.
It is hard to put faith in them after they have missed so many outlooks and so soon after putting them out too. If an investor is willing to trust Gary Friedman and RH though, it is because they are willing to overlook the many flubs of the past 5 years and instead focus on the 2-decade vision of what Gary has built with RH. What is clear though is that the dispersion of outcomes for RH are quite wide.
For further reading, check out our RH Extensive Research Report here.
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*At the time of this writing, one or more contributors to this report has a position in RH. Furthermore, accounts one or more contributors advise on may also have a position in RH. This may change without notice.
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