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RH Stock Slides 23% in 3 Months: Should You Buy the Dip or Wait?
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Key Takeaways
RH's fiscal 2025 EPS estimate rose to $10.87, signaling 101.7% year-over-year growth.
Europe demand surged 60% at RH Munich and Dusseldorf, with new galleries set to open globally.
Tariffs and U.S. housing softness pressured margins, but sourcing shifts and platform growth support recovery.
RH (RH - Free Report) , previously known as Restoration Hardware, is a luxury retailer in the home furnishing space, whose share price performance has dropped 23.2% in the past three months compared with the Hoya Capital Housing ETF (HOMZ) index’s 4.9% decline. HOMZ is an exchange-traded fund that offers a diversified glimpse of the U.S. residential housing industry through 100 companies across homebuilding, rental operators, home improvement, furnishings, mortgage services and real estate tech, to name a few.
Image Source: Zacks Investment Research
This California-based company’s prospects are currently ailing from the ongoing softness in the country’s housing market. RH’s business is directly related to housing demand patterns, as softness in housing demand weakens renovation and home furnishing demand, especially in luxury. Moreover, the ambiguity surrounding the implementation of tariffs is adding to its concerns, alongside the increasing expense structure due to its ongoing brand expansion and elevation strategies.
RH has been trailing behind the other renowned market players, including Williams-Sonoma, Inc. (WSM - Free Report) , Ethan Allen Interiors Inc. (ETD - Free Report) and Arhaus, Inc. (ARHS - Free Report) , during the past three months when considering the share price performance. Even though Williams-Sonoma, Ethan Allen and Arhaus are standing above RH, their share price performance has also tumbled 3.4%, 1.7% and 9.2%, respectively, during the said time frame.
However, on the brighter side, the long-term prospects of RH seem appealing thanks to the strategic investments it is undergoing across its brand portfolio. The company is realizing incremental benefits from its global expansion efforts, apart from its product transformation and platform enhancement activities. Also, its recent sourcing shift strategies to minimize tariff impacts highlight prosperous long-term visibility.
What is Driving RH’s Growth Momentum?
Favorable Global Trends: RH has been witnessing robust demand trends in the global market, especially in Europe. Across Europe, the market remained robust during the first quarter of fiscal 2025, with demand growing 60% across RH Munich and RH Dusseldorf. Besides, the company continues to witness demand acceleration in its noncomparable galleries, RH Brussels and RH Madrid. Amid all the uncertainties, RH believes that its luxury brand positioning and unique aesthetics have emanated a strong international appeal and, in the pursuit of global expansion, will provide it with a substantial opportunity to build brand image over time.
Currently, RH is optimistic about its opening in Paris, with the gallery on the Champs Élysées, which is expected to open in September 2025, alongside another two openings in London and Milan in 2026. After the robust trends witnessed across its European business, RH expects to continue making meaningful investments in this market to boost further growth and profitability. In the upcoming years, RH expects to open RH Sydney, The Gallery in Double Bay, in Australia.
Strategic Resourcing Efforts: With the ongoing tariff-related risks lingering in the market, RH is positioning itself to weather the storm when it arrives. The company recently highlighted that it is currently focusing on shifting its sourcing out of China with the expectation of receipts reducing from 16% in the first quarter of fiscal 2025 to 2% in the fourth quarter of the same year. Besides, the company has successfully resourced a significant portion of its upholstered furniture to its North Carolina factory. By the end of 2025, it projects 52% of its upholstered furniture to be produced in the United States and 21% in Italy.
Product & Platform Enhancement Strategies: RH has been emphasizing several strategic initiatives to evolve from a home furnishings retailer to a luxury lifestyle brand over time. The initiatives include its focus on production elevation or transformation and retail platform expansion. It aims to continue elevating its products' design and quality while opening large, immersive Design Galleries, which blur the line between retail and hospitality.
Recently, RH highlighted the launch of its 2025 RH Outdoor Sourcebook, the new RH Interior Sourcebook and the RH Modern Sourcebook, which offer collections including furniture, textiles, lighting, rugs and much more. The company remains optimistic about the introduction of its new design aesthetic, Japandi, that amalgamates the essence of Japanese serenity and Scandinavian simplicity.
Already into 2025, for the remainder of the year, RH expects to open seven Design galleries at locations including RH Montreal, RH Paris, RH Detroit, RH Manhasset, RH San Diego and RH Palm Desert. In June 2025, RH opened its freestanding RH outdoor gallery, expanding its brand presence in East Hampton. In the long term, the company’s platform expansion plans include opening seven to nine new galleries annually, with two to three Design Studios or Outdoor galleries, or new concept galleries per year.
Earnings Estimate Revision of RH
RH’s earnings estimates for fiscal 2025 have trended upward in the past 30 days to $10.87 per share, which indicates robust 101.7% year-over-year growth. The analysts’ sentiments remain bullish for the year, backed by the in-house strategies RH is pulling off to counter the market risks.
EPS Trend
Image Source: Zacks Investment Research
However, even with the earnings estimates for fiscal 2026 having moved down in the past 30 days to $14.77 per share, the estimated figure indicates 35.9% year-over-year growth.
RH’s Valuation Trend
RH stock is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 15.04X. This is compared with the forward 12-month P/E ratios of 18.23X, 10.64X, and 19.22X at which Williams-Sonoma, Ethan Allen and Arhaus are currently trading. The discounted valuation of the stock, compared with two of the other market players, looks promising for investors.
Headwinds Hindering Prospects
The housing market directly influences the revenue visibility and profitability of RH, as they are directly related to each other. With the current housing market softness in the United States, the benefits from the domestic market seem depressed for the company. As homebuyers are navigating through affordability concerns, new home sales remain suppressed, with renovation activities being on the dimmer side due to the inflationary pressures.
During the earnings call of the first quarter of fiscal 2025, RH highlighted the adverse impacts it faced due to the significant and unexpected Liberation Day tariffs announced on April 2, 2025. It believes that this sudden surge will hurt its second quarter of fiscal 2025 revenues by six percentage points, accompanied by ripple effects into order fulfillment and shipping.
Furthermore, even though the ongoing in-house strategies are elevating RH’s prospects, it is hitting hard on its expense structure. During the first quarter of fiscal 2025, the selling, general & administrative expenses (as a percentage of total net revenues) expanded 80 bps year over year to 36.8%, mainly due to elevated advertising costs related to the circulation of the Spring 2025 RH Interiors Sourcebook. Furthermore, during the quarter, the company witnessed an increase in other product costs, which partially impacted the margins. The chart below shows the SG&A expense trend in the past year.
Image Source: Zacks Investment Research
Investment Thoughts
As discussed above, RH is undergoing strategic efforts to weather the market uncertainties in the form of tariff-related risks, inflationary pressures and housing market softness. Given the nature of its business, RH is grappling with the current softness in the U.S. housing market.
However, its product elevation and platform expansion strategies, alongside robust trends across the European market, are boding well for its prospects. Although in the short term, RH is expected to witness a slight setback, in the long term, the growth trends remain bright, as witnessed from the earnings expectation trend.
Before taking any decisions regarding RH stock, investors must weigh both sides of the market currently. Thus, based on the discussion, it is prudent for existing investors to retain this Zacks Rank #3 (Hold) company’s shares for now, whereas new investors might want to wait for a more favorable entry point.
Image: Bigstock
RH Stock Slides 23% in 3 Months: Should You Buy the Dip or Wait?
Key Takeaways
RH (RH - Free Report) , previously known as Restoration Hardware, is a luxury retailer in the home furnishing space, whose share price performance has dropped 23.2% in the past three months compared with the Hoya Capital Housing ETF (HOMZ) index’s 4.9% decline. HOMZ is an exchange-traded fund that offers a diversified glimpse of the U.S. residential housing industry through 100 companies across homebuilding, rental operators, home improvement, furnishings, mortgage services and real estate tech, to name a few.
Image Source: Zacks Investment Research
This California-based company’s prospects are currently ailing from the ongoing softness in the country’s housing market. RH’s business is directly related to housing demand patterns, as softness in housing demand weakens renovation and home furnishing demand, especially in luxury. Moreover, the ambiguity surrounding the implementation of tariffs is adding to its concerns, alongside the increasing expense structure due to its ongoing brand expansion and elevation strategies.
RH has been trailing behind the other renowned market players, including Williams-Sonoma, Inc. (WSM - Free Report) , Ethan Allen Interiors Inc. (ETD - Free Report) and Arhaus, Inc. (ARHS - Free Report) , during the past three months when considering the share price performance. Even though Williams-Sonoma, Ethan Allen and Arhaus are standing above RH, their share price performance has also tumbled 3.4%, 1.7% and 9.2%, respectively, during the said time frame.
However, on the brighter side, the long-term prospects of RH seem appealing thanks to the strategic investments it is undergoing across its brand portfolio. The company is realizing incremental benefits from its global expansion efforts, apart from its product transformation and platform enhancement activities. Also, its recent sourcing shift strategies to minimize tariff impacts highlight prosperous long-term visibility.
What is Driving RH’s Growth Momentum?
Favorable Global Trends: RH has been witnessing robust demand trends in the global market, especially in Europe. Across Europe, the market remained robust during the first quarter of fiscal 2025, with demand growing 60% across RH Munich and RH Dusseldorf. Besides, the company continues to witness demand acceleration in its noncomparable galleries, RH Brussels and RH Madrid. Amid all the uncertainties, RH believes that its luxury brand positioning and unique aesthetics have emanated a strong international appeal and, in the pursuit of global expansion, will provide it with a substantial opportunity to build brand image over time.
Currently, RH is optimistic about its opening in Paris, with the gallery on the Champs Élysées, which is expected to open in September 2025, alongside another two openings in London and Milan in 2026. After the robust trends witnessed across its European business, RH expects to continue making meaningful investments in this market to boost further growth and profitability. In the upcoming years, RH expects to open RH Sydney, The Gallery in Double Bay, in Australia.
Strategic Resourcing Efforts: With the ongoing tariff-related risks lingering in the market, RH is positioning itself to weather the storm when it arrives. The company recently highlighted that it is currently focusing on shifting its sourcing out of China with the expectation of receipts reducing from 16% in the first quarter of fiscal 2025 to 2% in the fourth quarter of the same year. Besides, the company has successfully resourced a significant portion of its upholstered furniture to its North Carolina factory. By the end of 2025, it projects 52% of its upholstered furniture to be produced in the United States and 21% in Italy.
Product & Platform Enhancement Strategies: RH has been emphasizing several strategic initiatives to evolve from a home furnishings retailer to a luxury lifestyle brand over time. The initiatives include its focus on production elevation or transformation and retail platform expansion. It aims to continue elevating its products' design and quality while opening large, immersive Design Galleries, which blur the line between retail and hospitality.
Recently, RH highlighted the launch of its 2025 RH Outdoor Sourcebook, the new RH Interior Sourcebook and the RH Modern Sourcebook, which offer collections including furniture, textiles, lighting, rugs and much more. The company remains optimistic about the introduction of its new design aesthetic, Japandi, that amalgamates the essence of Japanese serenity and Scandinavian simplicity.
Already into 2025, for the remainder of the year, RH expects to open seven Design galleries at locations including RH Montreal, RH Paris, RH Detroit, RH Manhasset, RH San Diego and RH Palm Desert. In June 2025, RH opened its freestanding RH outdoor gallery, expanding its brand presence in East Hampton. In the long term, the company’s platform expansion plans include opening seven to nine new galleries annually, with two to three Design Studios or Outdoor galleries, or new concept galleries per year.
Earnings Estimate Revision of RH
RH’s earnings estimates for fiscal 2025 have trended upward in the past 30 days to $10.87 per share, which indicates robust 101.7% year-over-year growth. The analysts’ sentiments remain bullish for the year, backed by the in-house strategies RH is pulling off to counter the market risks.
EPS Trend
Image Source: Zacks Investment Research
However, even with the earnings estimates for fiscal 2026 having moved down in the past 30 days to $14.77 per share, the estimated figure indicates 35.9% year-over-year growth.
RH’s Valuation Trend
RH stock is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 15.04X. This is compared with the forward 12-month P/E ratios of 18.23X, 10.64X, and 19.22X at which Williams-Sonoma, Ethan Allen and Arhaus are currently trading. The discounted valuation of the stock, compared with two of the other market players, looks promising for investors.
Headwinds Hindering Prospects
The housing market directly influences the revenue visibility and profitability of RH, as they are directly related to each other. With the current housing market softness in the United States, the benefits from the domestic market seem depressed for the company. As homebuyers are navigating through affordability concerns, new home sales remain suppressed, with renovation activities being on the dimmer side due to the inflationary pressures.
During the earnings call of the first quarter of fiscal 2025, RH highlighted the adverse impacts it faced due to the significant and unexpected Liberation Day tariffs announced on April 2, 2025. It believes that this sudden surge will hurt its second quarter of fiscal 2025 revenues by six percentage points, accompanied by ripple effects into order fulfillment and shipping.
Furthermore, even though the ongoing in-house strategies are elevating RH’s prospects, it is hitting hard on its expense structure. During the first quarter of fiscal 2025, the selling, general & administrative expenses (as a percentage of total net revenues) expanded 80 bps year over year to 36.8%, mainly due to elevated advertising costs related to the circulation of the Spring 2025 RH Interiors Sourcebook. Furthermore, during the quarter, the company witnessed an increase in other product costs, which partially impacted the margins. The chart below shows the SG&A expense trend in the past year.
Image Source: Zacks Investment Research
Investment Thoughts
As discussed above, RH is undergoing strategic efforts to weather the market uncertainties in the form of tariff-related risks, inflationary pressures and housing market softness. Given the nature of its business, RH is grappling with the current softness in the U.S. housing market.
However, its product elevation and platform expansion strategies, alongside robust trends across the European market, are boding well for its prospects. Although in the short term, RH is expected to witness a slight setback, in the long term, the growth trends remain bright, as witnessed from the earnings expectation trend.
Before taking any decisions regarding RH stock, investors must weigh both sides of the market currently. Thus, based on the discussion, it is prudent for existing investors to retain this Zacks Rank #3 (Hold) company’s shares for now, whereas new investors might want to wait for a more favorable entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.