The ever-optimistic and strikingly transparent RH CEO Gary Friedman and his company took a shellacking on Wall Street recently. During the latest earnings call just an hour after President Trump’s reciprocal tariff announcement, he was overheard to say “Oh S**t!” as RH stock tanked in after-hours trading. 

RH ended the week with its stock price down nearly 40% and Friedman lost his coveted position on Forbes Billionaire list, plunging from an estimated net worth of $1.2 billion to $750 million. 

Despite positive earnings results, though the company didn’t meet Wall Street’s expectations, the impact of tariffs weighed heavily on investors’ minds, as did cash flow. Friedman didn’t have answers that satisfied, so a few days later, the company issued a clarifying statement to reassure investors that tariffs won’t slow RH down, rather work in its favor against its competitive set.

In a research note, TD Cowen wrote there’s a “lot to unpack” in RH earnings. It reaffirmed RH’s position as the leader in the industry, but said it had concerns about future growth with revenue growth slowing. RH’s clarification memo was intended to address those concerns, but first, here’s a topline on the company’s latest report. 

Falling Confidence

RH was expecting some pushback after the earnings call, but nothing like it got. Net revenues in fiscal 2024, ending Feb. 1, 2025, advanced 5% to $3.2 billion and rose 10% to $812 million in the fourth quarter with Cowen reporting “softer 4Q results vs. expectations.”  

Yet, RH hit its guidance marks on a comparable 13-week and 52-week basis – fiscal 2023 had an extra week. The company predicted comparable fiscal 2024 fourth-quarter revenue growth from 18% to 20% and to end the yearwith an increase between 6.8% and 8.2%. Fourth quarter came in up 18% in comparable net revenues with the year-end up 6.8%. The extra week in fiscal 2023 added $50 million in revenues, the company reported to me. 

End of year net income disappointed too. While net income rose 22% in the quarter to $13.9 million, RH annual net income dropped 43% to $72.4 million.

Stressing that that housing market is still under pressure with mortgage rates spiking mid-December and mortgage applications falling, Friedman said the company is “performing at a level most would expect in a robust housing market“ and emphasized RH is “outperforming other home furnishings businesses by a wide margin.”

Yet guidance was subdued. First quarter is projected to grow in the 10% to 13% range to end the year up between 12.5% to 13.5%. This despite planned openings of seven Design Galleries, two Outdoor Galleries with one slated for the East Hamptons this summer and two more expansive New Concept Galleries, including one in the former Ralph Lauren building in Greenwich, CT. 

And while its Paris opening is still scheduled for 2025, London will be delayed until 2026 with Italy opening the same year. 

Reiterating Tariff Advantages

Regarding the tariff question, Friedman stated in the earnings call, “We do not expect a negative impact to results related to previously announced increased tariffs on products from China, Canada or Mexico.” 

He also added that the company has doubled its North Carolina factory’s capacity to produce upholstered furniture, projecting that about 48% will be produced there, bringing a total of 14% of its overall business to U.S. production by the end of the year. 

In the earnings call, he emphasized that virtually every competitor of any scale in the home space is heavily reliant on Asia for manufacturing. However, he also noted that RH has been strategically moving production out of China to Vietnam, Indonesia, Cambodia and other Asian countries and it is holding between $200 and $300 million in pre-tariff inventory that puts it at  competitive advantage.

During the call, he expressed support of the Trump administration’s tariff moves. “We’ve never seen an administration and a leader like Trump. I mean, it’s impressive, quite frankly,” he said. “There may be pain for the next 12 months to 18 months or 24 months — but I think the second half of this administration’s tenure could be a booming American economy.”

This candid support must have caught many off guard, as he referenced what’s happening to Tesla twice on the call. Yet, in the clarification statement after the earnings call, he had an I-told-you so moment.

“RH believes President Trump is using the significant tariffs as a tool to accelerate negotiations with an intent to improve and balance trade conditions around the world,” it stated and added, “The Company believes this appears to be working.”

This was a reference to the President’s Truth Social post about a call from Vietnam earlier in the day that said it wants an agreement to reduce tariffs to zero. If such an agreement is secured, the company’s sourcing in Vietnam will be “accretive to margins.”

2025 Demand Remains Strong

The company also used the clarification note to emphasize that demand growth remains strong through the first part of the year. In the earnings call, Friedman reported that after demand softened in mid-December, it came back to 19% growth in January through the Feb. 1 end of quarter for its RH Brand, specifically RH Interiors, RH Modern, RH Contemporary and RH Outdoor.

He also reminded investors the company planned to only report demand over last year and would not continue reporting it this year, due to the “product transformation and the dislocation between demand and revenues.”

However, because of the market’s extreme volatility, the company has reversed course and will continue to report demand on a quarter-by-quarter basis. Through the first two months of the quarter, overall demand is up 17% and the RH Brand demand has improved 20%. 

Cash Flow Questions

The company’s steep decline in cash flow over fiscal 2024 was another sticking point during earnings. It dropped from $123.7 million previous year to $30.4 million. Friedman reassured investors, “The cash flow is going to be strong this year,” and added “We’ve got real estate assets we can turn into cash.”

But that didn’t stifle concerns, so the clarification memo provided a free-cash-flow outlook for fiscal 2025 in the range between $250 million and $350 million. 

Reiterating RH Positives

In the updated announcement, RH stressed no major furniture or outdoor furniture retailer has “any material sourcing advantages based on the current announcements,” and pointed out it is more transparent than other public furniture retailers in reporting the countries it sources product from.

The company believes its transparency will work to its advantage with investors going forward, as it becomes clear that “RH does not have any more market or financial risk than other higher end furniture based retailers.”

RH Performs Best Under Pressure

While Friday’s clarification announcement was in good corporate speak without Friedman’s lyrical touches, he had plenty of those to share during the earnings call. 

“It is not the critic who counts; not the man or woman who points out how the strong man stumbles or the doer of deeds could have done better,” he said, quoting President Theodore Roosevelt. “The credit belongs to the man or woman who is actually in the arena. Whose face is marred by dust and sweat and blood.”

Friedman and RH may have come out of last week bloodied and bruised, but he affirmed the company does best when it is under pressure. 

“We have a history of really performing in times of crisis and thriving in those times and have the ability to improvise, adapt, and overcome,” he shared in the earnings call. “At our core, we are innovators. We’re not duplicators. We’re leaders. We’re not managers. We’re visionaries and we’re not victims. 

“So whether it’s like a confused or conflicted consumer environment because of high interest rates or new tariffs or trade wars or military wars. I mean there’s always something — so  look, we feel confident no matter what the environment looks like,” he concluded.