Geoffrey Seiler, The Motley Fool

Mon, Jun 16, 2025, 9:05 AM5 min read

• RH turned in solid fiscal Q1 results and maintained its full-year guidance.

• The company is operating in a difficult home furnishings market, and tariffs have only added another headwind.

• However, the company is quickly moving some of its production, and its European expansion is seeing early signs of success.

• 10 stocks we like better than RH ›

RH (NYSE: RH) saw its shares surge after the luxury furniture company reported a surprise profit for the fiscal 2025 first quarter and indicated it was making progress moving more production out of China to mitigate tariff impacts. While some of the initial enthusiasm faded, the 7% gain RH posted on June 13 was still a much better day for the stock compared to the last time it reported quarterly results.

In early April, the company saw its shares plunge 40% following its fiscal 2024 year-end report, which coincided with President Donald Trump's "Liberation Day" tariff announcements. The company had already been dealing with a difficult home furnishings market, and new tariffs added another headwind.

The home furnishings industry saw a lot of demand pulled forward during the pandemic as homeowners focused on remodeling and decorating. Since then, higher interest rates have negatively impacted the remodeling market and led to less homebuying activity. Given that RH had been sourcing most of its furniture from Asia, a difficult environment just got tougher.

At the same time, the company is pushing forward with an aggressive European expansion. Instead of testing the waters, it's going big with elaborate showrooms in high-end, high-rent locations. It already has galleries in Aynho Park (England), Munich and Düsseldorf (Germany), Madrid (Spain), and Brussels (Belgium), with plans to open in Paris later this year and in London and Milan next year.

Despite the rally, the stock is still down more than 50% year to date. Let's dig into the company's recent results to see whether it's time to pick up shares while they're on sale.

Given the environment, RH turned in a solid Q1. Its quarterly revenue rose 12% year over year to $814 million. Adjusted earnings per share (EPS) came in at $0.13, well above the analyst consensus calling for a $0.09 loss (as compiled by LSEG).

Gross margin was solid, edging up 20 basis points to 43.7%, though SG&A (selling, general, and administrative) expenses rose 15% and represented 36.8% of sales, compared to 36.0% of sales a year ago.

Merchandise inventories climbed 26% to $1.0 billion. When inventory growth far outpaces revenue growth, it can often be a sign of trouble, but the figure was down slightly from the end of fiscal 2024. The company plans to sell off the $200 million to $300 million in excess inventory it's carrying to raise cash.