RH Stock Falls as Tariff Uncertainty Hits Earnings Outlook. What to Know.

Home furnishings retailer RH said it has “continued to shift sourcing out of China.” (Jason Kempin/Getty Images for RH)

Key Points

About This Summary

• RH shares fell after the retailer slashed its full-year guidance, citing higher tariff-related costs and inflation risks.
• The revised outlook reflects an anticipated $30 million in incremental tariff costs during the second half of the year.
• Jefferies analysts lowered their price target on RH shares, citing unclear headwinds despite inventory optimization efforts.

Restoration Hardware, or RH, stock fell Friday as the home furnishings retailer slashed its full-year guidance amid higher tariff-related costs and the risk of inflation.

The lower outlook reflects a $30 million cost of incremental tariffs in the second half of the year, RH said, which analysts see pressuring margins next year.

President Donald Trump announced in August that he’s launching an investigation into furniture tariffs to bring back manufacturing to the U.S.

“Most in our industry hope that this investigation surfaces the difficulty of that task, as current manufacturing for high quality wood or metal furniture does not exist at scale in America,” CEO Gary Friedman wrote in a letter to shareholders. “It would require years of investments in building the facilities and work force that most in this industry cannot afford to make.”

Much of the furniture RH sells in the U.S. is manufactured in China and Vietnam, which are at risk of high levies. The company said it has “continued to shift sourcing out of China” and said a “meaningful proportion” of tariffs would be absorbed by its vendor partners.

Cristina Fernández at Telsey Advisory Group downgraded RH to Market Perform from Outperform following the lower guidance, also lowering the target price on shares to $220 from $255.

“While we remain positive on RH’s product transformation, revenue contribution from international stores, and the new brand extension planned for 2025 focused on classic styles, we are concerned about the impact on profitability from incremental tariffs and ongoing investment spending to scale the international business given gallery openings in the key cities of London and Milan in 2026,” Fernández said.

Jefferies analysts led by Jonathan Matuszewski cut their price target on RH shares to $205 from $209 following the earnings report, reiterating a Hold rating. Matuszewski expects the stock to stay around the same level for now because it’s still unclear how big the challenges are, although better inventory management might help reduce some of the negative effects.

The stock was down 2.6% to $222.36 in early trading Friday, after having dropped as much as 10% in the premarket. Coming into the trading session, shares had already lost 42% so far this year.

RH now sees revenue growth between 9% and 11% in fiscal 2025, down from previous guidance of 10% to 13%. It sees its adjusted operating margin between 13% and 14%, down from an earlier call of between 14% and 15%.

It marks a shift from June when RH stuck to its financial guidance despite grappling with the risk to its business as a result of tariffs and what Friedman described as “the worst housing market in almost 50 years.”

The guidance cut also came as second-quarter results missed Wall Street’s expectations. Adjusted earnings were $2.93 a share on revenue of $899 million, below analysts’ expectations of $3.21 a share on revenue of $905 million, according to FactSet.

Write to Elsa Ohlen at elsa.ohlen@barrons.com