RH Earnings: Near-Term Profit Pressured by Industry Headwinds, but RH Invests for Long-Term Success

No-moat RH has been forthright about its headwinds in recent quarters: higher interest rates limiting home sales turnover, increased discounting from peers, and now delayed shipments because of geopolitical strife around the Red Sea. These factors led to a stunted fourth quarter, with sales of $738 million (down 4%) and an adjusted operating margin of 9.1%, down 750 basis points year over year. This is well below the roughly 15% the firm had implied, hindered by expense deleverage, markdowns, and higher investments. We think RH is operating on the offensive against a struggling industry, outperforming the furniture and home furnishing market that saw sales decline at an average of 10% over the past six months of RH’s fiscal year. Relative outperformance indicates share gains are accruing as a result of the firm’s investment to elevate the brand.